Tuesday, July 7, 2009

the promises and pitfalls of health care reform

The second of my two essays on health care (click here for part 1), published in newspapers across Indiana-- e.g, here, in the Jeff/NA News-Tribune...

What should we do with the incredibly important issue of health care? Will additional government involvement improve its availability, cost and quality? And which proposal is optimal? Since the Democrats control the national political process and favor increased government intervention, we’ll stick to analyzing those options.

Let’s start by noting that the proposed reforms largely assume rather than explain how they would increase efficiency. Part of this is reasonable and expected but still frightening: We don’t really know what we’ll get when we embrace grand changes in policy.

In addition, there is often a considerable gap between the theory and practice of government. Politicians often overestimate benefits and underestimate the costs of their policies.

Will special interest groups have more or less influence than under the status quo? In his movie "Sicko," Michael Moore expresses admiration for single-payer health-care systems in other countries. But it’s interesting that he is not at all optimistic about it working here, given the power of special interests in our democracy.

The current mix of government and markets in health care certainly has an amazing amount of inefficiency. But will bureaucracy and red tape be reduced or enhanced with more government?

It’s difficult to imagine much if any gain. Thus, extending health-care availability will probably involve higher costs or reduced access in other contexts (rationing).

Higher costs are possible, but congress and the president are limited by the recent, stunning increases in spending and debt by George Bush, Barack Obama and their congresses.

Considerable rationing is quite likely. It may be necessitated by cost constraints. And we’ve seen rationing with Medicare and in countries whose governments are heavily involved in health care. The first major uses of rationing would most likely be to restrict expensive “end-of-life” treatments and health care attached to unhealthy “lifestyle choices.”

Let’s get more specific now: One current proposal would outlaw all private health-care spending and cap public health-care spending and growth. But it’s difficult to imagine people giving up so much of their freedom. Although the explicit rationing is amazingly bold, it is politically difficult.

In 1994, the effort to regulate health care was centered on a mandate that businesses would provide health coverage for their workers. But this would make it more expensive for firms to hire workers, resulting in lower wages or fewer jobs.

Another option is the U.S. House proposal to mandate that individuals get health insurance, subsidizing those with lower incomes. (The current proposal would subsidize those who earn less than four times the “poverty” level — $43,200 for an individual and $88,200 for family of four.) This would resemble our current approach to auto insurance mandates. But given the subsidies, it would be quite expensive.

Barack Obama’s proposal is to subsidize public insurance that would “compete” with private insurance. By definition, subsidized insurance would undermine private insurance to some extent — somewhere between attracting people at the margin and entirely destroying the industry. It would depend on the extent of the subsidy.

Consider two examples. Public education is highly subsidized, so its private competition is marginal. The U.S. Post Office has been granted a monopoly and often receives direct subsidies, but it still faces rigorous competition because of technological advance.

Beyond the short-term policy decision, a public-private insurance market could be altered in the future through changes in the subsidy or regulations impacting private insurers. We have reason for concern here, since such subsidies and regulations can be quite subtle.

Economists are fond of the phrase “There’s no such thing as a free lunch.” Well, there’s no such thing as free health care either. All of these proposals are likely to increase costs, decrease overall access or both. In all of this, perhaps we should also keep a medical phrase in mind — from the Hippocratic Oath: “Above all, do no harm.”

One last thought: It’s interesting that we’ve become so fixated on a federal approach to this problem. Why not allow the 50 states to try 50 different experiments rather than betting everything on one grand, federal experiment that would be difficult if not impossible to reverse?

Can we really afford to take such a chance?

Click here for part 1...


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