Heathcare Reform

I’ve been having a great e-mail exchange with a college friend of mine over the healthcare debate. This post is going to be a collection of my thoughts on various plans and links other healthcare debaters have put out recently. An attempt to aggregate a large cross section of ideas in one place.

Liberals want government sponsored healthcare. Conservatives are worried about paying for it. Libertarian-types are worried about the growth of a single party and the growth of government in general.

Mythbusters: Mankiw tackles the healthcare numbers. Maya MacGuineas weighs in on the cost savings myth. Arnold Kling screams Free Lunch!. Mankiw on the healthcare- international-competitiveness-fallacy. Again. And again. Mankiw even cites Krugman! Ryan Avent disagrees with Mankiw. Ezra invokes Stein’s Law. Megan McArdle responds.

Nate Silver looks at the numbers and shows what effect lobbyists are having. David Leonhardt talks rationing. Russell Roberts responds to Leonhardt. I’ve discussed Leonhardt’s piece before.
My thoughts:

I’m inclined to believe that compensation levels are dictated by the labor market. Such compensation includes both wages and non-cash benefits like healthcare; an accounting identity. There exists a sort of stickiness to the labor market because we have wage contracts and union agreements etc. So if healthcare costs grow rapidly, workers are going to become expensive to employers relative to the benefits of having the employees. If they want to keep their jobs they’ll have to take pay-cuts or, at a minimum, accept not getting raises. If the government takes healthcare off the books of firms, it may make things simpler for the firms, but this new found “competitive advantage” will largely be eaten up by higher wages for workers the next time negotiations are made, either individually or collectively. I’ll conceed this adjustment is long-run in nature and the transference may not be dollar-for-dollar. Markets aren’t perfect, they’re just the best we have.

Does this new government solution solve the crushing growth of healthcare spending? I am deeply skeptical. The CBO scored the bill Congress is proposing. I do not trust our current Congress to reign in spending. They can reference comparative effectiveness research all they want. Politicians don’t know how to say no. Arnold Kling captures the dichotomy perfectly. For a lengthier explanation by Kling and Roberts, listen to this podcast. Or read Arnold’s book.

If the Obama Administration gets healthcare in the public budget, expect higher taxes. Sooner than one thinks.

They can try to force the insurance companies to cover more stuff, legislate against pre-existing condition denials, or even install “compensation caps” for doctors and nurses. They tried that with Wall Street and the bankers jumped ship. Do you think doctors won’t follow suit?

Congress can rail for hours about how spending now creates savings later. Nonsense. As long as we have a third-party-payer system, costs will tend to rise, not fall. People providing services (such as healthcare) respond to the pressure exerted by the people who are responsible for payment. Right now this mean insurance companies. A government plan would mean some bureaucrat is calling the shots. Not my idea of change. Until the patient becomes the center of the care providers attention, we won’t see much change in the way of costs or outcomes. Bryan Caplan knows how to tell which services are reasonably priced. We could all learn a few things by re-reading Milton Friedman.

Incentives matter. If the patient is responsible for the payment of services received, the provider will have a strong incentive to make certain the patient experiences the best outcome possible. Or the patients won’t come back. And since the patient is likely to be on a budget, the healthcare provider has to reign in costs if they want to perform such services. Evil profit motive! What pair of incentives could possibly be stronger forces than the two I’ve just described?

I’ll have more details on what such a system would look like in the near future. I’m still working out the details in my head, but I’m sure I’ll have an outline sketched before Congress does something worthwhile.

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Tags: arnold kling, Barack Obama, Greg Mankiw, Megan McArdle, paul krugman, Congress, russell roberts, healthcare, David Leonhardt, Ryan Avent, Ezra Klein

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