Healthcare Game

by Chidem Kurdas

Funny thing about the Obama healthcare plan. It resembles a Rube Goldberg machine, as did the 1990s Clinton version. The present proposal “relies on a combination of subsidies and regulation to achieve universal coverage, and introduces a public plan to compete with insurers and hold down costs,” according to Paul Krugman in the NYT.

Why not simply extend Medicare to everybody? Oh, I forgot, Medicare Part A is projected to run out of money by 2017. And the only reason the other parts don’t face potential insolvency is that they’re financed from general tax revenue. Given the government’s track record with medical entitlements, the claim that a new  public plan will hold down costs is laughable.

Medicare costs more than half a trillion dollars a year now; within a decade it will require almost $1 trillion a year. If you want to skirt the cost issue, it’s best not to mention Medicare. This is the kind thing Charlotte Twight identified as a way proponents of larger government quash opposition. Concoct an elaborate new program of subsidies and regulations, mask the cost, focus on the new entitlement, and you’ll get more people behind the program.

Whereas if you suggested expanding Medicare, folks might worry about having to foot a bill that will cost even more trillions than Medicare already does. Obscure the trap and hook the population. No wonder Krugman writes that he’s not worried about costs. And no wonder he airily dismisses the Congressional Budget Office’s preliminary prediction.

The CBO forecast is worth quoting:

According to that assessment, enacting the proposal would result in a net increase in federal budget deficits of about $1.0 trillion over the 2010–2019 period. Once the proposal was fully implemented, about 39 million individuals would obtain coverage through the new insurance exchanges. At the same time, the number of people who had coverage through an employer would decline by about 15 million (or roughly 10 percent), and coverage from other sources would fall by about 8 million, so the net decrease in the number of people uninsured would be about 16 million.

So, the new “insurance exchanges” will cause many millions to lose their insurance and become dependent on the government. And the program will create (additional) deficits of $1 trillion. Twight’s book, titled Dependent on D.C., used Medicare as one example of how government grew through various trickeries. If the Obama bill becomes law, she’ll have another case to add to an already significant lineup.

Compared to political games with trillion-dollar price tags, even the granddaddy of Ponzi schemers, Bernard Madoff, is small fry. He’s a mere piker, as John Stossel put it.

12 thoughts on “Healthcare Game

  1. And…your alternative is???

    1) I have no problem criticizing anyone’s plan for shortcomings. But throwing stones without a viable alternative is lazy.

    2) John Stossel is an awful reporter. Please don’t ever link or quote the man again. I don’t think he’s a bad guy nor does he always have bad points of view. But he’s a HORRIBLE reporter.

  2. In my opinion any healthcare reform that will not make matters worse will involve undoing many of the “reforms” and policies of the past. The history of healthcare policy is the history of a patchwork of policies designed, in part, to correct the undesirable consequences of previous policies.

    I think that the key choice we face is between allocation of resources by the market or allocation (“rationing”) by the State. People and their doctors need to take a hard look at what kinds of medical care really have benefits that exceed their costs. The current system doesn’t encourage that.

    I like the idea of tax-free spending accounts that can be used for medical care and, ideally, for whatever else people want. So that the opportunity cost of medical treatment or insurance premiuims would be completely incurred. However, the paternalists out there will worry that some people would spend the money in such an account on luxuries and then wind up dying in the street. At which point, the moralists will say that the taxpayer will have to bail them out, etc.

    So you see the first compromise: *Medical* spending accounts — with the opportunity costs being only other, more valuable medical care. Ok. But at least let us start there.

  3. Medicare has shaped the American health care system in its own image–expensive, generous to specialists while discriminating against primary care physicians, oriented to invasive procedures and hospital-based services. Private insurers have followed the lead of Medicare in all this (and indeed may have no choice). So the alternative, implicit in the posted article, is to focus on the problem of Medicare.

  4. Good points about Medicare and the mini (?) ratchet effect of one intervention leading to another. (I wonder if there are historical parallels between what happened in medical insurance and what happened in banking?) Before there was Medicare, there were the
    Blues, and we’re not talking about Muddy Waters and the Mississippi Delta. Blue Cross and Blue Shield served as a template of sorts for Medicare, and pioneered many interventions, no doubt helped along by a dose of rent seeking and the regulatory capture dynamic.
    Cost-plus reimbursement, comprehensive first-dollar coverage, community rating (New York and Vermont are supposedly the worst for this), and guaranteed issue were all imported in one form or another into Medicare and Medicaid.
    Moreover, the fact that insurers were regulated by the states (thanks to two key court decisions in the 1920s, which ever insurance sales person/analyst/actuary is taught the first week of insurance school, then promptly forgets by the second week (or the next visit to a local pub, whichever comes first) meant that prices were regulated (and Blue Cross generally had tax advantages over other commercial carriers in many states) and consumers were forbidden from shopping across state lines for the best deals. So instead of one big robust national market for health insurance, there came to be 50 smaller, regulated markets.

    Most importantly, as Goodman points out, health insurance became insurance in name only, but not in substance: it was really a pre-paid medical care consumption plan.

    The idea that the “public option,” as Krugman and Robert Reich in today’s WSJ say, will be based on actuarial sound insurance principles, not suject to political favoratism, and otherwise consistent with what economic (as opposed to political) competition is really about is a fantasy.

    My only gripe with Goodman’s article is his belief that employer-paid tax-free health care is a subsidy from the government to insured employees. It’s not.

  5. Hey Christopher, your first link is something I prefer to call Privateering rather than truly private or market solutions.

    Adding another party to medicaid does not solve the informational and rationing problems of government provision, while lining the pockets of corporations with tax derived funds.

  6. Thanks for responding. Could you explain more what you mean by “Privateering?” In the end, does it matter as long as Medicaid provides services more efficiently and for less cost than the private sector?

  7. Good point, WorBlux. A monstrous medical-industrial complex has grown around the entitlement programs. It is no more about the free market than the military-industrial complex. Insurers and service providers extract as much value as they can for themselves, as one would expect. Adding yet another layer of bureaucracy merely increases the cost to the hapless taxpayer.

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