Ezra writes:
Paul Starr has an important column
today on the dangers of a badly designed public plan. The issue
essentially comes down to adverse selection. If the public plan becomes
a dumping ground for the sick and the old, it will be too costly for
the young and the healthy. Rates will go up, and conservatives will
point to the plans as costing X percent more than private insurance,
thus proving the inefficiency of the government.
That's exactly right I think, although I suspect Ezra sees it differently. I've still yet to see good reasons for expecting any equilibrium other than that one as outlined. I should add that some or maybe all defenders of the public plan can consider that an acceptable outcome: spend more money to cover more people and of course mostly from high-risk groups. But that's what it boils down to, not some kind of magical competition which will allow us to save on general health care costs without cutting back on real health care treatments.
Here are my previous posts on the public plan, see the first two links.
“…not some kind of magical competition..”
Amen. The only kind of magical competition that should be invoked by real economists is the invisible hand of the marketplace. It is axiomatic that governments can never save money, regardless of what the data say.
If the public plan becomes a dumping ground for the sick and the old, it will be too costly for the young and the healthy.
Right. That is why healthcare should be nationalized, with basic care provided to everyone and supplemental insurance available to those with thick wallets.
Note: “axiomatic” means “not proved, but assumed.”
The data, student, says that the government is currently wasting a lot of money in some places as compared to others by providing unnecessary care. It can only save that money by doing exactly what Tyler said in his post, “cutting back on real health care treatments.” It may be very efficient to cut back on that waste, but you can’t just pool people together and have the same treatments and save money.
In Obama and Orzsag’s figures, only tiny amounts of money are expected to come from such perennial popular favorites as preventative care and decreased bureaucracy. The savings are expected to come from cutting unnecessary care. Politically, I just don’t expect that that will happen.
I have to tell you professor, as a Canadian this health care debate bores me silly, and it really shouldn’t. It’s a fascinating econ issue, full of principal agent problems, adverse selection, separating equilibria, all kinds of fun stuff. I think it’s just because health care isn’t near as controversial up here. When the issue does come up it’s on a small scale: should we allow private clinics to offer non essential services? Should we cut $100 million? Should we add $100 million? The choices are four orders of magnitude smaller. As much as I tend to prefer governments out of markets on moral grounds, when it comes to health care I just think our system has better outcomes. It helps that health is administered provincially, I doubt our system would work near as well as it does if it was run from Ottawa, a distinction that is seldom, if ever, mentioned when comparisons are mad between us.
“. . .you can’t just pool people together and have the same treatments and save money.”
Yes, you can. That’s one of the ways insurance companies make money now. They pool enough people (Their policy holders) that they wield significantly more economic power then the health care provider, and use that power to negotiate better prices for themselves.
Suppose we accept that the public option *will* become the adverse selection dumping ground. Accept that it will have to be subsidized and rationed. This currently exists as medicaid. Now all we are arguing about is how poor one has to be to qualify and how much we wish to subsidize it.
Dangers??? What dangers? Isn’t that exactly what you want to show? Is it that you are afraid it won’t?
a student of economics:
Agreed. Why must we even debate the inefficiency of government? Seems like a moot point to me…
File this one under “Sun rises in the morning”.
The real problem that bedevils progressives on this issue is that this very equilibrium means they won’t be able to force the healthy to subsidize the old and sick to any greater degree than by raising taxes to pay for it. A hard choice has to be made. Let us see just how Congress and Obama finagle it.
Some people can’t afford food. Should we nationalize agriculture or just give food stamps to poor people?
The amount the US governments spend on health care is more than enough to pay for all the food we eat today.
Of course, the US food industry delivers food so cheaply because of government farm programs that have promoted industrial over-production of unnecessary food. And this cheap excess-food system is the result of government price setting and government production limiting.
Perhaps the farm bills offer the blueprint for legislation to produce cheap excess health care?
True, if more burdens added to younger generation, then the economy might collapse, the consumption pattern may change, prices may go up,etc.
brian 2: “So this individual can have coverage for no more than $7000 out of pocket per year, regardless of current health or preexisting conditions? That’s not bad at all.”
Max out-of-pocket for a 45 yr old male is a little higher – about $9,900. In addition to the $2,500 deductible and the $4,400 premium, Texas’ high risk pool requires co-pays up to a $3,000 annual maximum.
Not sure of the details, but New Mexico offers high risk pool premiums about 40% lower than those in Texas.
So how can a government-mandated high-risk pool offer insurance that the private market cannot? Regular insurees are subsidizing the high risk insurees through premiums higher than the market would charge absent the government mandate.
Steve didn’t HMO’s do just what you said? But the public and the government hated them.
What a boring issue.
@eccdogg
“As a libertarian who believes in some safety net this is a program I could sign on for”
Wait? this makes no sense, you call yourself a libertarian and then propose what is a redistributive health care system. Did I suddenly wake up in this bizarro world where libertarian means “progressive” or leftist?
Balderdash! It annoys me when people appropriate nice sounding words and phrases to mean whatever they want it to, instead of what it commonly means. Stop calling yourself a libertarian and stick up for what you believe in. Call yourself a “soft socialist,” a “leftist, ” a “liberal” even, but don’t try to call yourself a libertarian while proposing redistributive schemes.
Well then I guess neither Hayek or Friedman qualify as libertarians as both were in favor of some safety net.
Unless we are going to all agree to be Anarcho-Capitalist and start overthrowing the government, then we ALL belive in some redistribution. The question is what level. I would set the bar pretty high and seek to keep the amount of redistribution low so that in the vast majority of cases people pay their own way and in a limited number of cases the state takes a minor and restricted role in protecting people from very bad situations.
But if to be a libertarian you need to be for abolishing all safety net programs, getting rid of the military, abolishing all public eductation (including vouchers), setting up private courts and private protective associations. Then your right I am not a libertarian and neither is the Cato institute, or was Milton Friedman or Friedrich Hayek.
I think that the double-agency (double agent?) problem is a substantial part of the problem. You don’t negotiate your health insurance, you select from a handful (<6) plans negotiated on your behalf without your input. You want care, you want it cheap. Your plan negotiator wants cheap. The insurance company wants cheap. You doctor wants pay.
Even without this problem, the entire point of health insurance is to introduce fiscal indiscipline to the consumer, in that the consumer does not bear the full cost of the services that he procures.
The old system was that doctors charged on a sliding scale. **** I just found a justification for the income tax. **** **** **** ****
Is Obama’s plan “badly designed”? I assume no. I assume those in positions of Democrat power are aware enough of well-designed systems not to merely increase the # of high cost patients as the crux of proposed changes. I’m also a shitty tennis player (flattered at the suggestion) and I got that way by being good at everything else. 28 is probably too late to start tennis so I expect UNIVERSAL USA HEALTHCARE….or else. I’m pretty sure NSA can’t outwit me.
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Public never hated them for no reason, we had good enough reasons, no one cuts the costs down and the consumers have to suffer every single time…
A dangerous plan in my opinion – but is a dangerous plan better than no plan at all?
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