Last week Paul Krugman defended the VHA as a model for national health care policy; Brad DeLong has some critical excerpts. I am skeptical for a few reasons:
1. It is widely acknowledged that this system did not work well for a long time. If we are going to cite examples, should we judge them by lifetime performance, or by performance-right-now? In this case I view the relative efficiency of the now-moment as the exception, and not as a readily available constellation that national policy will replicate.
2. VHA saves a great deal by bargaining down prices of prescription drugs. If done on a national level, this will cause the supply of such drugs to contract, perhaps significantly. NB: Supply elasticity can be high even with (especially with?) evil, scheming, profit-soaked monopolists. And don’t forget "current cash-flow" models of investment, which are eagerly invoked by the left in other contexts, such as tax policy.
3. For a variety of reasons (see the excellent comments on Brad’s post), VHA pays doctors much less than usual. I am more than willing to consider the hypothesis that doctors at the national level earn too much. But I cannot imagine a healthy process by which a federal single-payer or nationalization plan will bargain down this sum significantly without all hell breaking loose. Do not forget what neo-Keynesians tell us about the morale effects of nominal wage cuts, much less large real and nominal cuts bundled together.
4. In general, local or restricted health care plans can bargain down prices with less loss of quality and innovation than if that same bargaining were done at the national level. That follows from the economic theory of high fixed costs and segregated markets.
I do think the VHA warrants further study. But I would like to see these questions answered before regarding it as a positive model for reform. Comments are open…