Assessing the cost of the Baucus bill

I haven't read it, but I've read various people summarizing it.  A few observations:

1. CBO scoring is a very useful institution, for purposes of fiscal discipline, but you shouldn't confuse it with true cost estimates.  Often a negative CBO score isn't as bad as it sounds and a positive CBO score isn't as good as it sounds.  The deadweight cost of taxation matters, and we should fear future government insolvency, but at the margin a revenue transfer is simply that — a revenue transfer and not a social cost per se.

For instance a "cheaper" bill often just means that the insurance mandate carries a higher implicit tax.  For some families — I believe in the range of 60,000 for a family of four — the mandate will consume 13% of income as it currently stands.  That's a big tax increase — yes I will call it that — and it's not on the super-rich. 

2. The main benefit of the bill is greater financial security, vis-a-vis health care expenditures, for many U.S. households.  This doesn't show up as a benefit in standard estimates of gross revenue flows.

3. The bill will, over time, create a economic and political dynamic that turns health insurance companies into regulated public utilities.  You might think this is good or bad, but its one of the most important changes.

4. I fear what else might end up jammed into the required insurance policy.  The political dynamic here has not been thought through very well and this will be important for the long-run fiscal impact.

5. Ezra Klein discusses some harmful employment disincentives in the current bill.

6. The Baucus bill, and some of its cousins, is a bit like cap and trade in the sense that it postpones a lot of the expenditure-cutting pain into the future.  If Obama — a relatively popular President with a Democratic Congress — can't do it now why should we think we will find fiscal discipline in the future?  With revisions this problem is likely to become worseThe proposed pilot programs for cutting costs I view as postponements of tough decisions, not impressive starts on the problem which will be pursued scientifically.

7. How will the mandate evolve if income
inequality increases?  What if, in a distant future, "roughly equal
health care access" means the mandate consumes forty percent of middle
class income and thus proves unworkable?  What here is the "morally
objective" account of the medical needs of the poor and what here is
the "historically and socially conditioned account" of the medical
needs of the poor?  Or do we stick at rough health services equality by squishing, taxing,
or otherwise limiting the gold-plated plans?  Is that move politically sustainable
as a revenue source?

8. Let's say the previously uninsured do start getting more and better care.  Soon we will need to think very hard about increasing the supply elasticity of doctors.  This is an under-reported angle, but once the plan is in full swing the difficulty of getting to see a good doctor will be a story.

9. My best guess is that the Baucus bill will cement a dysfunctional health care system into place at the provider level.  Of course it is reasonable to believe we wouldn't have scrapped our dysfunctional system in any case, but still the case for the bill blends into the case for many aspects of the status quo more than many bill advocates would like.

An alternative view, and a view I do not dismiss, is that the Baucus bill will lead the U.S. to abandon fee-for-service medicine at many margins.  If true (and at the very least this is true probabilistically), this may be the most important long-run effect of the bill, for better or worse.  Also note that we get to these changes, most likely, only by bringing the program to the brink of fiscal collapse.

If you are evaluating the bill, think rigorously about the future scenario for health care as a whole.  Choose your probabilities and match them to an assessment of each outcome (cement in dysfunctional system, overturn dysfunctional system with something possibly better or possibly worse).  Don't in your mind mix and match mutually exclusive outcomes to either a) feel better about the bill or b) villainize the bill.


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