It is good for forcing some fiscal discipline on health care, but state governments are fiscally too weak to take over America’s public sector health care finance. That is the message of my latest Bloomberg column. Here is one excerpt:
There is another problem with state experimentation in this context. So many health-care problems are on the supply side, namely weak incentives for quality care, barriers to entry and innovation, and regulations that raise costs but don’t improve safety. Ideally policy experimentation could cover all of these dimensions, but almost all of the debate is on the side of financing and insurance coverage. With a more or less fixed set of supply-side institutions, simply pushing more financing decisions into state governments may not produce much, if any, improvement.
So overall the reform doesn’t seem to be feasible. But here is the part to bug you:
It is a legitimate worry that Graham-Cassidy might cut health-care benefits in an unequal fashion, but the bill may be more egalitarian than it at first appears. Due to the embedded formulas, the bill redistributes resources to red states, in particular states that have not already accepted the Medicaid expansion from Obamacare. Often those are rural states, some of them in economic decline. Favoring such states does have an egalitarian aspect, even if the Republican Party isn’t very effective in explaining the policy in those terms.
The biggest losers from Graham-Cassidy are likely New York and California, two states with very costly Medicaid rolls. That might appear anti-egalitarian, but is it really? The beneficiaries in those states tend to be relatively young, and thus their human capital endowments, in the form of future life enjoyment, are usually quite high. All things considered, a 28-year old lower middle-class immigrant in Los Angeles is arguably better off than a 61-year-old in Nebraska with $100,000 in the bank. Giving a benefit to the red state individual actually may reflect the more egalitarian sentiment, although that’s not usually how health-care policy discussions are framed by either Democrats or Republicans.
Like it or not, the forward-looking perspective is probably the correct one here. One not altogether illogical response is to treat this as a reductio ad absurdum on egalitarian ideas. Another response is to base health care policy more on efficiency, and again to discard the egalitarian ideal, which in turn would resurrect some chance of being able to defend redistribution toward the young. What doesn’t make sense is to invoke egalitarian ideals only selectively, as people are fond of doing.