Arnold Kling

Health Care Policy

Arnold Kling, Great Questions of Economics
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I'm starting to plow the a series of papers from a conference on economic policy in the Clinton years. The first one, by David Cutler and Jonathan Gruber, covers health care. Describing the thinking behind the original Clinton health care proposal, they write

The judgment that price inflation was the source of medical cost increases contributed to the view that costs could be reduced without substantial adverse impact on health--just stop providers from raising prices so much. Economic research began early in the decade but particularly afterward suggests that this conclusion is wrong...

No kidding. But you did not need to do research--all you needed to do was arithmetic. At the time, I calculated that if we drove doctor salaries down to British levels, drove drug company profits to zero, and eliminated all administrative costs for health insurance that you still could not produce the savings that the Clinton health care plan promised. Anyway, Cutler and Gruber continue,

Medical care cost increase[s] are now seen as predominantly, if not exclusively, a result of increased service utilization.

In other words, the only way that government can hold down health care spending is by rationing health care.

Cutler and Gruber point out that one of the lessons that the Clinton Administration learned from its health care debacle was that bringing health insurance to everyone was a political loser. Of course, I would say that bringing health insurance to everyone is probably the one policy objective that most economists would agree is worth trying for. Cutler and Gruber conclude,

[What] we have learned is that the private sector will not guarantee insurance coverage to the vast majority of the uninsured. Unfortunately, we have also learned that the political process is not particularly willing to deal with the issue either. Where that leaves policy in coming years is not entirely clear.

Discussion Question. Why would economists generally like to see some voucher program or universal subsidy for catastrophic health insurance, and why is that not the solution proposed by those who want to expand health care coverage?

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