Arnold Kling  

Health Care Policy

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The 2006 Economic Report of the President is available, and the first chapter I turned to was the one on health care.


The rising costs of health care are reflected in premiums (employer plus employee share) for employer-provided insurance that in 2005 averaged almost $11,000 for a family (Chart 4-2), up from $6,700 in 1999 (in 2005 inflation-adjusted dollars).

I quote that because it was a new statistic to me, and it is an interesting one. I wonder what all the talk about "stagnant wages" would look like if you included these health insurance premiums.

In general, their analysis runs along similar lines to what is in my forthcoming book. But they did not change my mind about Health Savings Accounts.


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COMMENTS (10 to date)
David Thomson writes:

"$11,000 for a family (Chart 4-2), up from $6,700 in 1999 (in 2005 inflation-adjusted dollars).

I wonder what all the talk about "stagnant wages" would look like if you included these health insurance premiums."

We just need to do some basic math. $11,0000-$6,700=$4,300. That’s a decent hike in the employee’s total financial compensation over an eight year period.

Javier writes:

I would recommend this Cafe Hayek post on the topic of employee compensation:

http://cafehayek.typepad.com/hayek/2005/07/fake_story_at_t.html

Ivan Kirigin writes:

There was also a TCSDaily article on looking at growth in total compensation:
http://www.tcsdaily.com/article.aspx?id=010606H

spencer writes:

Go to the BLS and look up employment cost index that has compensation including fringe benefits like health insurance. The annual nominal increase has been:
2000 4.24%
2001 3.89%
2003 4.18%
2004 3.89%
2005 2.84%
they also break out the fringe benefit part of the package.

Vorn writes:

Well, I am not sure you can say this changes the calculus of whether wages have been stagnant unless you can say that employees have been getting better health coverage. If they can't consume more health care than before, they certainly are no better off; just less worse off than if they had to pay for all that medical inflation themselves.

Vorn writes:

There is an interesting article in todays NY Times by following this link.

The lesson: The monopoly pricing for patents is expensive to society; here, drugs sell for much higher than marginal cost because of lack of competition due to patent protection.

In some cases at least, it would make sense for the government to buy (using eminent domain if necessary) these patents from drug makers and release the drug into the public domain. This would make sense even if the drug companies made more profit as a result. Why? Since it would bring the actual price of a drug down much closer to the marginal cost, more people would use the drug and dead weight loss would be eliminated. At the same time, significant obstacles to derivative innovation would be reduced. All the while, the incentive for innovation would remain, as drug companies would be well compensated. That would be a win-win solution.

For anyone more interested in this idea, I highly recommend reading Steven Shavell, a law professor at Harvard Law School who has a Ph.D. in economics from M.I.T. His list of publications can be found by following this link. He calls this idea a "reward system."

[Vorn: Please supply a working email address in order to continue your EconLog posting privileges. Our emails to you have bounced.--EconLog Ed.]

liberty writes:

Right away I see two serious flaws in your reasoning.

1. How much would that cost, how much would taxes have to be raised to finance that and who be taxed? How much stagnation/loss of innovation would result from that increase in taxes?

2. Very soon government would find the cost too burdensome and begin to pass regulations, price caps and exemptions on certain drugs where it need not purchase certain patents but would leave the price caps in place for the company... then you have the same thing seen in Canada where there is absolutely no profit to be made in pharmaceuticals and so no companies producing them.

liberty writes:

Oh and if you seriously use eminent domain for that you might as well label us a socialist state right now. That kind of reasoning - seen among liberals in government and in the court - means that government can go ahead and sieze anyone's property any time at all for any reason. Market price for the property quickly becomes any price (and markets become centralized by this government monopoly purchase) and then you simply have a monolith single purchase in place of supply and demand and you have socialism.

Selvoy M Fillerup, MD writes:

Dr. Kling,

Would you be kind enough to review an essay and render an opinion regarding the assumptions and conclusions. I have posted this and one other essay at www.signalhealth.com/node/482/ and www.signalhealth.com/node/492/ .

For every observation there ought to be some kind of theory or model to explain the observation. The observation is that healthcare systems of the OECD have per capita healthcare costs much lower than the United States. The Economic Report of the President suggests that the reason can be explained as "innovation" and "moral hazard." But I do not accept this as a valid explanation. I am convinced that there are fundamental policies that generate economic forces that lower healthcare costs among OECDE nations.

Please review a proposed model suggesting that part of the solution is Universal enrollment and that Universal enrollment combined with policies for Guaranteed issue, Community ratings, and Uniform benefits actually change the healthcare market and produce a favorable effect on per capita healthcare costs.

I look forward to hearing your comments.

Sincerely, Selvoy M. Fillerup

SelvoyM Fillerup MD writes:

Please comment on the premises of these essays. The question of interest is: Why do Multi-payor Universal Healthcare Systems (MUHS) have per capita healthcare costs that are half the per capita healthcare costs of the United States? In particular, I am looking for comments about Figure 1 in the essay "Should the United States Adopt..."

Thank you.

The titles will link to the essays and to data from the OECD.

Both Government and Private Primary Insurance Programs Have Peculiarities, Strengths, and Weaknesses – But Used in Synergy May Lower Healthcare spending


Should the United States Adopt a Single-payor or a Multi-payor Universal Healthcare Model?

from Cotis, Jean-Philippe. Healthcare demand in Europe: Economic growth and sustainability of the European Model. Paris, France: Organization for Economic Cooperation and Development; 2003.

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