Arnold Kling  

Health Care Reform: Two Important Points

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1. The "score" of the Baucus bill as not adding to the deficit is far too generous. CBO Director Douglas Elmendorf writes,


The projected savings for the proposal reflect the cumulative impact of a number of specifications that would constrain payment rates for providers of Medicare services. The long-term budgetary impact could be quite different if those provisions were ultimately changed or not fully implemented.

In other words, the bill is funded, in large part, by promising future cuts in Medicare payments. Elmendorf hints that these may not happen. Even worse, if they do happen, they will "use up" some of the political willpower to cut Medicare. Given that Medicare faces tens of trillions of dollars in unfunded liabilities, a bill that uses cuts in Medicare to fund health insurance reform rather than to shore up Medicare's own finances ought to be scored as worsening the long-term fiscal outlook.

2. Mark Thoma does not like Martin Feldstein's health reform proposal to try to limit a family's out-of-pocket health care spending to 15 percent of income. In one respect, I share Mark's concern that dealing with spending one year at a time is sub-optimal. That is why I offered a different approach in my book. However, I am strongly convinced that Feldstein's approach is far better than what we are going to see in this year's legislation. Feldstein writes,


Specifically, the government would give each individual or family a voucher that would permit taxpayers to buy a policy from a private insurer that would pay all allowable health costs in excess of 15 percent of the family's income. A typical American family with income of $50,000 would be eligible for a voucher worth about $3,500, the actuarial cost of a policy that would pay all of that family's health bills in excess of $7,500 a year.

I believe that our current health care finance system is unsustainable, and that the proposals in Congress are just patches for this unsustainable system. Ultimately, we will either move toward a government-run system (and by that I mean not just government running an insurance system, but government running the entire health care delivery process) or we will move toward a system based largely on vouchers.


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COMMENTS (8 to date)
Sam writes:

I've heard it said that the bill (though it's not even really a bill yet) was crafted to take advantage of the CBO's scoring rules. Is this similar to the way debt issuers used their knowledge of rating agency models?

Broadly speaking, is there an insufficient diversity in economic models?

Lee Kelly writes:

Cutting spending it not the same as cutting costs, because the former can be achieved by increasing the latter.

I wish more attention would be paid to this simple fact. When government bureaucrats are overriding the decisions of you and your doctor, don't expect their "cost cutting" to cut the cost of your suffering.

Yancey Ward writes:

Arnold,

If they were actual "patches", there might be some justification for the "reforms", but they are, in fact, new wounds to the system.

John Thacker writes:

"I've heard it said that the bill (though it's not even really a bill yet) was crafted to take advantage of the CBO's scoring rules."

This is true. The CBO scores for the next ten years. The exchanges and subsidies don't start until 2013 or 2014, and only fully ramp up by 2015 or 2016. The taxes start immediately, as do some of the Medicare cuts, though they also become greater later.

The bill cuts the deficit net in the first five years, and increases it net in the second five years.

Arthur_500 writes:

The key problem with utilizing Insurance to meet the costs of Medical Care is that Insurance is governed by individual state laws and it cannot develop the efficiencies desired. It is still virtually unaffordable to expect a family to spend 12,000 to purchase insurance (in my state).
Once the risk factor is removed from the insurance quote the price must increase to cover all those who bring cash. Estimates are a 5% increase which means another $50 each month in premiums. THEN you have to meet the deductible.
Now you say the deductible is $7,500 before the government kicks in $3,500. So the family is out $20,100 in AFTER-TAX dollars before they get a $3,500 refund on the premium.
Regardless of the arguments in favor of insurance, who can afford a $20,000 hit to their family income?
Since Insurance is not affordable this does nothing to cover individuals that aren't already covered. However, it does make hard-working people have the same standard of living, economically, as those who are currently considered poor.

Brandon Berg writes:

However, I am strongly convinced that Feldstein's approach is far better than what we are going to see in this year's legislation.

Faint praise indeed! Feldstein is only one person; he can't be expected to come up with something worse than the sum of 535 different people's bad ideas.

reed writes:

We don't have a "health care finance system" we have health insurance and savings. In fact, we don't have a health care "system" we have doctors and hospitals, which we chose according to our financial abilities. This assumption that any system is unsustainable or insufficient is based on a collective fantasy to begin with.

ej writes:

but what if we removed all state mandates and barriers from health insurance? And then put health insurance on an equal footing with home, auto, life and liability insurance - no tax free income and no tax deductions. What would health care look like five years later?

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