Arnold Kling  

Central Planning for Health Care?

How I Think About Keynesian Ec... Keynesian Questions...

You will be shocked to learn that I am against it. I've already gotten a couple of emails about this piece, or otherwise I would not have seen it. I guess it's a good placement.

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COMMENTS (11 to date)
SydB writes:

"These time-saving, cost-saving innovations didn't come from any central planner. "

Your daughter used a government created GPS system which was the product of central planning. The internet itself also resulted from central planning and government funding. Today it would not exist were it not for the central planning that takes place in order to ensure that essential protocols are uniform and inter-operable.

I'm not arguing for central planning, but can't you at least be honest about the source of these technologies? They would not exist without government support. The entire space program itself would not have existed without the government. Nor would, for that matter, the computer industry, which largely is the product of 1950s and 1960s government R&D.

"Ban on interstate sale of insurance:"

Be specific. What would it actually do. Provide examples. You only use generalized words. "Balkanized" and "market forces" are words of persuasion, not real arguments.

"Distorting tax subsidies:"

Again: You only use generalized terms. "market innovation" and "competition" are words from people who don't understand the issue. They are cheap. Tell us what you think might happen.

"Subsidies and mandates:"

Why would we see these innovations that you talk about? What if, in fact, the true market for health care is more like that market for cars--most people get a slightly used Ford Taurus that breaks down frequently and a few get a stylish Porsche.

I'm not saying you're wrong. But I just don't buy arguments that throw "competition," "market forces" into a blender as if they really tell us anything.

dullgeek writes:

I listened to This American Life's two part series on health care here and here.

I was surprised when (in part 2) Alex Blumberg and Adam Davidson went over the history of how we got to the healthcare system that we have. And one of them casually mentioned that part of the reason that insurance companies chose to go through employers was that it increased the odds of getting the correct kind of pool. Employees are people healthy enough to work. This results in a pool that is mostly healthy people who will have the rare catastrophe.

This suggests that there is a benefit of tying health insurance to employment. Will disassociating it result in an even worse insurance pool than we already have? What's different now that now makes dissociating health insurance from employment a good idea?

David C writes:

On the first point, allowing interstate sales, the main argument against it is that insurance is mostly regulated at the state level. If interstate competition were allowed, all the insurance companies would move to the one state with the most beneficial subsidies and regulations, and 49 other states would lose their ability to regulate insurance. Why not just argue you favor eliminating the right of the states to regulate insurance, and list interstate competition as one of the benefits?

Dan Weber writes:

This suggests that there is a benefit of tying health insurance to employment. Will disassociating it result in an even worse insurance pool than we already have? What

The call wasn't to eliminate employment-based coverage. Rather, to not distort the market by giving tax benefits to that class. If employed-based insurance is better because of better risk pooling, it will continue despite the subsidy.

I'm not really sure about the "allow selling across state lines" thing, though. It sounds like a tiny little improvement in efficiency, and anyway shouldn't this be up to the states?

SydB writes:

And just for the record, I tend to agree completely with Mr Kling's proposal that health care should be (a) personal spending for the small matters and (b) catastrophic insurance for the big things.

My auto-insurance doesn't pay for regular maintenance, just the bad stuff. cannot argue as Mr Kling does that "competition" etc etc will produce a health care regimen that people will like. Saying "competition" or "markets" is sort of like the underwear gnomes. Collect underwear, ..., big profits. Or "competition," ... "great healthcare."

I'm not convinced.

David C writes:

SydB, your examples of central planning referred to research and structural investments. Arnold Kling's article referred to price controls and welfare subsidies. Certainly you can see why there's a big difference.

Arthur_500 writes:

I still have problems with your assessment that the insurance market would be helped by eliminating employer subsidies (tax deductions on health insurance plans). Of course I feel that humans are lazy, ignorant (stupid?), greedy and selfish.

A business is encouraged to provide beneifts for their employees because they get a tax savings on those benefits. Conversely, they get dinged with payroll taxes on higher wages. It is in their interest to "give" value to employees that is possibly cheaper in the long run than giving cash.

Employees feel that it is valuable to have health insurance as it keeps them out of bankruptcy should they acquire an ailment. They know they can't afford insurance on the open market but get better coverage for a better price in a group plan. Therefore, they are willing to seek an employer that offers health insurance as any increase in salary would be insufficient to cover the cost on the open market.

Government also has a stake here. By encouraging employers to cover employees with health insurance they are keep the streets clear of indigent ailing people (walk the streets of Calcutta some day). They don't have to lay out cash to cover those medical expenses. In other words they forego potential revenue because the lack of need for that revenue outweighs the lost opportunity.

Our tax structure is a myriad of incentives and punative charges intertwined with the revenue collection for the "needs" of government. While I think government should play a much smaller role in our society my thoughts are balanced against another 150 million voters. Therefore I see how government can find it appropriate to sweep the streets of our human debris with government programs intended to help those who need help. By focusing on the virtues and vices of humanity they can encourage social behavior that reduces their potential public relations disaster. (boy that sounds cold)

So how is it in the public's best interest to eliminate employer subsidies? Individuals can't get that group rate and insurance becomes impossible to purchase. We know if we can't pay our medical bills we will suddenly become too small to fail and the government will step in. There is no incentive to purchase insurance.

Insurance companies are rolling in the fabulous wealth of 5% and getting kicked around like a soccer ball for their excesses. Why should they provide insurance at a lower price? As an investor I would choose to select another investment.

I guess I don't see how the market will help those who need/ want insurance if employers no longer find it worthwhile to provide it. We have seen the exodous from pension and insurance throughout the United States when the accounting rules changed. I feel we would see the same exodous should we remove the business tax treatment and I don't see any upside from a consumer or government perspective.

SydB writes:

To be honest and fair, Mr Kling should tell us about the healthy insurance his daughter is on in Arizona. Did she acquire a new policy? Did her job provide it? We'd like to know, and it's pertinent to the article. Yet he says nothing.

Gary Rogers writes:

As usual, I agree with you. What I would like to point out is the rarely mentioned unintended consequence of tax deductions on medical plans. The fact is that most people would choose a fairly minimal medical plan if they went out and purchased the coverage in an unbiased market. But, when medical plans are pre-tax while any uncovered expenses are paid with after-tax dollars, it becomes perfectly rational to include as much as possible in a pre-tax medical plan. Consequently we have these deluxe plans with vision, dental and everything else included that add even more distortion to the market.

While I generally dislike taxes, this is one case where I would recommend removing the tax deduction rather than extending deductions to personal medical plans. This also would make medical savings accounts unnecessary because everything is after tax. Taxes need to be simple.

SydB writes:

David: I agree there are differences and nuances. But when Mr Kling says "These time-saving, cost-saving innovations didn't come from any central planner" and mentions GPS as an example I find it odd since the heart and soul of GPS is centrally planned and operated by the government.

There are no two ways about it.

David C writes:

My fault for skimming the piece and not reading it thoroughly.

"a laptop, free Wi-Fi at McDonald's, CarMax, a GPS, a cell phone and numerous Internet sites."

You're right. The infrastructure upon which Wi-Fi, GPS, cell phones, and the internet depend is all heavily regulated, and much of it was built through government involvement. Those are terrible examples.

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