NOTE FROM JOHN: Today I want to introduce a new writer on our blog, Steven Kyle, a professor of Economics at Cornell who is going to be writing for us about economic issues, including how they relate to health care reform. Here's a quick paragraph bio I had Steve write up for you guys:
Steve is a professor of Applied Economics at Cornell University and divides his time between teaching and doing research about macroeconomic policy, advising various governments on macroeconomic issues, and trying to predict what the US economy will do in the future. After growing up in different parts of the Northeast US, Central and South America, he got his PhD in Economics from Harvard in 1985 and worked for a while as a bond trader at the World Bank before firing the Bank and going to Cornell. A long time reader of political and economic blogs, he is especially interested in the connections between politics and economics.I really like the way Steve writes (and thinks). He's very good at explaining economics to people who are intelligent, but not necessarily up on the details of economics (i.e., smart college students, among others). Here is his first post - hope you enjoy.
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Health reform economics and political pain
Even an economist can sometimes forget the basic economic problems health reform is intended to solve. Politicians and the media watching them tend to focus only on whether or not a particular bill can pass, not whether it will actually solve the problems ANY national health insurance system has to deal with, or even whether the population at large will actually like it once it happens. “Liking it” is often viewed through the lens of “what will it cost,” but even then an incomplete and needlessly complicated picture is often conveyed, with commentators many times simply declaring that “these issues are too complicated to explain easily.” Well, they shouldn’t be. So here is a brief primer on an economist’s view of one of the basic problems in health reform – how to get everyone covered and keep the cost of doing so low.
For those of us who need health insurance, there is a basic problem with public health systems - we don’t want to pay for it until we are sick. This directly conflicts with the goal of spreading costs as widely as possible in order to keep the tab low for each person. Basically, in a country as large as the US with 300 million people in it, it is very easy to predict how many of each kind of sickness will happen each year. There will be so many broken arms, so many breast cancers, so many cases of pneumonia, etc. We know pretty well what it ought to cost to deal with each of these problems too. If we add up all of these costs and then divide by 300 million people we have a rough estimate of what it ought to cost to insure each person in the country.
That is the logic of single payer systems. There is no “mandate” requiring everyone to buy health insurance because everyone is in the system by virtue of being a tax paying citizen. The cost is just another one of those indecipherable codes on your pay stub, and the political pain is pretty much concentrated at the point in time you put the system in place. Europeans and Canadians did it back when health care costs were much smaller than they are now so it wasn’t too painful. Here in the USA it would be quite a bit bigger hit, but again, once the tax is passed I defy most people to easily ID what tax goes to what purpose when it is withheld from your pay. Nor do we much care how the tax bite is divided up – we all hate it being bigger, but don’t really focus on what all those different taxes really go to.
Interestingly, one huge potential bonus for us citizens is routinely ignored in the debate – If we go to a public insurance system we will of course have to pay for it in the form of taxes. But at the same time, we WONT have to pay the hundreds of dollars a month we now pay for our crappy private insurance policies. Not only that, but other costs would likely go down as well. For example, my local school district spends more than a third of its budget (and climbing) for insurance for its employees. With a public plan that cost would be gone, and with any luck some of that would be passed on in the form of lower property taxes or better schools. Corporations too would benefit from having a huge cost taken off their balance sheets, putting them in a far better competitive position vis a vis trading partners who don’t have this burden. Unfortunately, both politicians and media talk as if there are only costs to such a plan and no benefits at all.
But here in the USA, it is seemingly impossible to enact such a system because the representatives who have to vote on it are very very interested in that short term pain. It might be better for us to do it that way, but it may well not be better for them. That means we are going to have to try to accomplish the goal of insuring everyone by requiring them to buy private insurance. Sure, we can do that, but then the political pain is felt every month, and every year, forever more when each of us has to pay the insurance company for health care and whatever enforcement mechanism is enacted starts to bite. The political winners and losers are pretty clearly those who were for and against the system in the first place.
Add to that the problem of those insurance companies doing whatever they possibly can to avoid covering anyone who is sick or might get that way (i.e. behaving the way they always have), and there is a huge potential for massive political resentment. But solving the problems on the insurance company side of the equation is another issue entirely, and will be the topic of a future post.
