The Health Care Bill—Posner’s Comment

The bill has now become law. Its length alone (some 2,700 pages, including the modifications made in the “reconciliation” process) precludes a full analysis within reasonable length limitations.

 

Although on balance I think the new law is a mistake, there are three things that can be said in its favor. The first is that it is a genuine social experiment, and we are bound to learn a lot from it—about the size and elasticity of demand for medical services, the reliability of cost estimates by the Office of Management and Budget and the Congressional Budget Office, the reliability of advice given by health economists, the relative perceptiveness of liberal and conservative commentators, the ability of the federal government to manage a vast and highly complex program of social welfare, and, a related point, the relative efficiency of a lightly regulated market, versus a government-controlled market, in providing health services, and perhaps goods and services more generally.

 

Second, the very cost of the health-care program, which is likely to be far higher than predicted by its sponsors and not nearly offset by tax hikes, spending cuts, or economies in the provision of health care, may act as a wake-up call for the need for fiscal reform. Greece is making real reforms in its economic system, because it has to; it’s broke. If the new health law, piled on top of all the other measures that are causing the federal deficit to explode, causes real damage to the United States, the stage will be set for real reform.

 

Third, and related, the health law does contain some economizing measures, though fewer than the sponsors pretend. (The best may be the tax on “Cadillac” health-insurance plans, which I discuss at the end of this comment.) For example, the requirement that all chains with more than 20 stores must publish calorie information on menus and signs may contribute to reducing obesity, though the effect will be modest. But a typical measure included in the new law that is touted as economizing—subsidizing preventive care—is unlikely to reduce overall health expenses. The reason is not only that preventive care is often more costly than treatment, especially because it tends to be repetitive (annual tests for this and that, for example), but also that it is consumed by the healthy as well as by the sick, and there are more healthy than sick. Even the sick, moreover, are potential users of preventive care—to prevent the illnesses they don’t yet suffer from.

 

More than the tepid economizing measures, however, the Administration will be under pressure to prove that the bill really will save money. Responding to this pressure may produce significant economies, or at least raise the public consciousness concerning the need and opportunity for reducing health costs.

 

That’s the bright side of the new health law. The dark side includes the timing of the measure: the uncertainty that the health law and the deliberations leading up to it have generated for business and consumers alike has probably retarded our economic recovery from the financial crisis. But the law’s biggest negative is its costs. The $100 billion or so of annual subsidies that the law mandates is just the beginning, but it is an ominous beginning. It is true that these are transfer payments, rather than costs in an economic sense; but they are federal transfer payments and so increase the federal deficit, which even without them is growing by more than $1 trillion a year. The subsidies will grow at the rate at which medical costs grow, which is between 5 and 10 percent a year—much greater than any plausible estimate of annual economic growth. Indeed, as Greg Mankiw has argued, the health bill is likely to reduce the nation’s annual growth by increasing the income taxes on the well to do.

 

The biggest cost is likely to come from the law’s effect on the demand for health care. One effect that can be expected is that, if one assumes (plausibly) that the supply curve of health care is upward-sloping, meaning that unit costs increase as demand increases, adding 30 million people to the health-insurance rolls (whether private or Medicaid) will increase overall health-care costs by more than the percentage increase in the number of persons insured.

 

A second demand-related cost effect will result from the fact that insurance,(even with deductibles and copayments, drives a wedge between the cost of a service and its price, and so increases demand. (It’s like a restaurant with a buffet: the marginal cost of eating all you want is zero.) Persons who are uninsured are deterred from consuming medical services in quantity— because of cost (they are billed for such services at very high prices and may be forced into bankruptcy if unable to pay), because of difficulty of obtaining quality service from charity hospitals or other “free” providers, or simply because, though they can “afford” insurance, they prefer to gamble on remaining healthy. These persons, when they become insured, will increase their utilization of medical services, because those services will now be cheaper to them.

 

Health insurance may even induce some people to take worse care of their health: the lower the expense of treatment, the less benefit one derives from prevention, including nonmedical preventives such as a healthy diet, exercise, and avoidance of dangerous activities.

 

The additional costs of health care are likely either to be defrayed by higher taxes on upper-income people or avoided by reductions in the quantity or quality of medical services. The idea that the costs of our health-care system can be significantly reduced by eliminating “unnecessary” treatment is as quixotic as the idea that the Pentagon budget can be significantly reduced by eliminating the “fat” in it. One person’s “unnecessary” medical treatment is another person’s last hope for survival. Cutting medical costs means reducing treatment, which will impair outcomes.

 

The only durable and culturally acceptable ways of reducing the nation’s health costs—which are, by comparison with other wealthy countries, excessive—are by eliminating the tax deductibility of employer-provided health benefits (and thus decoupling health insurance from employment, reducing the cost of insurance to the taxpayer, and discouraging overconsumption of medical services because the tax treatment of health benefits encourages employers to substitute them for wage increases), increasing deductibles and copayments in health-insurance policies in order to give people a greater incentive to take care of themselves, and changing Medicare from an entitlement program to a means-tested welfare program. Unfortunately, there is no political support for any of these measures—although the heavy tax on “Cadillac” employer-provided health insurance, which is to go into effect in 2018—is a step in the direction of reducing the tax deductibility of employer-provided health insurance. In practical effect, it will eliminate the tax deductibility of expensive employer-provided plans.

Comments

[Laeey Reese]

What has been missed in this legislation is that it enlarges an already flawed system. It absolutely amazes me that no one in our congress or senate bothered to study and understand the "Cleveland Clinic" model, which is more efficient, provides superior care at a significantly lower cost, and more importantly, has a physician as the CEO.

Yes this would usher in quite a change in the typical fee for service system, but as a practicing physician trained at some of the best medical centers in the world, medical care delivery needs to be changed, and in doing so needs a common sense approach that we already know works, as it has been implemented on a large scale, and continues to function based on the needs of the patients. Isn't that why we went into this field in the first place?

[Tim Quast]

Here's the healthcare answer, from Deadwood City SD, September 1878:

Paying $1 a month to hospital in case of sickness
Sep 26 1878
In regard to: Mining
In regard to: Insurance
See it here: http://deadwoodcostofgoods.blogspot.com/2006/11/deadwood-cost-of-doing-business-1876.html

The solution is to re-link consumers and providers. When intermediaries dominate any market -- the money supply, stock trading, health care -- your market is fundamentally flawed and inefficient.

With no disrepect intended, if your answer takes long paragraphs, let alone 2700 pages, it's too complex. You fellows of all people should recognize that government and intermediation cannot solve this problem, or any problem but perhaps sewer, garbage and streets.

Best wishes,

Tim Quast
Denver CO

[Tom Rekdal]

Judge Posner's second consolatory thought is my favorite: The new health care law may push us just close enough to the edge of bankruptcy to require some rational fiscal response to avoid it. That's pretty much the premise of my bond portfolio, so I hope he's right.

[Brian Davis, Austin, TX]

Social Security is reporting that it has hit the wall (outgo exceeds receipts) this year, 7 years earlier than officially expected. As of December 2009, the number of eligibles electing to begin collecting OASI at age 62 had jumped 20% over 2008. 2010 will bring another surge. This cannot be attributable to waves of "boomers" choosing to "retire" early, not in this economy. I believe it will prove attributable to unemployment, underemployment, and an ethos of resignation to permanent diminishment of employment income opportunities - this across all working-age brackets. It could also prove to become the straw that finally broke the camel's back. Congress has routinely borrowed FROM Social Security payroll and self-employment tax receipts to fund general government operations and to feign manageability of our deficits. Congress has never had to borrow money from Americans or from global markets to cover payments TO Social Security beneficiaries. Something will have to give.

[Kevin McGilly]

Unlike Becker, Posner at least acknowledges that the new health care law includes "some economizing measures" - but like most other commentators on the right, he ignores the most important such measure: The Independent Paymet Advisory Board. The IPAB has the potential to be a much more significant cost-control mechanism than the measure Posner cites -- the so-called "cadillac tax' - or any other provision in the new law. With independence akin to the highly successful Base Closings Commission, IPAB will have real power to control what Medicare pays to providers. Since Medicare is the biggest single payer in the market, it largely sets the market. As a result, the IPAB's decisions will bend the health care cost curve over time.

The "cadillac tax" is a good idea too. It is a "sin tax" like taxes on cigarettes and cop-killer armor-piercing bullets (if only!). Serious health care economists predict that almost no companies will ever actually pay a penny in such taxes, as it is intended to (and will) discourage them from offering the types of gold-plated insurance plans that will be subject to the tax. But it's not the most important cost-containment measure in the new law. Not by a long shot.

Finally, Posner is right about one thing: the new rules encouraging preventive care and wellness services -- and requiring insurance plans to cover them -- will not reduce costs per se. They will, however, make Americans healthier. Some things are good ideas in and of themselves. This is one of them. Regular doctor checkups are not just good for university professors and federal judges. They're good for everybody, including the millions of Americans who today can't afford them.

[Gordon Longhouse]

I am surprised at the hostility of both Becker and Posner to employer provided health insurance and the tax deductibility of employer premiums.

As I understand the system, the employer pays a single premium on behalf of numerous employee insured, takes care of the paperwork involved in registering the employee and handling at least some of the claims. The employer is able to do this at less cost than the insurance company could do it themselves. Accordingly the cost of the premium is less compared to if the employee bought the same cover themselves.

The employer gets a tax deduction the value of which is treated as income of the employee. In most countries this would be a bonus to the revenue but the US is unique in taxing companies at higher marginal rates than individuals.

Still it encourages efficiency by imposing costs on the party best able to bear them.

This is not to advocate mandating employer provided insurance only to suggest that roadblocked ought not be put in its way.

Lock-in is an issue but I should think that if health care is considered such a valuable benefit that companies would compete to ensure that their programs were attractive to the workers they seek to employ.

As Posner correctly pointed out, the main issue with respect to this an any other plan modeled on insurance is that of people would are already sick and the consequent lock-in effect. There are two possible answers to this issue:
1. Mandate that the new employers insurance accept the new insured;
2. Mandated that the insurance company continue to fund treatment after the employee leaves the employer.

The failure up till now of the US to come up with a workable system to ensure that its citizens get a decent level of medical care at an affordable price has been the greatest reproach to the American political model.

I disagree with Becker: if you wait for the perfect system to be designed, legislated and implemented you will wait a lot longer than 10 years. Likewise if you wait for the US to get religion and become fiscally responsible. It will never happen.

It would be better not to have legislated this program in the midst of an economic crisis but, from the point of view of Obama, to have not tried would be to permit his fiscally irresponsible predecessor to set his agenda.

[Rick]

I'm sure all of us in Europe welcome the US into the the civilised world. The benefits of being able to live one's life without the oppressive fear of health charges are beyond the capability of today's economists to measure. For all its unneccessary complexities, this American healthcare act is a progressive step.

Just as exchange rate stability and low inflation give businesses the confidence to plan and invest, universal healthcare provision affords individuals the same stability. It's difficult to take an entrepreneurial risk when an accident befalling yourself or your loved ones could wipe you out financially. It's difficult to challenge conventional wisdom in your workplace if doing so risks not just your job, but your health coverage too. America will prosper from this measure, economically, socially and in terms of individual wellbeing.

These reforms are probably just the beginning of wider acceptance for public sector healthcare among Americans. Within a few years, those who've benefitted from the healthcare act will be loate to see it repealed or diluted. I'll wager they'll want to see it simplified and extended in scope.

The solution to America's grossly inefficient and obscenely iniquitous healthcare system is in greater public provision. The NHS, for example, is arguably the most efficient healthcare system in the world (its problem is demand-creep). This act is unlikely to save America money, but America will certainly get more for what it spends on healthcare. It's a start, it's flawed, but I don't think America will look back.

Congratulations to you all.

[Gregory Nieberg]

I’m a little disappointed that Posner, Becker, and many of the comments here, are essentially advocating a “free-market” solution to the health care industry, when the health-care industry is highly resistant to free-market principles.

When people say “free-market” I assume they mean “free” of government intervention. Too many people conflate the “free” in “free-market” with “freedom.” As a result, they tend to advocate for free-markets as if it is a goal in and of itself. It is not. We don’t want free-markets. We want competitive markets.

By definition, a perfectly competitive market can be completely free of government intervention (because it’s perfectly competitive). But we can’t put the cart before the horse. The more competitive a market is, the more conducive it is to free-market principles. The less competitive a market is, the less effective free-market principles become. The less competitive a market is the more government is necessary to correct market failures.

The health care industry is ripe with market failures: externalities, cost-shifting, lack of competition, vast differences in information, matters of life and death that lead to irrational behavior, etc.

For example, if I want to purchase a television I know my budget, I know my size and weight constraints, I can go to a variety of on-line and off-line stores for the most competitive price, etc. At the end of the day I can make a rational decision based on my internal cost-benefit analysis that probably comes close enough to my “optimal” solution. A health care decision, on the other-hand, is vastly removed from this simple example.

An individual is not equipped to make most medical decisions, especially the important ones. Doctors make these decisions. But doctors are generally paid for procedures. And the cost to the patient is not proportional to the amount of care. So neither the doctor nor the patient has any incentive to make a “cost-effective” medical decision. (Of course, because it’s matters of life-and-death, could we really expect a rational decision in the first place?).

Moreover, insurance companies have shown little incentive – or ability – to maintain costs. Maybe it’s because the laws do not give insurance companies the appropriate flexibility. Or maybe it’s because insurance can rescind health-care policies and easily push costs off to their customers. Regardless, any way you cut it, there is an important role for government to play in the health care industry, which can never be a “free” market.

Making individuals more cost conscious of their medical decisions is, in theory at least, one component of controlling medical costs.

But isn’t risk-spreading one of the primary purposes of insurance? How do we ensure that costs are applied in an equitable manner? What about the positive externalities of a healthy population, and one that doesn’t lock people in to jobs for fear of losing coverage for them and their families? What about the negative externalities of an unhealthy population and the real and opportunity costs of bankruptcies caused by crippling medical costs?

And how do we have a reasoned national debate on how to help individuals make both personally and socially responsible decisions when end-of-life counseling sessions – which are designed to reduce wasteful and exorbitant health care spending – are labeled “death panels” by prominent figures in the Republican party?

[Alfred L≥ Lapin]

There has been no mention of Tort reform in any of the above comments.Doctors rarely refuse a request for a sophisticated test because, no.1 it is available and 2. because the risk of refusal may mean a law suit if there was any misdiagnosis. Much of the increasing costs of medical care can be attributed to new technology and the continuing demand for upgraded technology. i.e. A new model of the DaVinci Robot sells for 1.5 to 2 million dollars, depending on the configuration.
There has to be a severe look at our tort system. In Europe and around the world medical malpractice claims are a small percentage of ours. Even if claims are not paid the costs of defense,etc. are so enormous that many cases settle rather than go to trial.No one was willing to put a cap on awards and it seems that those states that tried were reversed by their own courts.The above comments were not considered in the new bill,however the government felt that they should tax the equipment makers so that their ability to advance their R and D would be thwarted. The logic in those provisions escape my rational thought.
It seems that increasing the entitlements, in order to further put our country in debt is the goal of this Congress.They will not wake up until it becomes Greece time when the alarm will go off.

[Dr. A. Bajaj]

G. Nieberg wrote:
"An individual is not equipped to make most medical decisions, especially the important ones. Doctors make these decisions. But doctors are generally paid for procedures. And the cost to the patient is not proportional to the amount of care. So neither the doctor nor the patient has any incentive to make a “cost-effective” medical decision."

A patient can get a second opinion from a doctor who is NOT being paid for the procedures. Your argument could be applied to building a house. The homeowner does not understand building costs, only the builder does, but the builder is being paid, etc etc. But the homeowner can always consult another architect for a second opinion. This is a classic principal agent problem, and in no sense precludes a free market.

Yes, it is true that, if paying out of their pockets and if insurance were outlawed completely, a patient with a life threatening illness will likely bankrupt themselves to save their life, and if treatments do not work, or they cannot afford them, they will die. That is why insurance for catastrophic illnesses is a good idea. But not for routine procedures and medications. Not at all. Our healthcare system should be made into a free market for routine procedures, non life threatening procedures, etc .

Anti-trust needs to be introduced: the costs for procedures and medications needs to be set by providers to patients, and must NOT be fixed by a third party open to special interest coercion, as it is today. The payment for medications must NOT be from third party payments, unless it is a catastrophic situation. We need to be careful in defining catastrophic to only be "life threatening".

All in all, a government controlled system has several ills that are empirically validated from other economies with government controlled healthcare (low provider to patient ratios, long long wait times, poor patient service, reduced technological innovation, inefficient use of money). A pure free market system for everything but catastrophic illnesses (for which patients should be able to buy insurance beforehand) will also have some ills: some poor patients will get poorer quality healthcare than richer patients.

But all in all, it will be much cheaper to go the free market route. Technology will flourish and trickle down to a much greater extent.

PS
Not to mention, that many Americans are allergic to being told how to live their lives by faceless bureaucrats.

[Rodrigo]

Somehow I lost most of my comment..

You right that shifting costs to consumers is among the most important reforms we can make. However, families are limited in their ability to comparison shop for health care for several reasons:

1) They are under a time crunch, whether real or perceived.
2) They are limited by their health plans as to where they can get service.
3) They don't know, necessarily, what services they need or will be given until they are sitting in an examining room talking to a physician.
4) There are no posted prices and families are not in a position to second guess the judgment of a provider, who in concert with their insurer decides the cost and quantity of the services the family will receive.

If that's an accurate depiction of the way families can shop for health care then there is little they can do to change the mix of services they buy and who they buy them from - things they must be able to do if cost-shifting is going to change providers' incentives. The only thing they can adjust is the total quantity of health care they consume.

So what will cost-shifting accomplish? Americans will generally buy less health care and be on balance poorer and sicker. The total level of health care spending will probably decline, but the rate of increase after the poverty shift may not change very much at all. That doesn't sound like what we want to accomplish.

[Jake]

A noble yet futile effort by Posner to find a silver lining in the ObamaCare cloud.

Like the commenter above, I am hard put to understand the argument against tax-subsidized employer-provided health insurance. My employer, like many nowadays, offers a considerable menu of different health insurance plans, from a variety of providers, at a varying range of costs that depend on the extent of the coverage, the annual deductible, the out-of-pocket cap (if any), limits on out-of-network health care providers, and other variable that a rational economic decision maker should consider.

It is a gross oversimplification to assert that tax-subsidized employer-provided health insurance renders the recipients thereof senseless to the costs of their own health care.

[Jack]

Brian Re SS: I'm sure you're right about many boomers involuntarily resorting to SS. I'd add that a larger part of the problem is that of incomes not growing as projected since they last "fixed it". For SS we'd only be interested in the growth of income from the bottom to just over $100k today, a range in which the highest numbers of working folk have had little to no gains since "the fix".

As these graphs show, much of the "rising tide" that should have lifted all of the boats, lifted only the yachts, leaving me to conclude that SS ought to go up and recapture, at least, the SS contributions on wages that should have gone to the working folk who surely played their part in the doubling of productivity over that era.

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

[Jack]

Kevin and Euro Rick! Good comments!

"Finally, Posner is right about one thing: the new rules encouraging preventive care and wellness services -- and requiring insurance plans to cover them -- will not reduce costs per se. They will, however, make Americans healthier. Some things are good ideas in and of themselves. This is one of them. Regular doctor checkups are not just good for university professors and federal judges. They're good for everybody, including the millions of Americans who today can't afford them."

......... yes! And all too often unmentioned as the costs and cash tug of war rages on. And let me add the fears, traumas and costs of bankruptcy, losing one's home, court costs et al that are an all too common side effect of getting injured or sick in America. Few discuss the problems inherent to the lack of universal H/C. For example a small fender bender or even a friend slipping and breaking a leg on a slippery front step may end up as a "who'll pay the bill" court process. On a higher level if one MIGHT need H/C later in life from an accident we have to have a court process to create a fund, while those with universal care simply take care of the problems if or when they arise.

Euro-Rick: Ha! I can't help wondering what our dear Palin (sadly, of my state of Alaska) and the screaming Tea Partiers look like to those of other nations in which universal H/C has been implemented for decades.

[Rick]

Hi Jack,

I think most of us appreciate that the Religious Right is merely a vocal minority concentrated in rural areas, and therefore atypical of Americans as a whole. There is a worry that America's culture is becoming ever-more polarised. Democratic politics is how we bridge differing views in order to address social and economic challenges; it's more difficult to find centre ground if one faction is tacking so heavily away from it. Some of us wonder why the 'blue states' don't simply leave the union and join Canada!

Palin is seen (pretty universally in Europe) as an empty-shell self-publicist. There seems to be little coherence about her. Further, she's seen as too flakey for high office - evidenced by her gubernatorial resignation. Ultimately, however, one of the strengths of your system is the manner by which you constrain executive power. Your explicit consititution, separation of powers and states' powers mean that you can elect fools like Bush Jnr. and Palin to high office without catastrophe. Some of us in the UK wish we had a similar system, if only to address the apparent delusion that people elected as legislators are somehow also fit to run £multi-billion departments. As evidenced by Tony Blair's style of government and his approach to the Iraq war, there's less systematic constraint on the executive branch over here.

In any case, I believe the reaction in Europe to your healthcare reform runs a short gamut between "What took you so long?" and "Why so much fuss?" We can understand it the context of a nation founded by fleeing persecuted minority faith groups and tax-dodgers, but honestly: it's the 21st century. You're the richest nation on Earth. You should be able to look after one another better.

[Greg Nieberg]

@A. Bajaj

"All in all, a government controlled system has several ills that are empirically validated from other economies with government controlled healthcare (low provider to patient ratios, long long wait times, poor patient service, reduced technological innovation, inefficient use of money). A pure free market system for everything but catastrophic illnesses (for which patients should be able to buy insurance beforehand) will also have some ills: some poor patients will get poorer quality healthcare than richer patients."

Those statements are factually and demonstrably inaccurate and misleading. First, this health care bill, nor a single-payer system, is a "government controlled system." A government controlled system is one like the US Veterans Health Administration system where the doctors and hospitals are government employees. With this bill, doctors, hospitals, and insurance companies continue to be privately run.

Second, every major industrialized country that has enacted major health care reform covers 100% of their population, at lower costs per capita, with longer life expectancies and lower infant mortality rates and with ZERO people forced into bankruptcy from medical expenses. (And beyond "catastrophic" expenses that cause bankruptcy, they don't have people who often choose between eating and taking their daily medications.)

Third, the idea that the "free market route" will cause "Technology [to] flourish and trickle down to a much greater extent" is not a credible solution to our health care problems. For one thing, you don't base a critical component of our economy and health on the hopes of "trickle down." But more importantly, the overwhelming majority of our health care costs derive from the use of expensive solutions (pharmaceuticals and technology) to pay for what are predominantly avoidable health problems (obesity, heart disease, diabetes, etc.).

So throwing even more money at "technology" in the hopes it "trickles down" to masses, is not merely widely unrealistic, it's incredibly expensive. Even if it were to have some effects on the supply-side of health-care costs, technological advances does absolutely nothing to the demand-side (in fact it may increase demand-side costs, with little to no added health benefits). In addition, the DoD has no problems developing some of the most advanced technologies in the world despite being the only purchaser of these technologies - technologies, like the transistor, satellite communications, and the Internet, which have all found their way into civilian uses. So there are many ways to encourage technological development.

And finally, you are right that most Americans "are allergic to being told how to live their lives by faceless bureaucrats" -- the faceless and unaccountable bureaucrats of private insurance companies.

[Jack]

Rick: You've a good set of America watcher binoculars! I got the story on Palin a bit earlier as AK is such a small community we often know legislators and "box of rocks" rumors were rife. About the time McCain announced his "Hail Mary pass" I overheard a conversation in Costco from one of her campaign handlers speaking of the difficulty of keeping her closeted with mouth duct-taped and forcing her to stick to the script.

Her luck is amazing! Had she stood for re-election in that small town the odds are she'd have lost and be anonymous today.

On running for Gov she had the amazing luck of the incumbent Gov polling in the low 20's and the Dems in our small political field not having a strong candidate in a state that leans heavily to electing the Republican.

Round three, after the McCain affair, had she tried to continue as Gov she'd have been mired in controversy of poor decisions, taking per diem to live at home while the Gov's Mansion sat empty and having Todd playing the role of unofficial chief of staff, it's doubtful (at best) that she'd have been re-elected.

As for H/C it's tough anywhere to make such a change involving 18% of GDP as that means there are $2.5 trillion worth of stakeholders many of whom fear taking a much needed haircut.

Theirs a demographic problem as about 80% of Americans have some sort of "coverage" and the 20% w/o are largely the poorer and less powerful constituents of which half are "black" or new immigrants be they legal or not. You'd not (rationally) think that the possibility of H/C for 10 million hardworking "illegals" would wag the dog on a system for 300 million, but, well you know.... So....... we end up with 50% or more who fear they'll be worse off either in coverage or on taxes.

Obviously ideology overlays the whole mess. Despite the employer based "insurance" system having almost no basis in free market capitalism there is the strong desire to try to apply the power of capitalism despite the obvious difficulty of price shopping an appendectomy for a loved one. So, there is no perfect model for consensus and we end up with a foul hash forced by necessity, made up of some good intentions, with many of the better ingredients stolen or ruined by gangs of self-serving rent seekers.

And aahh yes indeed! "You're the richest nation on Earth. You should be able to look after one another better." Trouble is over the last 50 years our income distribution has come to look like that of some third world nations. And, as Becker who has studied human motivations could (but may not) tell you that privilege is not willingly given up --- ha! despite "Christian values".

The 2nd chart shows how the upper and lower quartiles have done and JFK's hopes of a "rising tide that lifts all the boats" has been replaced with sinking skiffs and too little discretionary income from median down to pay for much of anything, much less H/C premiums. Thus........ again, the government subsidies.

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

Oh....... as for blue states bailing, I spend time in OK, one of the reddest that rejected Obama 2:1 and where they've mostly elected certifiable nutjobs to Congress, the hardworking people have built a society that works about as well as others and give more to charitable works than one would expect for one of our lower income states. Ha! America is as puzzle today as in de Tocqueville's time.

[Dr. A. Bajaj]

To Nieberg:
"Those statements are factually and demonstrably inaccurate and misleading. First, this health care bill, nor a single-payer system, is a "government controlled system." A government controlled system is one like the US Veterans Health Administration system where the doctors and hospitals are government employees. With this bill, doctors, hospitals, and insurance companies continue to be privately run."
I never said the current healthcare reform is a single payer or government controlled system. Don't put words in my mouth.
I was making a general comment about single payer, government controlled systems.

"Second, every major industrialized country that has enacted major health care reform covers 100% of their population, at lower costs per capita, with longer life expectancies and lower infant mortality rates and with ZERO people forced into bankruptcy from medical expenses. (And beyond "catastrophic" expenses that cause bankruptcy, they don't have people who often choose between eating and taking their daily medications.)"

I beg to differ. Lower costs per capita, certainly (but also much lower quality critical care). Longer life expectancies: not so sure. And there may be many many other causes for this like genetics, or quality of foodstuffs, natural food, diet or chemicals in water that have nothing to do with healthcare delivery. In fact, I am not sure that healthcare delivery will even cause a "longer life expectancy". It will just allow more people to live longer, and better. But not increase our life expectancy.

Lower infant mortality rates...assuming you trust the data. I don't think so. Infant care in the USA is the finest in the world. Be aware that in many countries, babies are delivered outside of hospitals, and records may not be good. Also, in many developed countries, the birthrate has declined to the point that babies probably get better parental care than if birthrate were higher. What I am saying is that producing a few in metrics that may have many other causes does not prove your point.
Bankruptcy in most other systems has far greater consequence than in ours. People choosing between eating & taking medications: I don't buy your pathetic picture of the US. I didn't realize we had a starvation problem in the US (quite the opposite in fact! ). Bottom line, you need to take government numbers both here, and especially in other countries, with a pinch of salt and realize that many metrics you are proposing are not influenced by quality of healthcare delivery.

In my informed opinion, having traveled and used medical systems all over the world, the medical care here in the USA is the best. I don't see anyone rushing to other countries for critical care. QED.

"Third, the idea that the "free market route" will cause "Technology [to] flourish and trickle down to a much greater extent" is not a credible solution to our health care problems. For one thing, you don't base a critical component of our economy and health on the hopes of "trickle down." But more importantly, the overwhelming majority of our health care costs derive from the use of expensive solutions (pharmaceuticals and technology) to pay for what are predominantly avoidable health problems (obesity, heart disease, diabetes, etc.)."

I suppose we could all follow your advice and use less technology in our healthcare. But I don't think most people with AIDS or cancer whose life has been significantly extended and enhanced by "technology" will agree with you. Not to mention people with amputated limbs who can lead relatively normal lives now, as opposed to only a few years ago, because of the "technology" that you seem to blame for our ills. Or the many many soldiers saved because of huge progress in treating battlefield wounds.
And what about stints and heart care? Is that any better over the last decade? I think so.Again, because of technology.

But you are right: technological progress IS expensive. The socialist
solution would be to give everyone equal healthcare with the same technology, and keep costs down, thereby retarding technological progress significantly (we all suffer together so to speak). The free market solution would be to let people who can pay more use the technology earlier, and then let it "trickle down" to folks who can't pay as much. It's not a mystery really, it's been tried and tested in many many industries. There is nothing about healthcare that makes it peculiar in some way so that free market principles won't work...which was your initial argument.

[Ben]

Rick, your comment that universal healthcare will allow people to take more risk is interesting in light of the fact that America (under its pre-obamacare model) is often touted as the most entrepreneurial system in the world. Funny how Universal healthcare in Europe has not helped it to advance entrepreneurship. In fact, one may argue the opposite. To stretch a stale old saying: Dynamism is not born of security, rather necessity is the mother of invention.

[Jack]

Ben: While I don't know if we've lost our "most entrepreneurial" badge to Europe, but these days we do rank well down the list on "upward mobility" of which Germany seems in first place these days.

Also, whether young or middle aged you'd not have to look far to find examples of those frozen into jobs by either "pre-existing conditions" or concerns about family health.

Consider: A young family beginning a small biz not likely to be profitable in the first year ......... or so, in either Canada or the US. In Canada they'd have the tailwind of not paying increasingly costly premiums AND knowing they'd not be blindsided by crippling H/C costs for themselves or employees of the fledgling enterprise. Later on........ were the enterprise to flourish the Canadian family would pay more taxes to be sure, but! they'd enjoy more benefits as well.

Consider? In the US taxes are a bit over 21% of GDP (a bit higher than before piling up so much debt to service) and H/C is over 17% and soaring.......... looks kinda like 38% to me.

"Dynamism is not born of security, rather necessity is the mother of invention."

......... Indeed and could as well be uttered by a prospective entrepreneur or even job changer saying "Well perhaps not while the kids are in HS........ College" Surely you've met folks who're chained to the wheel?

[Jack]

Taxation

In Canada total tax and non-tax revenue for every level of government equals about 38.4% of GDP,[2] compared to the U.S. rate of 28.2%.[1]

A significant portion of this tax differential is due to spending differences between the two countries. While the US is running deficits of about 4% of GDP,[3] Canada has consistently posted a budget surplus of around 1% of GDP.[4] Considered in a revenue-neutral context, the differential is much smaller -

Canada's total governmental spending was about 36% of GDP[5] vs. 31% in the US.[3] In addition, caution must be used when comparing taxes across countries, due to the different services each offers. Whereas the Canadian healthcare system is 70% government-funded, the US system is just under 50% government-funded (mostly via Medicare and Medicaid); adding the additional healthcare-spending burden to the above figures to obtain comparable numbers (+3% for Canada, +7% for the US) gives adjusted expenditures of 38–39% of GDP for each of the two nations.

The taxes are applied the same as well. Canada's income tax system is more heavily biased against the highest income earners, thus while Canada's income tax rate is higher on average, the bottom fifty percent of the population is roughly taxed the same on income as in the United States. However, Canada has a national goods and services tax of 5% on most purchases, while the U.S. federal government does not, increasing the tax burden on Canadian low-income earners due to the regressive nature of a sales tax. Canadian GST does not tax food and other essentials and a GST rebate for low-income earners mitigates regressiveness.[6]

[Rick]

Ben, it's a fair point. But do you take it further and claim that wild currency fluctuations and price instability are also good for business? I think the fault is mine in citing entrepreneurialism when what I was driving at was 'stability'. In the light of the evident failures of short-termist capitalism and the need to rebalance advanced economies toward sustainable development, I'd argue that 'health confidence' is an often-overlooked prerequisite for the paradigm shift. In Europe, we have health confidence - we need to shift our economies toward long-term, sustainabile capitalism. In America, you need to do both.

Although entrepreneurialism is desirable, I'm not sure that it is the *point* of an economy or a society. The Nordic countries have societies which are at ease with themselves and enjoy high living standards without being seen as particularly entrepreneurial. Japan made a good living a generation ago through 'talented copying' rather than innovating.

So given the choice between living in an entrepreneurial hotbed without public healthcare provision and living in a prosperous, happy country with something like the NHS, I'll take the latter every time. Especially if that comes with businesses and institutions which value tomorrow's success as much as today's.

[Dr. A. Bajaj]

Rick wrote:
"Although entrepreneurialism is desirable, I'm not sure that it is the *point* of an economy or a society. The Nordic countries have societies which are at ease with themselves and enjoy high living standards without being seen as particularly entrepreneurial."

Have you BEEN to a nordic country lately? Their standards of living are falling dramatically and the welfare state is becoming unsustainable. You are using anecdotal impressions from the 1970's to form a fatuous, utopian view that no longer exists.
Only in a low populated society with huge natural resources can the state support everyone, with no one really working hard. That model is gone out the window as the world population has exploded and grown in almost every country (including the US). The only exception is a few middle eastern countries that are exploiting their oil resources and have relatively sparse populations.
We cannot afford to look at nordic bubble economies of the 1970-s or at current middle eastern economies and base our hopes of being like them, not unless you slash the population of the USA in half, and start exploiting every natural resource we have.

"Japan made a good living a generation ago through 'talented copying' rather than innovating."
I would be offended at your lack of sensitivity and knowledge if I were Japanese. In fact, I AM offended :). Are you aware the Japanese revolutionized the production processes of heavy durables (such as cars) as well as consumer electronics? That is how they made their wealth. Innovation does not mean inventing a new product all the time, it could be inventing new processes to do things better. I have no idea what you mean by "talented copying": seems like a vague "sounds-good kind of term. Perhaps you mean "do things better"? That IS innnovation.

[Jack]

It is interesting to consider Japan's success which seems to me more that of targeting foreign markets with a laser like precision. For example in the 70's there was a bicycle boom in the US. The US had heavy and dated Schwinn and stuff like dept store Huffy. The market wanted light weight "10 speeds" with the UK, France and Italy having a head start.

I witnessed a bit of economic history at the Bicycle Show. Being in Alaska with steep elevations we particularly wanted the wide range gearing that is common today. At a popular French marques both their rep told us that "If riders would get in better shape their (basically racing ratios) would do fine". "Oh?"

At a Japanese mfg space one of their engineers, still having trouble with English, closely followed our request and already had bikes with somewhat wider touring gearing. A short time later at least one Japanese mfg had hooked up with a consortium of US bike shops and distributors. Those closest to the customer met and told the Japanese companies exactly what was expected at differing price points and that product would appear the next spring.

Well, you know what happened to Europe's offerings, they were left in the dust. Schwinn essentially lost a century old family owned business.

Innovation vs copying? At the time Campagnolo of Italy made the best derailleurs, aluminum cranksets, shifters and brakes via casting and then precision machining. Shimano nearly lost its company with costly research and experimentation with investment casting, a process by which the piece comes out replete with threads for bolts and cranksets are nearly as precision as those machined. Soon they "won" and were able to sell fine bicycle parts close to being the best but at a quarter or less the price.

Much later (a dozen or so year ago) Trek, Canondale and other US startups have taken back some share of the bicycle mfg business.

The same story seems to have played out as Japanese mfgs targeted cars, and motorcycles while "Detroit" and Europe slumbered on. During the mid-seventies gas crunch I shopped for a compact hatchback with at least reasonable gas mileage. The Honda Accord was the only car to come close as it would run leaded, unleaded, etc and had front wheel drive that we all appreciate today for icy roads. The rear drive Chev Nova of similar utility could not be backed out of its parking spot on a snowy day and had a V-8 that insisted on one type of gas.

So what can we learn from those beatings? That the Japanese were ecstatic to be allowed full access to the largest consumer market in the world and that it is NO accident that their equipment is so closely targeted to US needs.

But this is a tough assignment for the US as there are few similarly large consumer markets to target that would add millions to the number of cars, cycles etc that we build. Worse, and I don't know WHY we tolerate this: Apparently some Jeep models are coveted in Japan but I hear of them costing double or more what they cost here so their sales numbers are tiny.

Doc........ A word on US incomes. I don't dispute having to "get after it" in a globally competitive world, but on average US incomes are still among the highest of large countries. Trouble is our incomes have become far too skewed, a problem that exacerbates SS, H/C, housing and many other areas. Norway, (and my home state of Alaska) may be relying too heavily on their oil wealth but at US 87,000 per....... they can fall a long way before becoming destitute.

http://en.wikipedia.org/wiki/List_of_countries_by_GNI_%28nominal,_Atlas_method%29_per_capita

I too lean toward thinking that nations rich in resources, as North America is, should have a strong economic edge over those that don't but the GNI list doesn't seem to bear this out.

[Rodrigo]

Dr. Bajaj,

Most of the available data on health care outcomes and spending do not support your claims about the American health care system. I'm sympathetic to the claim that the data sets may be unreliable, but what evidence do you have that they are unreliable? Or are you arguing that the American system must be exceptional and therefore the data must be wrong?

For people at the higher end of the income spectrum who are working in corporate or academic jobs with a high degree of security and excellent group health care plans, the American system may appear to work fine for now. I assume this is where you're coming from and I apologize if I'm in error.

For people with fewer resources or people who have to buy in the individual market the system operates much differently. I have many friends struggling with medical costs because they can't get coverage, and some who can't afford their medical care despite paying into plans because the cost sharing is so severe. A huge disparity of outcomes exists in the United States between those who can afford to buy into the system at a high level and those who cannot.

There are universal health care models that don't involve government employment of all health care workers. For example, we could create a national tax-funded single-payer system guaranteeing
a basic benefit and allow private insurers to sell supplemental coverage. Such a system could be FAR more efficient than the patchwork system that has developed here in the USA while being essentially cost-neutral or cost-reducing to consumers. And a national single-payer system would have far more leverage and motivation to introduce cost-saving reimbursement reforms than does our patchwork of insurance companies.