KISS our Healthcare Woes Goodbye

Josh Barro has a good article, which exposes the fact that the GOP doesn’t really have a good alternative to Obamacare.  But there are good alternatives (Josh is generally too pessimistic), and Obamacare is a lousy healthcare system.

We need to do three things:

  • Make healthcare affordable.
  • Do so without running up costs.
  • And hold down costs without excessive inequality.

It’s not easy, but it’s actually not all that hard either.  We need to implement 4 reforms:

  • Stop subsiding health insurance (end the tax deduction).
  • Deregulate, deregulate, deregulate, (health care provision.)
  • HSAs plus single-payer catastrophic.
  • Decentralize, decentralize, decentralize.

The first item is the low hanging fruit; intellectuals in both parties support ending the tax deduction. McCain ran on it, and Obama included a very gradual phase-out in his plan.  It might take 50 years, but eventually the Feds won’t be paying 35% to 40% of the cost of health insurance.  This will put enormous pressure on providers to hold down costs.

The second item is more low-hanging fruit.  Progressives like Yglesias and reactionaries like me both want more immigration of doctors and nurses, and more ability of non-doctors to provide routine medical services.  The immigration reform will happen within a few years, but occupational licensure is a much tougher nut to crack.

The third item is the most controversial, opposed by the left and the right.  The left doesn’t like HSAs, but for the wrong reason.  If the government provides universal catastrophic (defined as coverage for health care expenses that exceed your HSA account), then the effect on equity is quite small.  Indeed compared to our current system it’s not even clear which way it goes.  HSAs do increase inequity a bit, but universal single-payer catastrophic coverage improves equity.  The GOP doesn’t like government health insurance, but once you have HSAs and universal catastrophic, there’s really nothing for private insurance companies to do, other than skim off money from the system.  If I’m wrong about equity, any deterioration could be offset in a VASTLY more efficient way with low-wage subsidies.  Having people consume health care that others pay for encourages enormous waste.  Avoiding HSAs is a very inefficient way to improve equality a small amount, when the universal catastrophic coverage has already taken care of the worst inequities.

The fourth item is more important than many recognize, more low-hanging fruit.  If we go to universal single-payer catastrophic, the public system will be HUGE.  The Feds can’t run that sort of huge system efficiently.  Look at that New Yorker article comparing Medicare in El Paso and McAllen, if you don’t believe me.  Even small Scandinavian countries don’t run it at the national level (I’m told); they run the system and raise the revenues at the county level.  So the government part of the system should be run and financed at the county level.  The only role of the Federal government should be to give lump sum payments to each county, based on population, age distribution, frequency of obesity, etc. The grant would equal the expected cost of the county’s program.  At the margin every dollar of waste in McAllen should come out of the pockets of their taxpayers, and every dollar of saving in El Paso should free up money for other programs like roads and schools.

About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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