The Worst of Both Worlds

We lost.   They won.

We are:

Progressives who favor a single-payer system

Libertarians who favor HSAs

Moderate economists who favor cost control to free up money for other societal goals

They are:


Pharmaceutical companies


Private prepaid health plans (for some odd reason referred to as “insurance companies”)

Medical device makers

And many other special interest groups

Kausfiles summed it up perfectly:

Today’s left and right anti-Reid activists have a common enemy in corporatism, the easy alliance between Big Government and entrenched, favored too-big-to-fail businesses (Aetna, AIG …. ) that threatens to give us all the inequality of capitalism with all the dynamic innovation and accountability of socialism.

I’m no health care expert, and don’t even know the details of the bill.  The issue that concerns me is health insurance.  I’d like to switch to a system where people paid for the overwhelming majority of their health care expenses out of pocket, like any other service.  Something like the plan Brad DeLong once proposed (but without the regressive sin taxes.)  The way to achieve this is with a combination of HSAs and catastrophic insurance.  According to the Wall Street Journal, the new bill effectively outlaws HSAs, by mandating coverage of all sorts of wasteful procedures, such as the scam of using expensive medical equipment to test for all sorts of possible diseases someone might have, even when there is no scientific evidence that the tests are helpful.

At first I discounted the WSJ report, as their editorial page has a right-wing bias and can be unreliable on occasion.  But my last glimmer of hope was extinguished when the more liberal LA Times confirmed the WSJ report.

Is there any good news in the report?  I hope one of you can cheer me up.  I heard that the tax on “Cadillac plans” survived.  That could be significant, but only if it is not indexed to inflation.  I suppose we’ll have to wait for the final committee compromise, but right now it doesn’t look good.

There is a lot of talk in the press about all the cost containment experiments in the bill.  We already have a good mechanism for experiments—it’s called “states.”  Remember the Massachusetts plan?  One of my commenters disagreed with me when I said that the Massachusetts plan outlawed HSAs.  He claimed they were allowed.  Maybe so, but this debate is now a moot point, as the Federal plan will supersede all state experiments, and Massachusetts will have to give up its HSAs.

You might think HSAs are a side issue; after all they only cover 4% of workers.  Yes, but they covered only 1% in 2006.  The medical industrial complex is made up of very smart people.  They currently rake in 16% of GDP, and the percentage is rising rapidly.  They weren’t going to stand by and allow the adoption of a system that spends only 5% of GDP in Singapore.

Sometimes I think the two political extremes blew an opportunity.  Let Medicare take over catastrophic insurance for everyone, and let HSAs cover 95% of health care bills.  Then provide a subsidy to low income workers’ HSAs.  Voila, no private insurance companies.  But realistically, how likely was it that a bunch of idealistic single-payer and HSA advocates were going to beat a $2.2 trillion dollar industry?  Once they started to pressure those Democratic “moderates” then all the talk about “bending the curve” seemed to disappear.  And the Republicans probably thought “why should we help the Democrats win a big bipartisan victory.  If we demagogue Medicare maybe we can win the mid-tern elections.”

But don’t despair.  No matter how powerful the medical-industrial-complex appears today, history shows that no special interest group is invincible (except lawyers, obviously.)  Remember back in the 1950s when 35% of workers were unionized?  I’m sure most people at the time thought that they were also politically untouchable.  Now they are down to about 7% of the private sector workforce.  Perhaps someday we’ll have drugs that can prevent or cure diabetes and cancer, and eventually the patents will expire and they’ll become generics.  Technology is probably our best hope for preventing the medical-industrial-complex from eventually swallowing the entire economy.

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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

1 Comment on The Worst of Both Worlds

  1. “Perhaps someday we’ll have drugs that can prevent or cure diabetes and cancer, and eventually the patents will expire and they’ll become generics. Technology is probably our best hope for preventing the medical-industrial-complex from eventually swallowing the entire economy.”

    That’s if a cure isn’t held up by the revolving-door Big Pharma reps on our FDA panels.

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