I thought I would opine quickly on the currently hot topic of health care reform. I should preface this with a few facts: (a) I don't really know anything about the reforms on the table; (b) I'm not a health economist; (c) I don't really have a dog in this fight. But I do know something about economics.
The fundamental problem in our health care system is that it costs a lot. This is particularly bothersome for the federal government budget outlook, as the federalis pay for roughly 50% of American health care. Either we're going to have to end public support for 50% of health care (i.e. eliminate Medicare or Medicaid, which isn't happening), or we're going to have to raise taxes, or we're going to have to cut other public expenditures, or we're going to have to cut health costs. All of the plans for reform are ultimately aimed at cutting costs and increasing coverage, which are actually related.
One of the reasons health care costs so much is that our current system doesn't incentivize individuals to make efficient decisions. Most Americans receive their insurance through their employer. Because health care is a deductible expense from the perspective of corporate taxes and is not taxable for the purposes of individual income taxes, well, there are strong tax-based incentives to have a "whole lot" of insurance, in which people have low deductibles and low co-pays.
The typical low co-pay rate is something like 20%. This means that an individual only pays for 20 cents of each additional dollar of care. Therefore, we end up with a system in which individuals go through a battery of often unnecessary (and surely inefficient) tests, etc.. This drives up overall costs.
In effect, we've gotten away from what insurance is really meant to be. Insurance is meant to be protection from a rainy day -- i.e. it insures you against *really* bad events. In other words, in a perfect world insurance is meant to insure you against needing a bone marrow transplant, not dealing with an ear infection. A far more efficient system would have people basically pay for day to day things (like ear infections, etc..) and get the treatment they need when something bad happens. This would mean a system with high deductibles and higher co-pays. But the current tax system doesn't encourage a system like this, for the reasons enumerated above. Thus, a good first step would be to change the way in which health benefits are taxed at both the corporate and individual level.
But that doesn't come without costs. I'm actually quite sympathetic to the notion of increasing insurance coverage. If we lived in a system where individuals bought insurance on their own, we'd run into a pooling problem that would cause the insurance market to completely break down. The people who are healthy would choose not to buy insurance. The removal of the people who really need the insurance from the pool of the insured would increase the risk of the pool, driving up the costs of those who really need the insurance.
Another benefit of having increased coverage would be that fewer people would show up at emergency rooms for common colds. This is currently what uninsured people do, given that emergency rooms won't refuse them service.
What we need is a system where (a) most people are insured and (b) individuals have an incentive to efficiently choose their care. Eliminating tax incentives for health would be a good first start, but I won't pretend to know where to go from there.
The BPE . . . out.
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