The Recent Health Care Bill

I’ve stayed quiet during the recent health care debate, primarily because the bill under discussion was so long and complicated that I wasn’t sure I understood the issues well enough to weigh in intelligently. That doesn’t seem to be an obstacle for most economists, but I try not to fall into the trap of thinking that publishing some papers on one topic automatically makes me an expert on every topic.

For people who are interested in my views on health care — I’m not sure there is anyone who falls into that category in the first place — my suggestion is to read Gary Becker‘s excellent blog post on the subject. His conclusions are remarkably similar to my own, but his views have the virtue of being anchored in a careful analysis of the specifics of the legislation.

In Becker’s opinion, the health care bill that passed recently is a disaster for at least two reasons. First, it seems to do little or nothing to deal with the single most important shortcoming of our current system: the fact that people pay very little on the margin for the medical care that they receive. Imagine that you could show up at a car?dealership and have any car you wanted, and as many cars as you wanted, for no marginal cost. The market for cars would be in complete chaos, and people would have too many cars, and the ones they had would be too nice.

That is more or less the situation we now have with health care. It isn’t pretty to talk about, but if it costs $200,000 to keep an octogenarian alive for a month, someone has to pay for it. If it were the children of that octogenarian who had to cover part of the bill, and paying for that last month of life was the difference between being able to pay for the octogenarian’s grandchildren to go to college or not, there would be some hard choices to make. With health care expenditures approaching 20% of GDP, there are going to be tough choices. Markets cannot function when the people who receive the benefits of a good or a service are not the ones who are paying for it.

The second huge flaw in our current system, as Becker points out, is that health care is provided through employers, leading to job lock, lost coverage when people become unemployed, etc. While the bill does have some elements that weaken the link between employers and health care, it also has other features that strengthen it.

Ultimately, it is hard to believe that this bill will be a net positive. It remains to be seen whether it will be a wash, or far worse.

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  1. kevin says:

    I’m sure you’ll be flamed for your comments.

    The GOP should have found a better way to get Becker-like analysis out earlier, rather than allowing an uninformed few to be the “oh no socialism!!” drum.

    The bill, though it will cover many who were not previously covered, and it will prevent insurers from cheating people based on the fact they got sick at some point.

    But, the major problem is exactly what Becker states: this is a law that is a fix on top of other broken policies. Neither side should be very happy with this. But, politics and the “something must be done; we can’t wait; and something is better than nothing” mentality prevailed.

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  2. gattrell says:

    You clearly have health insurance that actually pays for your healthcare. Many pay and get little or nothing, or have none at all. We all pay when they become ill. I don’t think you can possibly understand until you have to go without food so your child can have the medicine he needs. Or until you have been told that you need surgery and you can’t have it because it would bankrupt the family. It is more than beans that are being counted. Healthcare is not an option. It is a necessity, and while this bill may not be perfect, it is a start. Even the rich depend on the poor to work for them so they can amass more wealth. We need to make sure all the people are healthy and able to contribute. It benefits the well-being of the whole nation.

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  3. Brett says:

    I can’t imagine the existence of anyone who wanted THIS health care bill to pass and didn’t fall into one of the following two categories:

    1 – They didn’t understand the contents of the bill and how it would effect Americans, but were swayed by the rhetoric of people who sell ideas for a living.

    2 – They didn’t care about the effects this bill would have on Americans, but understood that their own financial or political capital would increase as a result (GE stock holders, politicians, etc.)

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  4. DaveyNC says:

    This thing won’t work because it was, in the end, a means for the Democrat Party to create another entitlement along the lines of Social Security and Medicare that quickly becomes a “third-rail” type of issue. This allows the Dems to claim they acted to help the people when in fact it allows them to threaten future voters that unless they vote for the Dems, the evil Republicans will take health care away.

    It gives them a big club to swing the way that they swing the Social Security club. Remember what happened when Bush tried to put a bill through that would have allowed people to designate 2% of their Social Security payment into a self-directed account? You would have thought that Bush was proposing sending that 2% to the Republican party coffers.

    It does nothing to help the people and in fact, drives costs up even faster than they would have gone up otherwise.

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  5. Erik Brynjolfsson says:

    Steve, you’re wise to say “I try not to fall into the trap of thinking that publishing some papers on one topic automatically makes me an expert on every topic.”

    But then why not reference some of the excellent work by people like David Cutler or Jon Gruber who have studied the health care system much more intensively that you or Gary Becker?

    They both conclude that the new law is a big improvement over what we have, and all the plausible alternatives. Not only will over 30 million Americans now get health coverage (it’s both cruel and inefficient that we left so many people uncovered for so long), but it also saves $600 billion over the next decade (see and even reduces the deficit according to the CBO.

    Gruber heads the Health Care program at the NBER and helped design Mitt Romney’s Health plan plan. Here’s his excellent summary of the trade-offs involved:

    Take a look and let me know if you update your beliefs.


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  6. Fritz Mills says:

    None of your points are wrong, but I think they are irrelevant in terms of what the primary goal of this bill was: which was to provide health insurance to everyone. Further, most folks are likely to be opposed to any system that forces people to choose between whether their 80-year old relatives live or die (death panels, anyone?), or their children go to college.

    The problems you cite will require a radical overhaul in the way health care is paid for, which is a much more difficult political problem than providing universal health care within the currently existing structure of health care delivery and employer-provided health insurance.

    In an automotive analogy, it would be much better if all cars were powered by electricity that was provided by inductive coils embedded in the road surface (thereby eliminating the need for large, heavy batteries in automobiles and limitations on driving range, while reducing dependence on foreign oil). The problem is that those roadways don’t exist, and building them would be so expensive and time-consuming that it just isn’t ever going to get done.

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  7. Frank says:

    Just as easily as you tell the anecdotal story of an 80 yr old prolonging her life for 1 month because she doesn’t feel the cost, you can tell the story of the 25 yr old who forgoes preventative care (because he feels the cost), only to have huge medial bills down the road. It’s a two way street, Unregulated markets often fail when people don’t know what’s best for them.

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