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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.