Wednesday, January 20, 2010

Federalize Healthcare?

In light of the possible failure to build healthcare reform at the national level, there are growing pressures to federalize healthcare and turn it into a States issue. This is something Scott Brown is behind as well--he supported Romney's universal healthcare proposal while opposing the (similar) national healthcare plan. But Ezra Klein disagrees:
Size matters. Just as Wal-Mart lowers prices by using their size to demand savings, in other countries, governments wield their massive size and market share to bargain down the costs of health care. America doesn't. It's very simple, and very well understood...

So on average, we overpay by 60 to 70 percent for pharmaceuticals, largely because we, unlike every other country, don't bargain down the costs. We're in fact subsidizing their discounts, as the pharmaceutical companies can raise our prices to lower theirs. In a nationalized system, that would change. In a system with 50 states all on their own, it wouldn't
Well, look at those European countries which have better healthcare due to "scale" issues. Switzerland has fewer than eight million residents. Denmark has fewer than six million. Yet both countries, along with even smaller European countries, manage cheap and well run healthcare systems. The Swiss system is even more free-market than the one America has.

America of course fails to use its scale in curbing health costs, in large part due to regulatory capture. Ezra has no solution to this problem. But moving healthcare into the responsibility of European-sized American states might just induce them to figure out European-style solutions. More importantly, it allows different states to figure out whatever basket of public and private provision best suits their needs.

Yet I'm increasingly worried that this whole healthcare debate has gone nowhere chasing the chimera of "inefficient spending" on healthcare. Yes, Europe spends less on healthcare. But Europe spends less on everything. It spends less on education, and gets better results. Should we revamp our education system along European lines because we are so certain that 20% of health spending is wasted?

Mankiw had a great link up on Baumol's cost disease. The idea is that greater income induces greater spending in sectors which don't benefit from greater efficiency--mainly those which are human-intensive. Like healthcare. In this view, it's no surprise that America spends 30% more or whatever on healthcare--America is 30% richer than everyone else.

This overstates the issue a bit. People tend to over-consume healthcare because they don't pay for it and aren't aware of the costs, which are immediately born by tax-free insurance premiums and government programs, but which ultimately result in lower wages. But the health plan under consideration doesn't really target this issue, except for the (now, all but scuttled) tax on Cadillac insurance plans. Whatever cuts are present would have been needed anyway to stave off looming deficits--now we'll have to figure out how to cut even more "fat" from health spending on a larger base of Welfare State entitlees.

1 comment:

TGGP said...

Ilkka Kokkarinen noticed that a while back.