Giuliani's Health Care Plan

I like the sound of this:

"Republican presidential hopeful Rudy Giuliani on Tuesday offered a consumer-oriented solution to the nation's health care woes that relies on giving individuals tax credits to purchase private insurance.

Critical to Giuliani's plan is a $15,000 tax deduction for families to buy private health insurance, instead of getting insurance through employers. Any leftover funds could be rolled over year-to-year for medical expenses."

Could this actually be passed by Congress if he were elected?

The U.S. Health Care System -- Not Really a Free Market

In this week's Economics Focus, the Economist explains:

TO MANY outside the United States, America's health-care system might seem an example of capitalism at its rawest. Europeans and Canadians enjoy universal health care and cheap drugs thanks to government-run systems, the argument goes, but the market-based approach taken by the world's richest nation leaves many millions uninsured and leads the rest to pay the highest drugs prices in the world. Such doubts are sure to be reinforced by this week's release of Michael Moore's “Sicko”, a much-trumpeted new film on health care that bashes the free-market Yankee model even as it praises the dirigiste alternative north of the border.

So is America's health system really red in tooth and claw? Hardly, according to a growing body of academic evidence. As a result of interference at the federal and state levels, health care is one of America's most heavily regulated industries. Indeed, its muddled approach to health-care regulation may act as a massive drag on the American economy—what one expert has called “a $169 billion hidden tax”.

I think it's good that the Economist is writing about this. There do seem to be many people who see private companies operating in the U.S. health care market and on this basis argue that it is the private-ness of the industry that makes it costly and ineffective. In reality, though, there is massive regulation in this area, and it is this regulation that is, arguably, the main problem. Take just two examples. First, health care benefits are tax-deductible, so big companies have an incentive to offer excessive health care packages, which, of course, are tied to employment with them. Second, health care insurance is regulated state-by-state, and thus moving states means you have to abandon your old plan and apply for a new one.

Obama's Health Plan: The Right Solution

Barack Obama has suffered a lot of criticism recently for failing to offer much substance. Well, at least in health care, that criticism is no longer valid. The details of Obama's health plan are now out:

Under Obama's proposal, everyone would be able to obtain health insurance, and the Illinois senator would create a National Health Insurance Exchange to monitor insurance companies in offering the coverage. In essence, Obama's plan retains the private insurance system but injects additional money into the system to pay for the expanded coverage.

Those who can't afford coverage would get a subsidy on a sliding scale depending on their income, and virtually all businesses would have to share in the cost of coverage for their workers. The plan that would be offered would be similar to the one covering members of Congress.

I think he's gotten this one exactly right. There is concern about too many people being uninsured. But the idea of having government agencies run aspects of the health care system, like with the John Edwards plan, will never fly. Obama found the right balance, in my view, both in terms of politics and policy. It's what I thought he should have done and I'm glad he did it.

ADDED: Based on other explanations I've seen, I'm going to have to think about whether I've characterized the plan accurately. More later.

MORE: Having read Ezra Klein's explanations (here, here and here), I think I had it just about right, although of course it's a complicated plan with a lot of nuances. Overall, it seems like good politics and not bad policy.

It doesn't fix a lot of my biggest complaints about health care, though. For example, why can insurance companies negotiate with doctors to get lower prices than would an uninsured consumer? I've always wanted to try going with no insurance except for serious illness or injury, but the higher prices I would have to pay for basic care mean that it doesn't make sense.

Obama's Health Care Pre-Plan

Obama on health care:

Obama said he's not wedded to any specific system, but he thinks the plan he'll eventually support will offer universal coverage and will squeeze efficiencies out of the health care system. It also will stress preventive programs, such as weight control.

"The status quo is unsustainable," Obama said. "Standing pat is not an option."

Obama said if he was starting from zero, he would likely support a single-payer system, similar to the government-run program in Canada. But he's leery of taking such a step because the United States already has a complex and established system of employer-based health coverage.

He said that the country is already moving toward a government-based health system.

"The government is already covering half the people," said Obama, noting that Medicare, Medicaid and veterans health systems cover a vast number of Americans.

To build a political consensus for a new system, Obama said he'll hold a series of similar meetings to gauge public sentiment. He plans to offer a health care proposal in a couple months, he said.

Some interesting statements. I'm not sure what to make of them. Saying he would support single-payer if starting from scratch might be his way of paying lip service to the extreme left view. The reference to "squeezing efficiencies" is a good sign that he will not go too far in expanding the government's role. It's still not really clear where he's going with this, though.

Private vs. Public Health Insurance

Tyler Cowen has a good piece comparing America-style private health insurance with European-style public systems. One of his key points:

On average, European systems are relatively good for the young, who are generally healthy and need treatment for obvious accidents and emergencies, with transparent remedies. European systems are less effective for the elderly, the primary demanders of discretionary medical benefits

It would be nice if Paul Krugman would read the piece. Krugman's articles on health care to date don't really put much thought into the issue. I'd like to see him move beyond the "private is bad" mentality.

John Edwards' Health Regulation Plan, er, "Health Markets"

Paul Krugman praises John Edwards' "Health Markets" plan (as quoted at Economist's View). As Krugman explains it:

People who don’t get insurance from their employers would... purchase insurance through “Health Markets”: government-run bodies negotiating with insurance companies on the public’s behalf. ...

Why is this such a good idea? ...[M]arketing and underwriting — ... screening out high-risk clients — are responsible for two-thirds of insurance companies’ overhead. With insurers selling to government-run Health Markets, not directly to individuals, most of these expenses should go away, making insurance considerably cheaper.

As an initial point, it seems a bit Orwellian to describe "government-run bodies" as "markets." It's very deceptive, at the least. This is not a free market plan in any sense. Rather, a federal government entity will be running things. Think of the Post Office for health insurance.

Second, he seems to be saying that we are going to add an extra layer of government bureaucracy to the existing framework, and that will bring costs down. Well, my head is spinning a bit, but maybe I can figure this out. Perhaps he means that the price of insurance will not include the costs incurred by these new government entitities, which will be paid for by taxpayers. As a result, the retail cost of insurance will decrease. Hmm. I think it may be worth trying to calculate the government entities' costs before rendering a verdict on this plan. Something tells me these costs will be non-negligible.

Krugman Makes the Case for Single Payer ...

... and leaves me unconvinced.

In a recent column, Paul Krugman argues that Gov. Schwarzenegger's health care plan is flawed, and says that a government-run single payer system is the only solution to current problems. He describes the Governator's plan as follows:

The Schwarzenegger plan, by contrast, is a series of patches. It forces everyone to buy health insurance, whether they think they need it or not; it provides financial aid to low-income families, to help them bear the cost; and it imposes "community rating" on insurance companies, basically requiring them to sell insurance to everyone at the same price.

As much as I dislike regulation instinctively, this strikes me as a somewhat reasonable approach to today's health care mess. I especially like the last part about requiring insurance companies to sell to everyone at the same price. The current system discriminates against small businesses in a manner that is completely unfair.

But Krugman doesn't like the plan, for the following reasons. First, he says: "in the end health care should be a federal responsibility. State-level plans should be seen as pilot projects, not substitutes for a national system. Otherwise, some states just won't do the right thing." Hmm, because some states might make bad policy, we should make sure the federal government sets up one national policy. Because the federal government would never make bad policy that applied to the whole country, would it? No, of course not.

Then, he explains that he prefers a "single-payer health insurance system," which he describes as "similar to Medicare, under which residents would have paid fees into a state fund, which would then have provided insurance to everyone." He then explains that this would be less "intrusive" than Schwarzenegger's plan.

OK, first off, a government monopoly on health care insurance is less "intrusive" than a private system with government regulation? I don't think so. If I don't like the government plan, I have no other options! Second, let's think about some other areas where there is a government monopoly. How about, say, the postal system. How has that worked out for you Mr. Krugman? For me, it has been nothing but long lines and bad service. Is any industry really better off when competition is eliminated?

The good news is a single-payer system is not likely to happen any time soon. Americans understand socialism and they don't like it. But the bad news is that well-respected people like Paul Krugman are out there trying to convince people that this is a good idea, and at the margins he may actually garner support for it.