Health Care Realities

I posted this response to a Krugman editorial that denounced McCain's health care policy proposal (which seems to be based on salutary market principles, but appears highly questionable in practice):

There is a fundamental distinction between health care and other sectors of the economy. The great majority of Americans will not in practice or in theory accept the appearance of unequal health care between the rich and the poor. In virtually every other area there is acceptance of this inequality, even in education. And, since the affluent demand a high level (ie, an expensive level) of care, the rest of society expects to receive a level of care reasonably comparable. This means health care will be very expensive and a significant part of society will be unable to pay the true price of their health care. Consequently, the affluent subsidize the less affluent through various government programs and in a number of other less visible ways (like free care for the indigent in emergency rooms).

 

The republican party notices this final result and denounces the economic unfairness of such redistribution and its economic inefficiency (stemming from lack of incentive to reduce medical costs on the part of those who do not pay for them). The democratic party notices that care is not in fact perfectly equal (though it is much more nearly equal than income)—and it denounces the unfairness of unequal treatment and its economic inefficiency (due to relatively limited preventive care available to the poor, which causes health problems to be ignored until they become serious and expensive).

 

McCain’s solution is absolutely irrelevant because it will never pass Congress. Why even analyse it?

 

But, Obama’s plan takes on a special signifance because the democrats will control Congress. One element not in his plan is any credible attempt to limit the increases in health care costs as a whole. This is the essential problem: health care absorbs 16% of GDP, and health costs grow much faster than GDP. Instead, Obama wants to shift around the costs by forcing productive members of society to pay yet another subsidy to unproductive (or less productive) members of society. The health sector is already massively redistributive (government pays, directly or indirectly, for 60% of total health costs), and Obama’s plan would probably have only a modest impact in increasing the level of redistribution. But, the underlying problem of cost is not addressed; it is entirely ignored. Yet, this is one of the major threats to our current position as the leading economy in the world—and also one of the principal reasons why median incomes in the U.S. have been flat for 30 years (it has consumed about half the gains that would have been realized through productivity growth).