Monday, October 26, 2009

Carts, Horses and Healthcare

Tyler Cowen takes a valid premise, and then gallops off in the wrong direction.
The proposals now before Congress would require just about everyone to buy health insurance or to get it through their employers — which would generally result in lower wages. In other words, millions of people would be compelled to spend lots of money on something they previously did not want, at least not at prevailing prices.
That is the unfortunate result of our current "no new taxes" culture. It would be better for the poor, as well as for uninsured and underinsured working Americans, if a sensible tax reform funded basic insurance. People could still choose between plans, but we wouldn't have to worry about subsidies or whether the cost of insurance will be too onerous on people of limited resources. Obviously, forcing people to buy insurance for a price they deem to high - let alone at a cost beyond what they can reasonably afford - could (would) create a lot of resentment.

However, I think his argument that national healthcare amounts to a tax that would discourage the poor from trying to earn more is absurd. First, I don't know of many people who even think that way - "No, boss, I'm turning down that raise because due to its effect on my health insurance subsidy I'll only put half of it in my pocket". (Without digressing into the vagaries of the human mind, there's evidence that earning "more than the next guy" is a much more compelling factor than take-home pay.) Second, people don't always have the luxury of turning down a promotion, even if they want to. Third, people actually do recognize that raises and promotions are incremental - this year's raise may not be as much as you would like, but maybe next year's will be better. Fourth, most people are happy to pocket extra money, even if they would prefer to have more.

But I digress. The argument he offers that I find to be most flawed is this:
We’re often told that America should copy the health care institutions of Western Europe. Yet we’re failing to copy the single most important lesson from those systems — namely, to put cost control first.
Which European nation, in adopting a national healthcare plan, put cost control first? It seems to me to have been quite the opposite - that national healthcare plans were implemented in order to properly serve the needs of the nation's population, and that concerns about cost control arose considerably later. It may well be that, once a nation has implemented a national healthcare plan, cost control becomes a leading consideration, but the plan still comes first. If anything, doesn't Cowen's argument support the idea that the best way to make cost control a priority is to extend insurance to everybody through a nationally managed program?

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