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Economic Report of the President
Here is the report, I have a few comments:
1. The staff which writes these reports is excellent in quality, and has been so throughout the Bush Administration.
2. What exactly is the function of the report? To persuade the media? Congress? To subtlety redefine the position of the White House, and push it in a more market-oriented direction, perhaps without the White House itself noticing? Lay out markers for future policy initiatives? This is a critical question for evaluating the report.
3. The report is heavy on Health Savings Accounts and the Global Savings Glut. I would have preferred a more forward-looking approach, less tied up in the politics of the day.
4. I am a market-oriented economist who believes that capital income, ideally, should not be taxed. If I am not persuaded that HSAs are the major way to go for health policy reform, something is wrong. Furthermore other health care reforms should be considered, such as improving the performance of insurance companies, whether through regulatory or deregulatory means.
5. There is no serious talk of a gas tax, economic preparations for a pandemic, global warming, or research and development.
6. The chapter on copyright reads like someone is tiptoeing around, afraid to offend anybody by speaking the truth and afraid to offend God by writing any falsehood.
Here are Setser and Roubini on the report. Arnold Kling has several posts on the health care section. DeLong and Sawicky snort and guffaw.
Posted by Tyler Cowen on February 15, 2006 at 02:04 PM in Economics | Permalink
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Comments
HSAs would work okay for minor medical problems but not for major medical conditions (like cancer) or chronic problems (like diabetes). We still need insurance for these types of problems. Now ordinary health insurance would work fine for short-term medical conditions like broken bones or non-chronic diseases. But I don’t think a private company will do so well in insuring against chronic problems for several reasons:
1. They won’t cover pre-existing conditions. If you are already diagnosed with diabetes, they won’t want you or they will want to charge you more - which is effectively like not having insurance against diabetes.
2. They will want to discriminate against you if you have a bad family history or bad genes. This is reasonable from the company’s point of view – they need to know their risks.
3. Once they know you have a chronic disease, you become a liability to the company. I don’t know about you but I would hate to deal with a company that wishes I were dead. Most of the nice experiences we have with companies stem from the fact that they are profiting from the relationship. Once they are losing money on the relationship – the relationship sours, (think landlord and tenet in a rent controlled apartment).
4. Insurance for chronic disease is an extreme risk for the insurance company. They run the risk that some chronic disease that would just kill you today will be treatable in the future with obscene amounts of money (much like AIDS). This risk could bankrupt the insurance companies.
My feeling is that chronic disease insurance is basically social insurance. This is a type of risk is best treated with risk pooling: everyone puts in a piece of his income and each will get back money from this pot according to his medical state – if you have a chronic disease this money will cover that. If it sounds vaguely Marxian – “From each according to his ability, to each according to his needs” – it is. But I think this is what most people would want. They don’t want to run the risk of getting a chronic disease and not be covered for it. And this leaves the entire medical industry to be free from government intervention.
This is an important point: we can make a basically free market for health care if we separate the social insurance aspect of our current health care system. We can be free to contract directly with the insurance company of our choice and find the plan that fits our budget.
Posted by: Michael H. at Feb 15, 2006 3:05:20 PM
I've said it before and I'll say it again: it's REALLY HARD to make profits work as an incentive in an industry where paying out money is what you do for your customers.
Posted by: Tim at Feb 15, 2006 4:50:05 PM
I agree with Tim & with Michael's point 3. Can a model be found which aligns to goals of the providers with the goals of the consumers?
On Michael's point 2: the company does need to know their risks, yes, but they need to know the *average* risk over each person they are covering. There is no point in knowing the exact risk a particular policy exposes the insurer to. Insurance is designed to spread risk, not to tell people how much they need to save to account for their particular level of risk.
Posted by: Daniel at Feb 15, 2006 11:00:13 PM
More regulation won't make them more competitive or performming better, just look at the German health insurance market. There we have two systems coexisting, a private insurance system and a state insurance system. While the latter is regulated, the first is a better free market version. Of course it is more expensive to have a private insurance, but you also get more quality for it and they are solvent. On the other side, the regulated state insurance companies have a financial disaster ahead of them and they are not providing the best possibilities in the case of a illness or injury.
Therefore, deregulation is the better way, imo, because more regulation also reduces flexibility and this is something very important on the health market.
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