Tyler's Triple on Health Care
By David Henderson
Hey, it’s baseball playoff time and the article is in the New York Times and so of course I’m going to use a baseball metaphor. In his column today, Tyler Cowen addresses many of the problems with having government mandated and subsidized health insurance. The whole piece is, as Tyler would say of others’ work, well worth reading. Here are some highlights:
. Marginal tax rates. Tyler points out what others have pointed out before–see, for example, Greg Mankiw’s October 10 post–but something that hasn’t got nearly enough attention. The phase-out of the subsidy over an income range imposes a steep marginal tax rate on additional income for people in that income range. And it’s a large range. Which means that a substantial percentage of the population–he doesn’t give an estimate but I would guess at least 20 percent of the population would face increases in marginal tax rates of about 20 percentage points. That’s percentage points, not percent. This, in turn, means that the government’s revenue from the income tax and from payroll taxes is likely to fall, perhaps by a lot. My impression is that the CBO, in its estimates, has not taken account of this effect.
. Tyler points out that once health insurance is mandated, many provider groups get busy pushing for the mandated version to cover their particular service. This, of course, drives up the price of health insurance.
. He also notes that it seems strange to mandate additional coverage if the goal is cost (he really means “expenditure”) control.
So why a triple rather than a home run? Because, as the previous point indicates, Tyler confuses costs and expenditure. Expenditures on health care have risen substantially as a percent of GDP. Costs? Not so much. Indeed, with the introduction of a lot of new drugs, for some diseases costs, inflation-adjusted, have actually fallen by precluding the need for hospitalization.