Why both liberals and conservatives will lose on health care (in the short run)
By Scott Sumner
Our current health care system fails at almost every level. Because the health care for most people is paid for by third parties (mostly the government), costs have exploded to levels far high than optimal. This has reduced real wages for millions of Americans. And yet tens of millions of lower and moderate-income people have no health insurance at all.
Liberals want to remedy this situation with some form of universal health care, while conservatives would like to the system to adopt more free market mechanisms to hold down costs. Both will likely fail.
The basic problem here is that health care has grown to 17% of GDP, a level where the industry is simply too powerful to reform. Washington state recent adopted a public option, allowing its citizens to buy into a Medicare type insurance policy. But opposition from the health care industry was so strong that they had to boost payments to 160% of Medicare levels to buy off the opposition.
But the law also made big compromises that experts say will make it less powerful. To gain enough political support to pass, health care prices were set significantly higher than drafters originally hoped.
“It started out as a very aggressive effort to push down prices to Medicare levels, and ended up something quite a bit more modest,” said Larry Levitt, senior vice president for health reform at the Kaiser Family Foundation.
The basic problem for both liberals and conservatives is that their proposed reforms would imply a huge fall in income to the health care industry, and that’s not politically feasible for the following two reasons:
1. Liberals favor European style health care, which typical costs about 10% of GDP. It’s not politically feasible to raise enough revenue to pay for a Medicare program costing 17% of GDP. Indeed that sum is greater than the total amount of revenue currently raised by the federal government. Socialized medicine in America can only be achieved by slashing the incomes of doctors, nurses, administrators, support staff, and other medical industry personnel to much lower levels.
2. Conservatives favor a more market-oriented approach, as in Singapore. But Singapore spends only 5% of GDP on health care, a sum that would be completely unacceptable to America’s health care industry.
Liberals believe their opponents on health care are heartless conservatives. Conservatives believe their opponent are starry-eyed liberals. Both are wrong; it is the health care industry itself that blocks all meaningful reforms.
Maybe change will be possible in the long run, if we nibble away at the power of big medicine in a 100 tiny reforms, one step at a time.
HT: Tyler Cowen