Assessing the Health Care Debate

The health care debate is picking up intensity, thanks to President Obama and Congress’ ambition to accomplish something on that front in the current year. The eventual shape of the legislation is still uncertain, and plenty of folks are weighing in to try to influence its final shape (in fact, 2009 is looking like a bumper crop for lobbyists). It’s another good example of the realities of political economy – but this time with at least one interesting twist.

Perhaps the biggest question around health care reform is how to finance the cost – and one of the clearest ways of doing so is to end the favorable tax treatment of employer health benefits, as the WSJ’s Kimberly Strassel notes. Strassel points out, however, that candidate Obama attacked candidate McCain on this proposal repeatedly, and that there’s an anti-populist impact to it, as it would hit most union members rather hard, thanks to their generous health plans. While Senators are busy trying to carve out an appropriate compromise, we believe this is yet another example – like the mortgage crisis and the tax troubles of some of Obama’s cabinet appointees – that the 80 billion pound elephant in the room is our tax code.

Finally, the CEO of Safeway penned an op-ed about an innovative approach to health coverage at his company. Assuming the numbers haven’t been massaged, Safeway has managed to keep a lid on health care expenses for four years, and they’ve done it with risk pricing – offering discounts for healthy weight, blood pressure, and cholesterol levels, and avoiding tobacco use – and offering annual repricing to reward progress made on any of those counts. He then points out some room for improvement in prevailing policy (we assume that $1,400 is the marginal cost of insuring a smoker, and not the total monthly cost – otherwise the math might be different):

Today, we are constrained by current laws from increasing these incentives. We reward plan members $312 per year for not using tobacco, yet the annual cost of insuring a tobacco user is $1,400. Reform legislation needs to raise the federal legal limits so that incentives can better match the true incremental benefit of not engaging in these unhealthy behaviors. If these limits are appropriately increased, I am confident Safeway’s per capita health-care costs will decline for at least another five years as our work force becomes healthier.

DISCLOSURE: Symmetry Capital Management, LLC, its clients, and the author have no positions in Safeway or any other companies mentioned.

UPDATE  2009.06.19  Some interesting comments by prior Senate Leader Bill Frist on CNBC this morning – he argued that there are significant gaps in the U.S. medical system that need reform, and also outlined some of the inescapable tradeoffs involved. You can watch a replay here. There’s a related interview here on a Price Waterhouse report on the costs of health care to small businesses.

URLs:

http://www.time.com/time/nation/article/0,8599,1904312,00.html

http://www.foxnews.com/politics/2009/06/11/lobbyists-spend-millions-fighting-obama-universal-health-care-plan/

http://symmetrycapital.net/index.php/blog/2009/06/updegrave-free-market-morality/

http://online.wsj.com/article/SB124476309180208203.html

http://www.nytimes.com/2009/06/12/us/politics/12obama.html?ref=global-home

http://symmetrycapital.net/?s=tax+simplification

http://online.wsj.com/article/SB124476804026308603.html

http://www.cnbc.com/id/15840232?video=1157943588&play=1

An Alternative View of Healthcare

Judge Richard Posner, co-blogger of economist Gary Becker, posted an interesting piece on the American healthcare system recently:

http://www.becker-posner-blog.com/archives/2007/04/the_reform_of_h.html

Posner’s perspective is shaped by his conservative ’Chicago School’ background, but unlike the noise emanating from the soundbite punditocracy and presidential campaigns, his post has a refreshing honesty that comes from the ability to openly speculate. He brings up some alternative viewpoints that are worthy of exploration and too often ignored in popular coverage of healthcare issues. Among Posner’s objections, he argues that rising healthcare costs should not be assumed, without deeper investigation, to be a sign of trouble; that longevity is not necessarily the proper measure of health care quality; and that the proper focus for any policy debate is on opportunity costs, i.e., assessing the next best use of available resources.

On the first objection, he writes:

It is true that health costs are rising faster than the inflation rate. But rising costs, even of “essential” products and services, such as food, health care, and national defense, do not necessarily demonstrate the existence of a problem. Costs may be rising because quality is rising, which is true of health care (new and better therapies and diagnostic tools), or because demand is rising (and average cost is not flat or declining), which is also true; as people live longer, their demand for health care rises because more health care is required to keep people alive and healthy the older they are.

On the second:

It is also true that Americans spend much more on health care on average than the people in other wealthy countries do, without greater longevity to show for these expenditures. But health care does much more than extend life; it alleviates pain, discomfort, disfigurement, limited mobility, visual and hearing impairments, and mental suffering, and it is not clear that foreign health systems, which also involve considerable costs in queuing, do these things as well.

He concludes with his argument about opportunity costs, which in our view is one of the most valuable (and also most underappreciated and underutilized) concepts that the field of economics has contributed to social science and to public policy debates:

The question should be not whether the percentage of spending that goes to health is increasing but whether there are better things to spend some of the $2 trillion on than health care. Notice that liberals’ concern with the increasing percentage of expenditures on health parallels conservatives’ concern with the increasing percentage of GDP that is spent on government services. In both cases the proper concern is not the percentage of overall spending that goes for a particular class of services but whether there are better uses for some of the money being spent for those services. [emphasis added]