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The 2020 Public Services Trust Blog

Friday, July 31, 2009

The Healthy Option?

By Henry Kippin

Obama’s healthcare plans are enduring a slow and painful birth. The President himself has claimed that parties are in ‘broad agreement’ over his proposal to inject a public player into the US healthcare insurance market, but congressional committees are apparently still debating how to structure and fund the scheme.

We have written on this blog before about the potential value of a public sector player in a mixed market – and in this case the government option proposed by Obama has potential to pull down costs for the consumer (see this excellent New Yorker article for info), and set a bar in terms of quality and access. As Paul Krugman spells out today, a wholly private market has the potential to skew incentives away from user interests:

“The key thing you need to know about health care is that it depends crucially on insurance. You don’t know when or whether you’ll need treatment — but if you do, treatment can be extremely expensive, well beyond what most people can pay out of pocket. Triple coronary bypasses, not routine doctor’s visits, are where the real money is, so insurance is essential.

…Yet private markets for health insurance, left to their own devices, work very badly: insurers deny as many claims as possible, and they also try to avoid covering people who are likely to need care.”

It is easy to see why those with a vested interest have spoken out against the scheme, but some on the American right are also arguing from an ideological perspective – that a free (or rather unregulated) market is preferable, and it is actually Medicare and Medicaid that have contributed most to escalating costs.

This is fair enough, but arguing for less regulation in the aftermath of the banking crisis seems a bit foolish. What Obama has developed is a plan that is fundamentally market-friendly, and there is little evidence that a truly free market for healthcare would work anyway. As Krugman argues:

“To the extent we have a working health care system at all right now it’s only because the government covers the elderly, while a combination of regulation and tax subsidies makes it possible for many, but not all, nonelderly Americans to get decent private coverage.”

Policymakers in this country will be eyeing the debate carefully, and especially because real limits on public spending may ultimately be the catalyst for more diverse means of providing public services. Despite being played out on fundamentally different terrain, the US healthcare debate shows that getting the right mix of providers and incentives – and thus being careful about market design and regulation – will be key skills for any future government.

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Posted by Henry Kippin at 9:54 am
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