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February 11, 2007

John Edwards Leaves The Gate On Health Care

From Dean Baker I learned...

John Edwards jumped ahead of the other designated major candidates in proposing a detailed plan to get to universal coverage.

Hooray for Senator Edwards, who deserves nothing but credit for jump-starting the debate.  His proposal envisions a future with mandatory universal insurance coverage, provided through a combination of public and private sources, and "regional Health markets" designed to resolve the problem of constructing adequate risk pools.

The risk-pool problem has presumably helped (along with tax subsidies, of course) to entangle the provision of insurance with employment, but Senator Edwards is apparently uninterested in moving away from employer-based health care plans:

Businesses have a responsibility to support their employees’ health. They will be required to either provide a comprehensive health plan to their employees or to contribute to the cost of covering them through Health Markets.

This doesn't seem like such a good idea to me.  As Gary Becker wrote not too long ago:

The tying together of health insurance with employment is partly a legacy of World War II, when employers began to offer health insurance as a fringe benefit to help them compete better for workers whose wages were regulated by the wartime government. Employer-provided health insurance expanded over time even after wage controls were abolished because income tax rates rose greatly over time. This artificial incentive to combine health insurance with employment would be eliminated under [President Bush's] proposal.

Or, as Mark Thoma notes (citing an argument by Ezekiel Emanuel and Victor Fuchs that was also picked up by Arnold Kling):

...there does seem to be movement toward universal care, and all sides generally agree that employers should get out of the health insurance business.

An argument for employer-based system might start with arguing that it is the only way to combat the isolate and kill strategy of insurance companies described by Brad DeLong

Insurance companies work like dogs to avoid selling insurance to people who are expensively sick or likely to get expensively sick. As a result, a huge amount of people's work-time and information technology processing power are wasted on the negative-sum game of trying to pass the hot potato of paying for the care of the sick to somebody else. The more people separate themselves or are separated into smaller and smaller pools with calculably different exposures to risk, the worse this problem gets. The way to solve it is to shove people into pools as big as possible.

Tyler Cowen has a response to this, but in any event it would seem that the Edwards regional Health markets gets to that issue independently -- why the insistence that businesses "provide a comprehensive health plan to their employees"?

The best -- or at least the cleverest --argument I've seen for employer-provided insurance comes from Steve Landsburg in his book The Armchair Economist:

Employers typically have less than perfect information about what their employees are up to. This makes it hard to get incentives right. You can't reward productivity that you can't observe...

Many employers provide their employees with more health care coverage than is required by law, essentially giving an extra $500 worth of medical insurance instead of an extra $500 in wages. At first this seems mysterious: Why not give employee the cash and let them spend it as they want?  A partial answer -- and perhaps the entire answer -- is that employees prefer nontaxable benefits to taxable wages.  But another possible answer is that good health care enhances productivity.  If productivity were easily observed and rewarded, there would be no issue here, because employees would have ample incentives on their own to acquire adequate health care.  But in a word of imperfect information, employee benefit packages can be the best way to enforce good behavior.

Interesting argument, but it is, of course, a reason employers would continue to provide health care benefits of their volition -- no mandate, or tax subsidy, required.   

So, I'm not quite sold on the whole Edwards package, but do say kudos again for laying the ideas out in plain view. Now, I think, the onus is on everyone else to explain what they have in mind, and why it is better than what is now on the table.

UPDATE: Arnold Kling lays out his own vision, at TCS Daily.  (Here I offer a wildly unnecessary, but nonetheless obligatory, hat tip to Instapundit.)  As far as I know, Arnold is not running for anything, but some smart candidate might think about adding him to the team.

February 11, 2007 in Health Care | Permalink

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Comments

I see the Edwards' "pay or play' strategy as a path away from employer-based insurance. It's pretty hard to envision that Congress will just mandate a complete overhaul of the current employer-based system overnight. However, if you mandate a pay or play option, and the pay option becomes progressively more attractive through time (or employers buy into the publicly run system, which gets you pretty much the same place), then we can work our way out of employer-based insurance.

I see 3 basic options in this story;
1)a government-run universal system, similar to medicare;
2) an employer-based system; and
3) an individual based system.

Because I believe so strongly in markets, #3 would be a complete disaster. Private insurers will be far more effective in denying coverage to people who need care, than the government bureaucrats who try to regulate them and prevent this cherry-picking from taking place.

Posted by: Dean Baker | February 12, 2007 at 08:13 AM

Dean -- I do appreciate the sentiment that it is hard for regulators to stay in front of the designs of profit-maximizing market participants. But that to me also cuts in the direction of feeling a bit queasy at the thought of relying on a government-run system similar to medicare. I can't quite get a glimpse of a workable outcome that doesn't involve some sort of governmental hand in solving the pooling issue. But I also think that on the other side of the negotiating table should be someone who can walk away in the event that what the public's government agent wants to implement is the unworkable or foolish -- which in turn suggests to me that the provision of the insurance itself is best done by competing private firms.

Your point that political feasibility may require a plan that gradually evolves away from an employer-based mechanism is well taken. Maybe we primarily disagree on what it should evolve toward.

Posted by: Dave Altig | February 12, 2007 at 09:25 PM

John Edwards wants to increase taxes to fund universal healthcare in the taxpayer's view. However, in the long run, Universal Health Care will save money for the American people.
The increase in taxes will be small to the individual in comparison to the cost for a health plan that they face today. Discuss this whether you support or not this proposal at
Isupportthismessage.com

Posted by: Amy | March 19, 2007 at 12:05 PM

Easystm.com will give Coverage of short term health insurance as early as the next day... just a few simple medical questions to answer. Best of all, you can choose to receive your policy electronically!

www.easystm.com

Posted by: kurt jarcik | March 30, 2007 at 01:11 PM

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