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February 11, 2007
John Edwards Leaves The Gate On Health Care
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.
...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.
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