Code Red: Two Economists Examine the U.S. Healthcare System

May 8, 2008

Deja Vu All Over Again?

Filed under: Health Reform — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 9:26 pm
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David Dranove:


This past Saturday I spoke about the candidates’ health reform proposals with about 40 Kellogg alumni.  One thing I observed was that all the candidates favor lower costs, higher quality, and expanded access.  To which I say, Hallelujah!  And I hope the candidates also take a stand in favor of God, Mother, and Country.  It’s about time.

Seriously (though there was a point there somewhere), as our conversation moved along a nagging feeling began to grow.  It occurred to me that almost none of the new proposals were likely to become reality.  For what will be probably the 7th or 8th time in the past century, health reform is likely to stop dead in its tracks.

Let’s start with the big issue – access.  All the candidates favor tax subsidies for low income individuals.  Jon Gruber estimates that it would take between $3000 and $10,000 for each newly insured individual.  Covering an additional 15 million people would require $45 billion-$150 billion in new federal spending, and that would still leave 30 million uninsured.  Do you see the federal government making that kind of expenditure?

Obama and Clinton would like to see some sort of health insurance exchange along the lines of the Massachusetts connector.  I like this idea (which traces its roots to Enthoven’s 1978 Consumer Choice Health Plan.)  But it will require exactly the kind of bureaucracy that Newt Gingrich ridiculed to great effect in 1994 on the way to shooting down Bill Clinton’s Health Security Act.  And without huge tax subsidies, it will hardly appeal to Democrats who care little about preserving competition but do want to cover the uninsured.  So I see this as having little support from either party.

Clinton wants to limit tax deductibility of insurance for high wage earners; this is the camel’s nose in the tent and Republicans will fight her.  McCain wants to end the tax subsidy for employer sponsored health insurance entirely, and shift the tax break to individuals.  But I don’t think he wants this to be refundable (so those who pay no or little taxes still get to keep the subsidy) and he also wants to cap the tax subsidy at $5000 per family, too low to materially reduce the ranks of the uninsured.  The proposal will be seen as a takeaway from labor that does too little to help the uninsured.  Congressional Democrats will block it.

Obama and McCain favor state experimentation with health reform.  This was a good idea in 2007, when state governments were running surpluses.  It will have no traction in 2009.

As for cost and quality, Obama and Clinton want some sort of technology evaluation institute, along the lines of England’s National Institute for Clinical Excellence.  Once Republicans begin describing NICE for what it is, a technology rationing scheme, Americans will balk.  (Though such a scheme might be defensible.)  All the candidates want to allow importation of drugs from Canada; this is one policy that might come to fruition and, if it does, I would not want to be a Canadian in need of a new drug.  If importation happens, watch out.  There are complex international laws pertaining to sales and production of drugs that could lead to a trade war.  Obama and McCain also preach the need for malpractice reform.  Good luck to them.

I must admit that not all of the candidates’ proposals are dead on arrival.  This is because many of their proposals – improvements in IT, quality report cards, cost-effectiveness analysis, pay for performance, and disease management – are already happening.  When Mark McClellan was head of CMS, he pushed hard for these ideas and HHS Secretary Health and Human Services is a true champion of the HIT movement.  The private sector has been working furiously in these areas as well.  To hear Obama, Clinton, or even McCain claim these ideas as their own is a bit ludicrous, but par for the course.  And the candidates fall all over themselves about the virtues of prevention, as if they invented the notion that is better to stay healthy than to let your body fall to pieces.
But here is the real problem:  Just one year ago, health reform was the number one domestic issue.  Today, it ranks third or fourth at best.  Even if Democrats sweep into the Presidency and Congress, the pressure to do something about healthcare is off.  There are bigger priorities, and the political risks to the Democrats of trying to enact massive reform are too great.  It is the same old story.  Every 15 or so, there is enormous momentum in favor of big healthcare reforms.  But it takes time to develop and debate plans, and the desire to do something is lost in the complexities and political machinations of actually getting something done.

Do you remember we once drafted a piece about the futility of healthcare reform?  That was in 1993.  As the French say, “Plus ça change, plus c’est le même chose.


William White:


I am afraid you are right.  I would like to believe otherwise. But it looks like déjà vu all over again on health reform.  It’s not just the prospect of federal gridlock.  Presidential initiatives aside, the deteriorating fiscal state of the states is likely to stop independent reform efforts in their tracks.  I’ll offer one contrarian thought.  If we get into a real down turn, health coverage could further decline to the point this galvanizes middle class consumers into action and pushes reform back to center stage.  However, I’m not holding my breath.

– Will

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