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

August 28, 2008

Laying Odds

Filed under: Health Reform — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 4:28 pm
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David Dranove:

As a policy issue, comprehensive health insurance reform seems to be dead in the water.  But politicians need to appear to do something about health care.  So I have gazed into my crystal ball to look at the chances of health policies we might actually see from the next President and Congress. Of course, the odds depend critically on the outcome of the election.

  1. Electronic medical records. The Bush administrative has quietly pushed for unified EMRs and there are experiments underway in several markets.  A new law further promoting EMR would be an easy way for the next President and Congress to appear to be doing something.  Probability of implementation:  90%
  2. Pay for performance. This is another initiative that is already well underway.  Legislation mandating that Medicare link pay to performance might not do much good to improve quality (you know how I feel about multitasking) but makes for another good Presidential moment.  Probability of implementation:  80%
  3. Insurance market reforms.  Guaranteed eligibility and enhancements to portability will help some folks get insurance while making it harder for others to afford first time premiums.  A populist proposal of limited merit.  Probability of implementation: 60%
  4. Limiting tax deductibility of health insurance.  Every economist wants to cut into or eliminate the regressive $200 billion tax subsidy for health insurance purchases.  Both Obama and McCain have floated the idea of limiting deductibility.  But anything that adds up to more than peanuts must affect the upper middle class, a voting bloc that no one wants to touch.  At most we will see a token limitation (perhaps for incomes above $200,000).  Probability of implementation:  40%
  5. Expanding government insurance programs.  The only sure way to reduce the ranks of the uninsured, Medicaid, SChip and the rest are expensive and cause crowd out.  We won’t see anything major unless the Democrats win in a landslide.  Probability of implementation: 30%
  6. Drug importation. Another populist idea that seems to have a lot of political momentum until the drug lobby speaks out.  And some of what the drug lobby has to say makes sense.  Probability of implementation:  20%
  7. Vouchers or tax subsidies. Both candidates propose them.  Economists like them. They are crucial to market-based efforts to cover the uninsured.  But a lot of tax dollars go only a little way to reduce the number of uninsured. Probability of implementation: 10%
  8. Major expansion of coverage for the uninsured. I am talking about cutting the number of uninsured by half or more.  I am not foolish enough to put short odds on this one.  Probability of implementation:  Not in my lifetime.

Will, care to wager?

; )


William White:


I wouldn’t want to be on the other side of most of your bets.  On Electronic medical records I’d agree it’s almost certain we will get some action.  Whether it will end up being anything more then window dressing is another question. I give it around a 30% probability anything very substantive will happen that tries to really address what seems the basic problem—namely lack of alignment of incentives between consumers and insurers, the main beneficiaries, and those who currently bear the burden of financing and implementing change (providers).  On Pay For Performance (P4P), I’d agree window dressing is the most likely outcome as well.  And in this case, I am not sure this is necessarily a bad thing.  Like you, I’m concerned about the unintended consequences that might accompany a vigorous P4P program given our current rather imperfect means of monitoring performance.  As you note, similar issues with unintended consequences exist for insurance market reforms.

My sense on limiting the tax deductibility of health insurance is that this is only likely if tied in with a bigger package, in particular reform of the Alternative Minimum Tax (AMT). Both parties have, of course, been talking about ATM reform for years.  We know how far that has got us.  I’d say 40% is optimistic.  I’m more optimistic about expanding government insurance programs.  Not that I would give big new programs high odds.  But if Obama is elected, there is a lot of latitude for tweaking the system.  For example,  steps to increase take-up rates for existing Medicaid and SCHIP eligibles could substantially increase enrollments, while I’m not convinced crowd out is a big deal for these populations.

I would give a little better odds to tax credits then drug importation, especially if McCain is elected.  However, my guess is that in the current fiscal environment, any tax credit program likely to get implemented will end up involving relatively modest payments even by the standards he is currently proposing.  As for a major expansion of coverage…. good luck.

Meanwhile, here are a few additional items for speculation.  One is Disease Management.  Definitely a feel good issue and an opportunity for looking Presidential.  I’d give it a 50% chance of implementation.  However, I’d also bet any program introduced ends up being mainly a gesture.  Then there is that perennial chestnut Malpractice Reform.  Good talking point, especially for McCain.  But I’d say a probability of 15% given the entrenched interests involved.  A third I would give even lower odds is a serious attempt to fix the Medicare physician payment system.  We clearly need to do something.  However, a permanent fix seems too expensive for anyone to want to take it on.  Finally, there’s antitrust policy.  I’d be curious about your take on that one.

– Will

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