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

October 29, 2008

O Canada

Filed under: Health Reform — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 7:43 am
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William White:


In the last presidential debate John McCain accused Barack Obama of proposing a single payer plan.  It’s not true of course. But I think there is a good case that he (and McCain too) should.  Here it is.

Both candidates tell us they are proposing changes that would let us keep our existing insurance while offering new choices. And both promises are believable—if you are completely myopic.  The reality is that both plans will dramatically alter key features of the existing system with potentially seismic consequences.  And in both cases, there are good grounds for believing the ultimate outcome could be a default single payer system.  If so, why not go there to begin with and avoid a messy and convoluted process?

Obviously, this argument depends heavily on what you think about the likely impact of the proposed reforms.  In the case of Obama, critics on the right have argued that the combination of pay-or-play and a fall back government plan could readily devolve into a public administered system.  This seems quite possible, although there would probably be a lot of bumps in the road along the way.

In the case of McCain, at first blush the problem seems the opposite—i.e., that the combination of eliminating the tax subsidy for group coverage and introducing CPI-indexed individual tax credits could tank the group market and end up dramatically swelling the ranks of the uninsured.  There is, however, another important feature of the McCain plan that has been largely over looked—his proposal for state/federal GAP plans to cover high risk patients.  Under enough pressure, it is easy to imagine that enrollments in the high risk pool could balloon and prove a backdoor to a large expansion of public coverage.  (One suspects definitions of “high risk” could prove quite elastic if group coverage really starts to dry up and the only alternative is costly individual plans with medical underwriting).

Given the fiscal situation, a fair question is whether this discussion isn’t purely academic. After all, both candidates’ programs come with (relatively) big price tags.  Post-bail out, where is this kind of money going to come from?  But it would be a mistake to assume health reform is DOA in the wake of the current financial debacle.  In fact, paradoxically, I would argue reform becomes more likely the worse things get.  In particular, if the economy gets really bad, it seems quite possible the private group market could fall out of bed.  Although the number of uninsured went down last year, this was only because of public expansions.  The number for private insurance actually declined, and that was before bad stuff really started to happen.  Suppose we are at 55 or 60 million or more uninsured this time next year?

– Will

David Dranove:


We agree that there are ways to harness competitive forces to improve healthcare delivery (and I wrote a whole book about it), but Obama and McCain are trying to engineer something quite different.  McCain would do away with 70 years of employer-based coverage (which predates the tax subsidy, by the way) and replace it with a grand national experiment with individual coverage.  Obama’s insurance exchange with a government option is exactly how you described it—a slow-motion move to a government system, only with layers of administrative baggage.  And why is no one talking about Obama’s technology institute, which is nothing more or less than rationing cloaked in academic-speak?

As you often remind me (and the Garber/Skinner paper argues with great force), we do not get value for money in our health care system, and that is largely because it is so fragmented.  Obama and McCain would add fragments to the fragments.  Their proposals sort of remind me of fractals—patterns within patterns within patterns … (or, more accurately, randomness within randomness…)

I want a competitive health care system.  But if I had to choose between the Obama and McCain visions for a competitive system, I would choose a third option.

O Canada!

There, I’ve said it.

– David

1 Comment

  1. David,

    It is pretty well agreed, even among Canadians, that the only reason the Canadian system doesn’t completely collapse is that 90% Canadians live within 100 miles of the USA, so if they need advanced care they can go over the border and get it. Or as they put it, the Canadian system works great as long as you don’t get sick.

    A better model would be the German system, which provides both advanced care and availability, run largely through private (mostly non-profit) entities.

    Comment by RJ Dragon — November 5, 2008 @ 1:48 pm

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