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

March 9, 2009

Pay Now, Buy Later

Filed under: Health Reform — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 7:32 am

David Dranove


President Obama sure has got some political chops.  He would like to see a massive overhaul of our healthcare system but he knows the political history.  Every 15 years or so, a new President announces plans to overhaul the system only to see his proposal condemned by healthcare interest groups and anti-tax crusaders.  There just aren’t enough bodies on Capitol Hill willing to fight such potent opposition.  President Obama’s solution is ingenious; he plans to divide and conquer!

Obama wants to raise taxes now to create a kind of down payment to pay for his health plan.  The main component will be a limitation on tax deductions for high earners.  There is some opposition from the arts, but museums and symphony orchestras don’t have much of a voice in politics right now.  Universities may take a hit on donations, but they stand to gain big time from Obama’s government takeover of student loan programs and are likely to stay silent.  Most importantly, health care interest groups can’t offer any specific reasons to fight the tax increase because there are no specifics on the table pertaining to the health plan.  Besides, if they oppose the tax increase and lose, health care interest groups may lose a seat at the table when the real horse trading begins.  This leaves it up to the anti-tax crusaders to block the first thrust of Obama’s two part initiative.  But they are exhausted from fighting the stimulus plan and 2009-2010 budget.

As I see it, Obama gets his down payment.  With the tax battle behind him, he will face much less opposition to enacting his plan.  Our good friends David Cutler and Joe Newhouse are in DC much of the time helping advise Obama and his political allies.  Let’s hope David and Joe can put their stamp on the plan (more so than Nancy Pelosi and Harry Reid!) as we will be stuck with whatever emerges.


William White


I agree divide and conquer could be a good strategy for breaking the health reform stalemate.  However, I have a couple of concerns.  The first is that as the proposed fund builds up, there will be a strong temptation to raid it for special needs within the industry. The conversion of the Empire Blue Cross Blue Shield plan here in New York in the early 2000s offers a cautionary tale.  With $2 billion in nonprofit assets at stake, the state could have created a huge fund for promoting community health and innovative public health measures.  A foundation was in fact set up.  But the vast majority of the money ended up being siphoned off into the state budget for routine health expenditures.  Once the administration’s proposed reform fund starts accumulating, all sorts of worthy (and not so worthy) claimants will undoubtedly emerge like state Medicaid plans, beleaguered hospitals etc.  If debate about Obama’s reforms begins to drag on, dollars could quickly start dribbling away.  Absolute vigilance and a strong political will are required to keep the money intact for comprehensive reform.
The second concern is that when it comes to debating specifics, traditional opponents of health care reform continue have a weapon they have used to good effect in the past – negative campaigning.  They don’t need to come up with a plan of their own.  They just need to raise enough concerns about administration proposals to grind progress to a halt.  We are already hearing about socialized medicine. I expect a barrage of ads championing choice soon.  I think a key will be whether private coverage collapses in the next few months.  If millions more Americans lose private insurance coverage, choice arguments will sound pretty hollow. But if coverage remains relatively stable, this is likely to mean trouble ahead for any comprehensive proposals.  Beyond that, of course, as always, the devil will be in the details of what is actually put forward.


1 Comment

  1. I could not agree more with Dr. White’s comment of the need for “Absolute vigilance and strong political will” Throughout my long career researching healthcare here in France and medieval costumery, I indeed have unfortunately seen the very situation you have described play out many a time.
    Perhaps the best example of this however comes from outside the field of healthcare- a recollection form my early days when I served as a liaison between the French and British governments on the eve of WWII.
    Chamberlain is credited with the policy of appeasement but in fact this was a ‘faute d’inattention’ for he had had no intentions of pursuing anything but a very aggressive policy towards Germany.
    When at a meeting with a number of senior cabinet members (and myself), as we sipped a particularly fine Biondi Santi (c’est mervielleux), Chamberlain, reassured me by proclaiming loudly “if Mussolini refuses to continue selling us wine I am getting all the guns I can and going to Pizza. The Germans will get it as well.” Unfortunately, he pronounced this in a thick Italian accent (remember, we had been sampling the Biondi Santi) and an individual at the dinner (it was never discovered who) recorded this proclamation and leaked it to the Daily Mail newspaper. Once again, in an unfortunate circumstance (recall that the technology in those days was really quite barbaric) the editor in charge had difficulty understanding the rather static recording – understanding neither the beginning nor the end of the statement to his ears it sounded as if the PM had said, “I’m going to appease the Germans. full stop.” (In fact as noted before it was actually “(intelligible slurring of words Ima goin to-a Pizza. (full stop) De Germanis..(intelligible slurring of words and expressive hand gestures).”
    This was printed the next day and on fears of appearing wishy-washy the cabinet decided they could not be seen as changing back and forth and should just go with appeasement. Thus, this example illustrates clearly how the lack of constant vigilance and political will changed the course of history forever.
    Thierry Milleraund
    Professor of Health and Medieval Costumery
    The Sorbonne

    Comment by Thierry Millerand — July 12, 2009 @ 2:20 pm

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