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

March 21, 2010


Filed under: Budget,Health Reform — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 7:08 pm

You think Citibank was too big to fail? AIG? General Motors? You ain’t seen nothing yet. Using accounting tricks that Lehman Brothers executives would have been proud of, Congress is giving us the ultimate “too big to fail” program, Pelosicare.

Once it fully kicks in, Pelosicare will pay out way more than in brings in. It is only by saving some money in the start-up years that Pelosicare seems solvent. This would be like your child graduating from college with a modest savings account but then living beyond his means every year thereafter. Sooner or later, you will have to decide whether to bail him out or teach him a lesson. But when it comes to Pelosicare, you will have no choice because Pelosicare will redefine “too big to fail.” In due time, the hundreds of billions that we all paid to bail out big banks and big auto will seem like chump change.

Ironically, the Democrats in Congress are drafting legislation that would effectively ban private businesses that Congress deems “too big to fail.” How do they look themselves the mirror?

P.S. There are some good bits in the new legislation, such as the insurance exchange free from a public option. It is a shame that the Democrats covered up the true cost of the plan and kowtowed to big labor by killing the “Cadillac” tax. In the process they showed why most Americans do not want this plan; they don’t trust government to run it.

P.P.S. Hats off to Nancy Pelosi, one of the finest politicians of her or any other generation. Prior to yesterday, health reform had died many deaths. I guess this time really was different. The abortion “compromise” was the last stroke of brilliance. Pure theater with no substance, as this link explains.

1 Comment

  1. I wonder if anyone has examined the impact of healthcare reform on entrepreneurship in America. One of the biggest barriers to entrepreneurship is the lack of a safety net in the case of an unforeseen illness, especially for single mothers. Entrepreneurs, as a result, tend to be laid off executives who see business creation as a more viable career option than the jobless recovery.

    Does universal healthcare coverage create the safety net entrepreneurs require before pursuing their dreams? Does the new legislation make it easier for startups to hire talented professionals. If the answer to these questions is yes, then perhaps we’ve just witnessed a catalyst for innovation and growth that the stimulus & bail-out packages could never accomplish.

    Professor Dranove, I appreciate a cautionary perspective but it seems that you’re driving the vehicle of commerce by focusing too much on the rear-view mirror. I am of the opinion that the road ahead offers greater opportunity than the road behind us. But that road cannot be navigated if we don’t open our eyes and focus on the prosperity in the windshield. Just a thought.

    Hermann Mazard is a technology entrepreneur, an organizer of kegNY (Kellogg Entrepreneurs Group of New York) and an adjunct professor of innovation at New York University.

    Comment by Hermann Mazard — March 22, 2010 @ 10:02 am

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