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

November 12, 2012

Beyond the Fiscal Cliff

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 10:13 am

Interesting article at Yahoo Finance about WalMart’s health benefits. Read down to the discussion of Colby Howard, a young smoker making somewhere less than $20k annually who may drop his employer-sponsored health insurance coverage rather than pay the $720 annual contribution. This may be a rational decision for Mr. Howard; if he drops his coverage, he may qualify for Medicaid.

It is easy to take shots at Mr. Howard. If this Texan purchases one pack of cigarettes a day, he will spend $2000 annually on his smoking habit, yet he won’t spend $720 annually on health insurance. And now, the Affordable Care Act gives this free-rider-in-the-making an out. We may feel more sympathy for Barbara Andridge (apparently a non-smoker with an out-of work husband) who may also get government health insurance rather than make her contributions to the WalMart sponsored plan. But the implications for our healthcare system are similar. As much as policy analysts discuss the health insurance exchanges, it is the expansion of Medicaid that seems likely to blow out the budget. There are likely many Colby Howards and Barbara Andridges out there, especially during an economic downturn where many folks would be happy to be working at WalMart.

A few years ago I wrote a research paper about medical bankruptcy. I noted that critics of the US Healthcare system complain that Americans should not have to pay even $1000 annually for their medical care. But no one complains that we spend more than this on food, clothing, and housing. Until we have a mindset that we need to budget for healthcare in the same way that we need to budget for other necessities, we will continue to make taxpayer-funded insurance our default option. And as the size of the healthcare entitlement continues to grow, the upcoming fiscal cliff will seem rather puny.

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