Ronald Bailey on Clinton Care 2.0
Like me Ronald Bailey at Reason Magazine isn’t all that thrilled by Hillary Clinton’s health care proposals. In fact, there is pretty much nothing in the proposed policy that he likes.
He asks the question: “Employers don’t buy auto-insurance or home owners insurance for their workers, why should they buy their health care?” This is a good questions. After all, employers pay workers wages and benefits. If the employer didn’t pay the worker benefits then it is reasonable that wages would rise by the value of the benefits if the labor market is competitive. Employers don’t care what form the compensation takes unless there are government policies that distort prices and currently there is a government policy that distorts the compensation rate for workers who receive health care benefits.
And this raises another interesting question. How come auto insurance and home owner’s insurance rates are not rising rapidly? Could it be that people who buy auto insurance often have an incentive to shop around and look for a policy that fits them best both in terms of premiums and in coverage? I think this is a question that needs more research.
Another aspect of Clinton’s plan is the verbiage about “fair prices” for pharmaceuticals. What exactly is a fair price? The concept has literally no meaning in economics and was rejected long ago. Further, it raises the possibility that Clinton is talking about price controls and/or reducing the profits for pharmaceutical companies via prices. While some might consider this a good thing in that profiting from other people’s illness is bad, it is an incredibly naive view point. If the profit rate is lowered then investors will simply take the resources allocated towards researching new pharmaceuticals and producing existing drugs into other investments with equal or higher rates of return. In short, if you want less pharmaceutical research and production then this is the policy for you.
Bailey is also skeptical of the claims of savings that will be used to finance the program.
In addition, the outline of Sen. Clinton’s plan is decorated with a number of vague promises such as reducing costs by stressing prevention and a focus on efficiency and modernization, asking providers to work collaboratively with patients and businesses to deliver high-quality, affordable care, and reducing wasteful health spending. Who could be against any of those good things? Clinton says that the $110 billion needed to pay for her plan would come from raising taxes on people with incomes over $250,000 and from $56 billion in costs savings. “Claiming that she can save $56 billion through the marvelous efficiency of the U.S. government is just absurd,” retorts Herzlinger.
Keep in mind what is being claimed here. Health care inefficiencies to the tune of $56 billion that greedy and avaricious corporations are currently paying for can be had. Uhhmmm, either there is something wrong with the assumption that corporations are greedy or that there is $56 billion in savings simply waiting for somebody to point too.
And then there is the tax like effect this policy could have,
As Harvard business school professor Regina Herzlinger notes, such a mandate is indistinguishable from a payroll tax. Currently, the big companies that don’t offer health insurance to their employees tend to be retailers and banks. Herzlinger points out that if they are required to pay an additional $5,000 for health insurance for a clerk earning $22,000, the companies will immediately start substituting capital for labor. In other words, economically vulnerable clerks would be fired and replaced by automated systems or by offshore workers. Instead of just lacking health insurance they would now be out of a job.
Also like me Bailey thinks that individual mandates could be an important part in fixing health care. By putting the money for health care into the hands of the consumer and requiring that they purchase health care would help to contain costs. Add in vouchers for those who cannot afford health care could help get a large portion of the 45-50 million people who don’t have health insurance gain access to the system. Additionally, break the barriers to entry into the medical profession and other supply side considerations. This might not solve the entire problem but it sure would be a step in the right direction. In short, Clinton’s proposed policy is using individual mandates to increase the power of government and will do little to help address the issue of rising costs.