government run healthcare at any cost

The Democrats are in a tough spot. Their healthcare bill is unpopular. They don't have any idea how to create private sector jobs. The House and Senate are so far apart when it comes to financial reform that it makes their differences on healthcare look like the differences between Kristina and Karissa Shannon (see Exhibit A). Basically, the Dems are now coming upon the realization that they have no path to anything other than complete and utter decimation in November. At this point it does not matter if they scuttle Obamacare or not.

Exhibit A

With this backdrop, Pelosi, Reid and Obama have decided to simply go all-in. They have accepted these losses and now want to force through the most liberal, far-reaching and redistributive healthcare bill possible. They have decided that since they are not going to have the power to do anything after November, they might as well do as much dirty work as possible now, making it almost impossible to roll back these unpopular and tremendously expensive initiatives until at least 2012 (when Obama leaves office), which is effectively too late to stop it. Just look at all the talk about bringing back the public option.

I watched several hours worth of coverage of last week's healthcare summit at the Blair House. Basically, I came away with the fundamental understanding that the two parties fundamentally see two different healthcare problems. In the democratic paradigm the world works like this:

Health insurance is so important that every single american should get it regardless of their ability to pay for it.  It should be an affirmative, government provided right.  The 60 million Americans who don't have health insurance need and want it, they simply can't afford it.  This is the biggest problem with regards to health care in America.  Health insurance companies face no competition and can gouge consumers, pricing people out of the market.  The federal government should mandate both the minimum protections private insurers can offer, the minimum coverage that a citizen must buy, and will provide subsidies for people up to four times the federal poverty level to purchase this insurance.  This manipulation of the health insurance market will not have many unforseen consequences, and people will be able to keep their current coverage if they like it.  The subsidies can be paid for by taxing just the rich.  

On the other hand, the GOP sees the problem this way:

Healthcare costs are rising too fast.  Perversions in the market destroy the price incentives that normally provide information regarding the relative supply and demand for a given product or service by allowing the customer (you and I) to receive full services without having to realize the full costs of those services (through use of  co-pays, premiums and low deductibles).  By disturbing these incentives, the price system is not allowed to function correctly, allowing for an efficient allocation of resources.  This situation inevitably will lead to excess demand, driving up costs.  Excess demand is also created when doctors practice defensive medicine in fear of malpractice lawsuits down the road.  Capping non-economic pain and suffering damages can reduce this defensive medicine.  The solution is to add market discipline to the health insurance market, by opening competition (like allowing people to buy insurance across state lines) and re-instituting price discipline (like by promoting health savings accounts and eliminating the differential tax status between employer and individual purchased health insurance).  High risk pools can be created to help insure those with preexisting conditions. 

Both sides are open to criticism.  Democrats say the republicans plan does little to help the uninsured get insurance.  That is mostly true, although there plans would drive down healthcare costs in the private market, making insurance more affordable for everyone.  This would allow some people currently priced out of the market to purchase insurance.  Republicans counter with the argument that the Democratic plan would be vastly expensive, would drive up the costs of insurance in the private market (through the coverage mandates) and amounts to little more than a vast wealth redistribution system.  In addition, by adding millions to the insurance market on the public dime, Obamacare will eventually lead to healthcare rationing when the program becomes underfunded (like all other public entitlements).  The true costs of providing healthcare to these individuals will be shifted to private payers whose premium costs are not mandated by the federal government, which could either lead to increases in private insurance premiums/decreases in quality of care or to the destruction of the private market all together when people begin dropping costly private insurance that is subsidizing the entitlement.

In my opinion, both sides are missing the larger point.  What was the original point of health insurance?  To hedge against the risk large healthcare costs if you are in a accident or are diagnosed with an unforeseeable disease.  The reason health insurance today provides the much different service today of covering not only unforeseen injuries and illnesses but everyday check-up and dental visits is because of the tax structure that was in place over the past 25 years that allowed employers to purchase health insurance for their employees using tax free money.  This made it cheaper for employers to offer an increase in health insurance value to their employees (which they paid for before being taxed) to a corresponding increase in pay (which would be paid for post taxes).  This scenario inevitably lead to hugely expensive insurance plans that covered all types things instead of simply increasing an employees pay.  Until the U.S. moves away from the tax system that heavily favors employer purchased plans, it will be difficult to have any price discipline in this market.

The most effective way to reform the health insurance market would be to simply give move away from the employer provided system and towards and individual market system.  In this scenario, consumers would be better able to gauge their true health care costs, and make rational decisions using a cost-benefit analysis.  Despite all the talking points about "waste" in the health care system, the only way to truly keep costs at an appropriate level is to allow effective market signals (using the price mechanism) establish the equilibrium level for these services.  History has shown that when a market is able to provide such incentives, resources will be distributed in the most efficient way possible.  This is perhaps the most important reform that could be considered in any health care overhaul, unfortunately neither side seems to grasp this important point.