The Health Care Debate
by publius starbursts
I’m ecstatic that McCain’s health care plan has taken center stage on the campaign trail. It’s a debate worth having. Unlike the juvenile nonsense we’ve endured for most of the campaign, it’s a truly substantive political debate — one that illustrates the deeper philosophical differences between the candidates and their parties. It also illustrates — to me, anyway — an important theoretical flaw with conservative economic ideology.
For fellow non-health wonks, I heartily recommend Ezra Klein’s accessible post summarizing the central problems with McCain’s health benefits tax. The nickel version is that the problem isn’t the tax itself, but the tax’s structural effects upon the health care market. McCain’s plan would essentially create a world where individuals are tossed out on their own, with little bargaining power and even less information.
In other words, the tax is bad even we assume it’s completely revenue neutral. Let’s pretend, for instance, that McCain’s tax doesn’t really cost you anything. Let’s pretend the proposed tax increase on employer benefits is completely offset by tax credits and higher wages. Let’s even pretend that the tax credit is pegged to inflation medical costs (McCain’s is not, so the credit becomes worth less and less each year).
Even under these assumptions, the plan is still flawed at its core because of the way it restructures the market. As Klein explains, the effect of the tax increase is to cause employers to drop benefits, thus forcing employees into the individual market. The tax credit has the same effect — even individuals without employer coverage will start buying individual plans. In short, the vision of the McCain plan is a system consciously premised upon an “individual” market that is subsidized by taxes and tax credits. Klein, however, explains the problems with elevating individual markets to be the foundation of our health care system:
The individual insurance market is not the same as the employer-based insurance market. It sacrifices the bargaining powers of numbers for the cost-effectiveness of comparison shopping. It is fractured. It has higher administrative costs. Insurers can discriminate on the basis of preexisting conditions, geography, age, gender, and even simple whim. The risk pools are smaller. The deductibles are higher, as are the co-pays, and the spending caps are lower. And the individual insurance market is much more expensive[.]
Sounds lovely. That’s all bad obviously, but I want to focus more specifically on the bargaining power issue. One of my biggest gripes with conservative economic policy is its tendency to ignore disparities in bargaining power.
The romantic myth of individualism is powerful, but it ultimately just doesn’t work in many contexts. Health care is one of them. Look, it would be great to have a world where individuals had the time and expertise to shop around and negotiate for better policies. But they don’t. However rhetorically compelling “individualism” may be, the reality of an individual market is quite different — as Klein notes.
But it’s more than health care policy. The failure to give much weight to bargaining power disparities is at the heart of many a conservative/liberal economic disputes. Take unions for instance, or federal labor protections more generally. The standard conservative argument is that if employers act bad, employees can leave. Or, if they don’t pay enough, employees can just bargain. After all, everyone loves bargaining! (“Bargain” was a semi-erotic word for my old law and econ professors). These romantic visions, however, assume that individual employees have a lot more information, resources, and bargaining power than they actually have.
More broadly, the debate helps reaffirm the larger theme that government can be good. Indeed, government regulation is the end-all, be-all in correcting asymmetries in bargaining power and information. It’s like a giant union in that respect. Even the employer-based system — for all its flaws — at least tries to address these problems. A real national health care reform would go even further.
A Republican administration, however, isn’t going to address these types of problems. That’s because, in their world, markets don’t generally create these sorts of problems.
One last point — remember that the argument here isn’t so much about whether markets are good or not. There is no true “Left” in America — everyone believes in markets, including yours truly. The argument, then, is over what types of markets work best in what contexts. McCain thinks health care is a context where individual markets work best. Obama doesn’t. These differences are profound — on both a practical and theoretical level.
Tags: Credit
