Health Care in America

Late night’s Democratic Presidential debates hit us in the face with how complicated the healthcare debate is. Trying to address it in one-minute sound bites is unpromising so I don’t blame the candidates for failing to be clear. We spend twice as much on healthcare as Canada or our European friends with similar or worse results. We must reduce spending without compromising outcomes while ensuring that everyone receives the care they need.

Our approach to covering the cost of care is to provide insurance to pay for some or most of privately provided care. Insurance spreads the financing of medical costs, whatever they are, among a defined group. Those lucky enough to stay healthy help cover the costs of those not so lucky. Defining the “group” whose costs are thus shared is important. In the U.S. typically the employees of large companies define the group (the risk pool). In this way, there should be a random distribution of lucky and unlucky health-wise within each group. The government subsidies employer provided health insurance by excluding it from the employees’ taxable wages. This creates problems when a worker is fired or wishes to change jobs.  If those with preexisting medical issues join an insurance pool, its overall medical expenses will predictably increase as will its insurance premiums needed to cover the higher cost. If the risk pool is the entire population, as it would be with Medicare for All, it would be the tax payer who pays the cost. These features flag only a few of the challenging issues that healthcare policy needs to address.

The elephant in the room is the high cost of care.  How insurance is structured profoundly influences the bloated cost of care.  Requiring patients to pay at least a bit of the cost (copays) introduces an element of cost consciousness on the part of patients and their doctors that can influence the care chosen.  But there are also other factors, such as restrictions on who can provide what care (MDs, nurses, teleconferencing, etc.) that influence the cost of care.

I have explored some of these issue in the past in more detail and am providing several links here for those of you who are interested. The first blog was written ten years ago: https://wcoats.blog/2009/07/29/econ-lesson-the-rationing-of-medical-care/.  The second link is to a blog written two years ago:  https://wcoats.blog/2017/07/31/finally-health-care-reform/

About wcoats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My most recent book is One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon.
This entry was posted in Healthcare, taxes and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s