Equity vs efficiency in health care: Let’s pretend there’s a third way

In a recent post, Mankiw favorably reviews a David Brooks column that argues that health care boils down to an equity/efficiency trade-off—the US vs. Western Europe.  Mankiw concludes:

David Brooks gets it right today about the debate over healthcare reform. The fundamental question is, Should Americans embrace a more robust social safety net at the cost of much higher marginal tax rates, reduced work incentives, and a smaller economic pie?

From a strictly economic perspective, there is no right answer to this question. Arthur Okun said long ago that the big tradeoff in economic policy is between equality and efficiency. The pending healthcare reform bill moves us along that tradeoff. Let’s just not pretend, as some healthcare reformers would have us do, that we can easily get more equality without paying the price in efficiency.

Sounds reasonable, but is it possible there is a third way?  Let’s review the basic issues.   We currently face several problems in health care:

1.  Equity; an affluent society hates to see people suffer and die because they can’t afford health care.

2.  The free-rider problem, uninsured individuals understand their society’s values, and can free ride by not buying health insurance and relying on the mercy of ERs.

3.  Moral hazard; insured individuals over-consume “Cadillac” health care, driving up costs for everyone, even the uninsured.

4.  Government subsidies to help insure the poor require distortionary taxes.

So let’s think about how economic theory might offer insights into how to address these issues:

1.  To deal with the free-rider problem, require everyone to buy health insurance (or self-insure.)

2.  To deal with moral hazard, allow (or encourage) people to self-insure as much as possible, through HSAs.  A mandatory payroll deduction should go into purchasing catastrophic insurance, plus HSAs and/or broader insurance coverage.

3.  To deal with the equity problem, subsidize health insurance for the poor and lower middle class.

At first glance it seems like I haven’t really addressed the equity/efficiency trade-off.  But the system I describe would not necessarily require massive government subsidies (and thus big tax increases.)  Indeed it might be much cheaper than our current health care system.

The US government currently spends about 7% of GDP on health care, and for all that money leaves 45 million uninsured.  Let’s pretend there is a country very similar to the US from both the perspective of per capita GDP and Gini coefficient.  And let’s assume that government spends only a bit over 1% of GDP on health care subsidies.  And let’s pretend that country achieves all of the goals outline above, with a system of very low taxes on labor and no taxes on capital.  Let’s call this imaginary country “Singapore.”

I am sure that there are many reasons why this imaginary system won’t be adopted here.  But I’m not interested in political realities.  I can tell you right now that if your favorite plan is currently politically feasible here, then you have some extremely bad ideas for health care reform.  At this point what we most need is to change mindsets. 

There is no way that the US would be moving toward socialized medicine except for the European model.  Socialism was discredited when the Soviet Empire collapsed.  So let’s review why the left is so enamored with socialized medicine:

1.  Europeans spend much less than we do on health care.

2.  Europeans live longer than we do.

3.  Europeans have universal coverage.

Those are very powerful arguments.  Yes, the life expectancy data is not conclusive, in some respects American health care is of higher quality.  But still, it’s a very powerful argument.  In my view you can’t beat something with nothing.  Or with a complete mess, which is how I view our system.  You need persuasive arguments.  Here’s my favorite:

1.  Singapore health care costs only half as much as European health care.

2.  Singapore has universal coverage.

3.  Singaporeans live much longer than Europeans.

4.  Singapore has a far more efficient tax system, and hence is much richer than Europe.

Even better, the Singapore system is pretty much what you would draw up if you looked at my original list of market failures, and tried to devise the least bad solution.  So it “works in theory.”  Just so you don’t think I am too polyannish, let me concede a few points:

1.  Even with their system, we wouldn’t live as long.  Asian-Americans currently live much longer than other Americans.

2.  They have some price controls, and I think we’d want higher quality.  So our government would have to spend more than 1% or 2% of GDP.  But for far less than our current 7%, we could achieve universal coverage with pretty high quality.  Not right away, but over several decades as the new system was gradually phased in.

3.  Forced saving might seem politically unpopular in America.  But recall that the money would be coming out of already existing taxes and/or employer-withheld funds used to subsidize current health insurance plans.  The Singapore plan would not reduce disposable income for anyone other than younger uninsured workers.  And since their health costs are pretty low, they would at least benefit from rapid growth in their HSAs.  Recall that Massachusetts was able to force young uninsured workers into far inferior options (no HSAs unless I am mistaken) with relatively little squabbling.

Yes, it isn’t politically feasible right now.  If it was, I’d be wasting my time.  But we all know the Obama/Pelosi fiscal model will hit a wall in a few years.  And we all know that Democratic voters won’t be happy to learn that they have to pay European-style consumption taxes.  Democrats will be searching for an alternative.  No major health care reforms are likely without at least some Democratic support.  The Singapore plan is consistent with the values of at least a portion of the Democratic Party (centrists like Bill Clinton.)  Thus it is important to talk up the plan as much as possible, until every policy wonk in American understands that for every advantage Europe has over America, Singapore does as well or better than Europe.


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29 Responses to “Equity vs efficiency in health care: Let’s pretend there’s a third way”

  1. Gravatar of MIke Sandifer MIke Sandifer
    27. November 2009 at 18:40

    I’ve long had these thoughts on health care reform, as companies shifting toward HSAs and catastrophic coverage have saved money while seemingly keeping employees happy.

    For those who need more immediate coverage under their deductibles, they can get FSAs that they must fund at rates they can afford. This gives them immediate access to the lump sum of annual contributions in case they’re sick before they can fund their HSAs. Then, allow any balance to roll over to the HSAs the following year. Of course, the catastrophic premiums will still have to be subsidized, but it gives the less fortunate some skin in the game.

    It’s interesting to me that Republicans aren’t pushing for something like this. In fact, they haven’t pushed for anything, but the status quo until very recently. I wish they’d really hit the media with these ideas that many of them pay lip service to.

  2. Gravatar of david david
    27. November 2009 at 20:31

    Singapore has compulsory military service, which more or less obliges good health for roughly half of their citizens and permanent residents.

    Singapore’s medical association has no real lobbying power. In fact, none of Singapore’s unions have any appeciable power (we can extend this to “most of Singapore’s non-government civil institutions have no power”, really). This isn’t a hypothetical; doctors in private practice are grumbling over the Ministry of Health’s slow and unyielding effort to break up physician and pharmacy services (which are traditionally operated together, unlike the United States). Compare neighboring Malaysia, where the doctor’s association does shrug off their Ministry’s effort to do the same.

    Not to mention the setting of government polyclinic prices at rates just below what private clinics normally charge. And, well, private doctors dislike that as much as one might expect, and can do as much about it as one might expect.

    And, of course, the government can employ as many immigrant nurses and doctors as it wants – 25% of Singapore’s 4.5 million are foreigners on short term permits. The only political force I’ve seen that resists this is when working-class Singaporeans start grumbling that too many of the hospital staff are speaking Tagalog.

  3. Gravatar of david david
    27. November 2009 at 20:38

    (which isn’t to say that Singapore’s approach to financing health care doesn’t authentically reduce costs. It probably does. But there are good reasons to think that Singapore’s real health care costs are lower, for reasons which American society will find objectionable.)

  4. Gravatar of Simon K Simon K
    27. November 2009 at 23:23

    Its certainly true that there is an equity/efficiency tradeoff in healthcare. But its a mistake to conclude that Western Europe is more equitable and the US is more efficiency, and therefore moving towards more equity will necessarily decrease efficiency and therefore make the US more like Europe. Its a mistake because the US system is disastrously, appallingly, catastrophically inefficient, to an extent that (ironically) no taxpayer funded system could ever tolerate such extraordinary waste. The Western European systems (which are themselves actually highly variable) are both more equitable and more efficient than the US.

    Reform could in theory improve both efficiency and equity if it were the “make the US more like Europe”. But instead of doing that, we’re engaged in an unprecidented program of making the system more equitable and probably even less efficient. The only thing you can say for this is that its possible now taxpayers will notice the attrocious waste they were happy to have their employers pay for now their going to be paying taxes for some of it.

    For the avoidance of doubt, though, I agree the Singaporean system might be a better idea :-)

  5. Gravatar of Doc Merlin Doc Merlin
    28. November 2009 at 00:10

    “3. To deal with the equity problem, subsidize health insurance for the poor and lower middle class”

    The various overlapping subsidies create a poverty trap due to 100%+ effective marginal tax rates. What this means is as your earned income goes up your total take-home income goes down due to overlapping loss of benefits and increases in marginal taxes.

    “2. Europeans live longer than we do.”

    Adult Europeans live longer than average (for adult and non adult) americans do. This is mostly a statistical result of cheating on the infant mortality stats. The French are particularly bad about this.

    WRT forced Savings:
    Here is an argument against them. They distort economic reality. Here is a good example: If I want to buy something and I am forced instead to use that money to save, that money will go to a bank which will earn interest off of it, and then I will have to borrow to get what I want. This functions as a regulatory subsidy to the banks.

    WRT HSAs
    “Recall that Massachusetts was able to force young uninsured workers into far inferior options (no HSAs unless I am mistaken) with relatively little squabbling.”

    HSAs are explicitly allowed in Massachusetts law. The problem with Mass law wasn’t that it didn’t allow HSAs but rather that regulation creep and over-demand (If you force someone to pre-pay don’t be surprised if their demand curve increases) wreaked havoc with the state’s medical system.

    @MIke Sandifer

    Actually, the Republican think tanks I have been hearing have all been pushing HSAs as the way forward.

  6. Gravatar of MIke Sandifer MIke Sandifer
    28. November 2009 at 08:00

    Doc, I was referring to Republican politicians in Washington. Didn’t they just officially release a health care plan just a month or so ago?

  7. Gravatar of StatsGuy StatsGuy
    28. November 2009 at 09:13

    For the most part, I agree with the equity/efficiency tradeoff, but there is a reasonable argument that near the corner of high-efficiency/low-equity end of the graph, the curve actually reverses slope. This is what Team Obama is counting on, and I will concede that parts of their argument have merit – I think that given a free hand, they might do the right thing but they think they are constrained on the left by their own ideological constituency, and on the right by the perception of socialism and by tens of millions of dollas in public media that is financed by insurance companies.

    But in the long run – once we harvest the “low hanging fruit” of moving past the bump in the curve and get to the part where it’s downward sloping again – we will face that equity/efficiency tradeoff, which prompts the question of how we (as a society) choose to ration a scarce resource.

    But before we get there, why might we see short term increases in efficiency if we add equity in an intelligent manner?

    1) We over treat in many areas (particularly at the very high end), often resulting in unnecessary or harmful procedures. There are so many cases now coming out – PSA tests, stents (vs. low cost drugs), possibly even mammograms for certain populations (that’s a debate I don’t care to have). Part of this could be legal-related due to threat of malpractice, but since Tort Reform settlements have plummeted. These costs should be going down, but the overall cost (and cost of insurance, as well as insurance profits) have spiked.

    2) We have pervasive and unfixable information asymmetries between doctors/patients; simply put, doctors have too much power in this relationship. And while this has been partially leveled by access through the internet (which causes its own problems), this leveling effect does not extend to some of the most heavily treated populations (notably, the aged, those suffering from dementia, those suffering from highly debilitating illnesses, and the 50% of the population which is – by definition – of below average intelligence).

    3) Even for well-informed patients, when it comes to personal health care, people are “bad” consumers. This is one reason why doctors have primary care physicians of their own.

    With regard to #1-#3, these issues could benefit substantially by greater standardization (and specialization) of a “treatment algorithm” that is more sophisticated, contingent, and easy to use. The fear is this will result in less personalized treatments. I do not buy this argument.

    4) The emergency room crowding dilemma and high cost of emergency room treatment

    5) Public health in cases of contagious disease (massive positive externalities to low cost measures like simple vaccination, poor/older/worse run hospitals that suffer high rates of resistant bacteria strains)

    6) They are correct about lousy medical record keeping, the impact this has – although this could be fixed without expanding coverage, it’s easier if coverage is more complete

    7) The amount of time/effort we spend to reject claims; e.g. the effort to screen insurance applicants, assess claims, process claims, determine risk tiers, etc.

    Much of the public policy argument is about WHERE we start to see the inflection point in the efficiency/equity tradeoff. The right thinks we’re already at that point. The left thinks the tradeoff curve is upward sloping (better on both dimensions) for a long time…

  8. Gravatar of OGT OGT
    28. November 2009 at 09:21

    If I am not mistaken that is fairly close to Brad De Long’s ideal health system, strange bedfellows indeed. It is certainly better than what we have now, and probably better than what we’re going to get.

    http://delong.typepad.com/sdj/2007/06/dealing_with_th.html

    The only piece I think you’re missing is the provider side cost control, HSA’s assume the driver in health costs are consumers. In a fee for service system there is a push for more service from the provider, as you note in Singapore they fix this with price controls but I would hope we could use better reimbursement models before we resort to that.

  9. Gravatar of ssumner ssumner
    28. November 2009 at 12:33

    Mike, Thanks for the info. I mostly agree. There was some Republican interest in HSAs, but I agree they haven’t been very proactive. Under Bush they should have tried to strike a deal for universal health care along the lines of the Singapore plan. The Dems may not have gone for it, but at least the Republicans could have taken the high ground. But now nobody takes them very seriously on health care.

    David, A few points:

    1 I strongly disagree that military service has a major impact on health outcomes. Most 20 year old men are fairly healthy whether or not they are in the military. Major health problems typically come much later.

    2. Don’t we also have lots of immigrant nurses?

    3. I agree with everything else you said. Notice that I admitted the Singapore plan would cost more in the US. I don’t favor those strict price controls. But I think it would at least “bend the curve” to have most payments out of pocket. I am 54, and have never had a medical procedure that I could not have easily paid for out of pocket. I think an $5000 operation was the most costly I’ve had. I would never have had to spend time arguing with insurance companies. Not once. Wouldn’t that be great? I currently spend $2000/year on asthma medicine that costs me almost nothing out of pocket. No way would I buy that w/o insurance, even though I could easily afford it on a full professor’s salary. The gains simply aren’t that great for a mild case of asthma. That’s just one example of waste.

    David#2, Is the problem “American society” of “the American special interest groups that current rake in 16% of GDP, as against 5% in Singapore?” Yes, I partly agree with your point, but I hate being too defeatist. I hate it when people say that our only choices are between horrible system A, and horrible system B. We need to educate the public.

    Simon K, I agree, but if we are to make a big change, why not change in the dirrection of:

    1. A system much more efficient than Europe.
    2. A system more consistent with America’s free market economy, where consumers bear the cost of most rountine expenses.
    3. A system that allows for lower tax rates.

    Doc Merlin, I’m not sure you are completely accurate.

    1. There is some cheating on infant mortality, but it doesn’t make a huge different on life expectancy.

    2. I read that Mitt Romney tried to allow for self insurance plus catastrophic plans, but the state house didn’t let him get his way. Can anyone confirm what I read?

    You say forced saving is worse than letting people spend on consumption if they want to. But that is not the choice we are being offered. In Singapore people are forced to save 31% and give the government another 15% in taxes. In France people pay closer to 46% in taxes. Which do you prefer? It’s forced saving or forced taxes.

    Statsguy, I agree with most of what you say, except I strongly take exception to your statement that if Obama had his way they’d do a good job. His advisors (such as Goolsbee) seem to have no understanding of the powerful disincentive effects of high MTRs. I doubt they have any interest in the Singapore approach.

    OGT, I favor deregulation of health care, for instance I think nurses should be free to treat patients. I think many low income people would gladly accept the cost/quality tradeoff of being treated by a nurse, as they are almost as competent as doctors for most routine things. Tort reform would also help. I agree things seems stacked in favor of providers right now, but I think people underestimate how much of that results from decades of patients not caring at all about costs. I’ll look at the DeLong piece.

  10. Gravatar of ssumner ssumner
    28. November 2009 at 12:39

    OGT, Wow! I am to the left of Brad DeLong! I like his proposal, and the 20% figureis more that I thought the left would accept (the higher the cutoff, the more unequal the after health care distribution of income.) I’m even ok with single apyer for catastrophic insurance. And I’m to his left on sin taxes. I know some low income smokers, and the heavy cigarette taxes are just too regressive, and too unfair in terms of their impact.

  11. Gravatar of Matthew Yglesias Matthew Yglesias
    28. November 2009 at 16:20

    OGT, Wow! I am to the left of Brad DeLong! I like his proposal, and the 20% figureis more that I thought the left would accept (the higher the cutoff, the more unequal the after health care distribution of income.)

    I think the appeal of something generaly Singaporish is pretty generally acknowledged by economic policy people on the left. Beyond that post of BDL’s, you might note this article from Jason Furman, now serving as Larry Summers’ deputy. But I don’t think anyone sees clearly how you get from here to there.

  12. Gravatar of johnleemk johnleemk
    28. November 2009 at 16:49

    “I strongly disagree that military service has a major impact on health outcomes. Most 20 year old men are fairly healthy whether or not they are in the military. Major health problems typically come much later.”

    While this is true, it’s not just 20-year-olds. Every male citizen is on reserve until they reach age 40 or 50 (depending on rank), and is expected to be ready to be called up at any time. Each serviceman has to be in a military-level state of fitness until they retire from the reserves.

  13. Gravatar of StatsGuy StatsGuy
    28. November 2009 at 19:01

    ssumner:

    “His advisors (such as Goolsbee) seem to have no understanding of the powerful disincentive effects of high MTRs.”

    Um, I think you are far to the left of Austin Goolsbee too:

    http://www.slate.com/id/2169454/

    He’s all for incremental change, market-based mechanisms, subtle changes to incentives, and so forth. Very much against anything too drastic. And the most he’s said about marginal tax rates is that we should return to the 1990s. For example:

    http://freakonomics.blogs.nytimes.com/2009/07/07/white-house-economist-austan-goolsbee-answers-your-questions/

    But Goolsbee _certainly_ gets the issue with overconsumption.

    “In one heart-wrenching case in the movie, a woman whose husband has kidney cancer is told by the insurance people that they won’t allow an experimental treatment that might save his life. But that scene would likely play out just the same way in a nationalized health system. In those systems, cost-effectiveness decisions get made all the time. Care is rationed.”

    But that’s not exactly something Obama will say on national TV, is it?

    In general, Goolsbee gets the concept of cutting costs – I think Team Obama’s new point man Peter Orszag gets it too. Nor, frankly, do they really care about the public option – this is obvious in Goolsbee’s interviews AND in Obama’s casual dismissal of a public option as unnecessary and a distraction. It’s merely a bone to the left. The bigger challenge is the sellout they’ve made to the insurance companies, and that’s what I was referring to.

    But if “doing the right thing” means Singapore, then no – even if that was politically feasible, I don’t think Goolsbee would really want it. Singapore is far too inelegant a solution. Even if it does work.

  14. Gravatar of david david
    28. November 2009 at 19:57

    David, A few points:

    1 I strongly disagree that military service has a major impact on health outcomes. Most 20 year old men are fairly healthy whether or not they are in the military. Major health problems typically come much later.

    What johnleemk said, essentially. In fact, enforcing regular exercise starts when students enter primary school at the age of 6 until they leave pre-university education (at 18 or 19). Male citizens and permanent residents then participate in military service, and are periodically activated until they leave reservist status. That’s 34 years of enforced fitness (not to mention regular health checkups, screenings, treatments etc. that are grouped as part of the military budget rather than general healthcare). I submit that this has a substantial impact on overall health.

    I wonder how America would react if its government required half its population to run roughly 1.4 miles in a decent amount of time every year until they are 40, honestly! Both politically and health-wise.

    David#2, Is the problem “American society” of “the American special interest groups that current rake in 16% of GDP, as against 5% in Singapore?” Yes, I partly agree with your point, but I hate being too defeatist. I hate it when people say that our only choices are between horrible system A, and horrible system B. We need to educate the public.

    Sadly, I suspect that the strength of interest groups is in a sense endogenous rather than cultural – the result of a government actively destroying competing sources of influence rather than an enlightened populace. After all, Malaysia has vigorous interest groups (and associated inefficiency) despite the similar cultures. Singapore’s government achieves its weak interest groups by crushing or co-opting any political movements before they gain momentum, not by having more economically-minded interest groups. The big fight between the Singapore Law Society and the government was not so long ago (1986. The government made it clear that merely being a white-collar professional does not mean that it will hesitate to jail you without trial, and since then professional groups have tended to be docile).

    This is likely a tradeoff that cannot be avoided, I fear. You mentioned “horrible options” A and B; my suspicion is that Singapore is an option C that has its own price, which Americans are likely not prepared to pay, even if they were entirely aware of the benefits.

  15. Gravatar of OGT OGT
    28. November 2009 at 20:45

    Sumner- I certainly agree that changing patient incentives would have an effect on costs. But, I think changing provider incentives would have a greater effect on cost effective care. The Senate bill does a couple of minor tweaks in this direction through pilot projects, but it’s iffy as to whether they’ll amount to anything. Something like Wyden-Bennett would have basically used insurance companies as intermediaries to do the same function by giving people more incentive and opportunity to shop for insurance on price.

    In any case, it seems the ideological divide could have been bridged much more easily than the interest group and political divides.

  16. Gravatar of Doc Merlin Doc Merlin
    28. November 2009 at 20:49

    @Scott:
    Of course 31% forced savings and 15% taxes is preferable to 46% taxes. At least with the forced savings you still have some market forces.

    WRT Massachusetts HSA’s. Yes, HSA’s+High deductible plans are legal in Massachusetts.
    “High deductible plans must also include a companion health savings account.”
    http://bluecrossfoundation.org/foundationroot/en_US/documents/MassHCReformLawSummary.pdf

    Also:
    “Section 16A. The commissioner shall not disapprove a health maintenance contract on the basis that it includes a deductible that is consistent with the requirements for a high deductible plan as defined in section 223 of the Internal Revenue Code and implementing regulations or guidelines; provided, however, the maximum deductible shall not be greater than the maximum annual contribution to a health savings account permitted under section 223 of the Internal Revenue Code; provided, further that such deductible shall only be approved for products which include a health savings account permitted under said section 223 of the Internal Revenue Code”
    http://www.mass.gov/legis/laws/seslaw06/sl060058.htm

  17. Gravatar of Blackadder Blackadder
    29. November 2009 at 07:20

    I think the appeal of something generaly Singaporish is pretty generally acknowledged by economic policy people on the left . . . But I don’t think anyone sees clearly how you get from here to there.

    The current bill has a mandate to buy health insurance. If you want to make our system more like Singapore, limit the mandate to catastrophic coverage. The current bill has a public option. If you want to make our system more like Singapore, limit the public option to catastrophic care. The current bill puts limits out how much a insurer can make a policy holder pay out of pocket for care. If you think the Singapore model is ideal, that would seem to be moving in the wrong direction.

    I find it very hard to believe that the Democrats couldn’t do these things if they really wanted to. Who would stop them?

  18. Gravatar of ssumner ssumner
    29. November 2009 at 08:36

    Matthew, Yes, I am beginning to be educated on that fact. But do the people on the left realize just how right-wing Singapore is? It’s like a country run by 100 Martin Feldsteins. No taxes on capital. A top rate of around 15% on income (I forget the exact number.) The government spends only 1-2% on GDP on health care. Is that what left-wing intellectuals want in America? If so Brink Lindsey’s idea of a liberaltarian synthesis may not be a pipedream.

    I had probably relied too much on Krugman as a spokesman for the left (he hates the Singapore approach). Obviously, I need to read more widely. BTW, I do realize that your comments aren’t an endorsement of everything Singapore does, nor are mine. I suppose it would be possible to combine the basic Singapore approach with much higher taxes and much higher subsidies. And I suppose that is what people on he left would prefer.

    I did know about Furman, but when he was appointed I recall that the press indicated that some of his views were a bit out of step with the Obama adminstration. I hope those reports were wrong. BTW, the much more moderate ideas presented by Furman do confirm my intuition that DeLong’s ideas were pretty extreme (in a good way from my perspective.)

    Getting from here to there is the problem, as you indicate. the analogy I always like is that when we saw high speed trains in France that we liked, we copied them here. And we ended up with the 60mph Acela. (Try ramming straight double wide tracks through posh Connecticut suburbs.) Our current health care system is so messed up that I fear a similar result in health, almost regardless of what we try. (Even if we tried my favorite idea.)

    johnleemk, I didn’t know that. You might be right. In any case I really have no disagreement with you, as it is widely known that Asians tend to have good health outcomes even in America (under the same health care system as whites.) So I agree that Singapore has some advantages that wouldn’t translate easily to America. We could never match their 5% of GDP.

    I’ll pick up the other comments later today.

  19. Gravatar of johnleemk johnleemk
    29. November 2009 at 10:36

    david:

    “Sadly, I suspect that the strength of interest groups is in a sense endogenous rather than cultural – the result of a government actively destroying competing sources of influence rather than an enlightened populace. After all, Malaysia has vigorous interest groups (and associated inefficiency) despite the similar cultures.”

    I think the most powerful interest groups in both Malaysia and Singapore are the same — my impression is that it is the economic/political elites who shape the direction of the country. It just so happens that in Malaysia, our elites are corrupt and often poorly-educated to boot. In Singapore, the elites for whatever reason don’t loot as much as they could (I have heard some cynics muse that once Lee Kuan Yew dies, the more typical graft problems of an authoritarian state will rear their heads).

    It may well just be that because the elites of Singapore are better-educated and often seem more intelligent in general, they have lower discount rates, and so prefer to emphasise policies which drive growth, knowing that they can afford to steal in small amounts from an ever-enlarging pie.

  20. Gravatar of Scott Sumner Scott Sumner
    29. November 2009 at 13:49

    Statsguy, I wouldn’t say I am to the left of Goolsbee on health care, certainly not based on the article you provided. I have read his views of supply-side economics, he basically doesn’t think high MTRs have a disincentive effect. For political reasons he has to support only modest increases in MTRs, (to 1999 levels), but he certainly would like much higher MTRs. Indeed I would support 90% tax rates if I had the same view of elasticities as Goolsbee does.

    BTW, Many respected economists claim the plan being discussed in Congress would lead to greater than 100% MTRs for the working class.

    David, You are right on the first point. Regarding the applicability of Singapore to the US, I think the key difference is size. Smaller countries tend to be governed more efficiently. Singapore is not the only example. Hong Kong also has a very efficient government.

    OGT, You may be right about the ideological divide being less important that special interests. Maybe it’s like the trade issue. But I am discouraged that many on the left seem pleased by the prospect of a bill coming out of Congress. The proposals I have seen are awful.

    Doc Merlin, You may be right. But if so, I’d switch to a HSA in a heartbeat. The news report I read must have been wrong.

    Here is my next question: If Massachusetts really did adopt the Singapore plan why are those on the right happy? I haven’t seen one conservative supporter of the Singapore approach claim it was adopted in Massachusetts. I still think there are some unanswered questions here.

    Blackadder, Your comment (which I agree with) makes me return to the question addressed in my reply to Doc Merlin. If HSAs plus catastrophic count as “insurance” then I am much more supportive of health care reform in the US. But I have read articles from people on the right claiming the Obama approach would ban high deductible insurance. Is that true? If so, and if Doc is right it would seem to repeal the Massachusetts reform. The only thing I am sure of is that I am missing an important piece of information here. Something just doesn’t add up. Does anyone know what is being proposed vis-a-vis HSAs? Does the Federal plan allow them? And with the same tax deduction as ordinary insurance?

    The bottom line is that at least 95% of health care bills should be paid out of pocket. An insurance company is something you should deal with a couple times in your life.
    I don’t see any sign the US is moving in that direction.

  21. Gravatar of Doc Merlin Doc Merlin
    29. November 2009 at 14:44

    The Obama healthcare regulations don’t outright ban HSA+high deductibles, they create a board that regulates what is allowed and any plan. The problem is unlike the Mass reform, they don’t explicitly allow for HSAs. In Mass, most people don’t have access to HSAs anyway, because their employer doesn’t provide the option. For true health care reform to work, we need to decouple employment and health insurance.

  22. Gravatar of JTapp JTapp
    29. November 2009 at 20:05

    DeLong’s ideas were included in Ross Douthat & Reihan Salam’s book Grand New Party, which was widely read by Republicans.

    Oddly enough, the author of How American Health Care Killed My Father in the Atlantic Monthly independently came up to a similar solution as you and DeLong– mandated savings into an HSA-like vehicle, with the government as the backstop.

    I know for sure that article was widely read on Capitol Hill. So, why the idea hasn’t been adopted by either side is a mystery to me.

  23. Gravatar of Matthew Yglesias Matthew Yglesias
    29. November 2009 at 20:07

    I suppose it would be possible to combine the basic Singapore approach with much higher taxes and much higher subsidies. And I suppose that is what people on he left would prefer.

    Yes…I think that would be the general preference. Or perhaps Singapore with much higher taxes and much more government spending on things that aren’t health care. In Denmark, of course, they have a lot of policies that would be considered “right-wing” in the United States but also extremely high taxes and transfers plus they’re very green.

    Furman wrote something nice about Wal-Mart years ago (PDF here) for my current employers at the Center for American Progress that, for political reasons, Obama & co need to disavow. But I think his views on economic policy issues are in line with the administration’s general thinking.

  24. Gravatar of Simon K Simon K
    29. November 2009 at 23:59

    JTapp – Its a mystery to me how many better ideas for healthcare refomr are being passed over. The Democrats prefer the abomination they’re about to pass, and the Republicans prefer, uhhh, complaining. Wyden-Bennet was a better idea. HSAs+catastrophic care is a better idea. The key is to get rid of the employment link, but no-one in power is prepared to say this let alone do anything about it.

    I’m not quite sure why. But I think the Dems are stuck because they rely on the unions for support, and union members benefit from the employment link. The GOP is stuck because their supporters are, umm, old, so while they complain endlessly about how costly medicare is, they won’t do anything about it.

  25. Gravatar of Doc Merlin Doc Merlin
    30. November 2009 at 10:06

    @Simon K
    “I’m not quite sure why. But I think the Dems are stuck because they rely on the unions for support, and union members benefit from the employment link.”

    Also, Unions are explicitly exempt for the bulk of the proposed regulation, Simon.

  26. Gravatar of Joe Dillon Joe Dillon
    30. November 2009 at 18:42

    Just like to say that this is one of the most reasoned discussions about different health options that I’ve run across lately.

    As an American ex-patriot living in Singapore I thought I’d share a few general thoughts on the whole efficiency/equity argument.

    Having spent significant time living in Kansas, New Orleans, and Houston I can say that my experience of the quality of care over here is better than in New Orleans, and probably a step below the kind of services you can receive in Houston.

    Having visited some of the ‘private’ clinics referenced above for various minor illnesses the average cost of each visit in total was less than $80 US which seems to provide an excellent balance between affordable basic care and abuse of the services.

    Although the government in Singapore is something of a benign dictatorship it is probably the most capitalistic place I’ve ever lived (including Texas). While it’s true that taxes on capital are negligible, the Singaporeans are excellent at raising funds through taxes that enforce behavior (sin taxes and vehicle taxes are astronomical).

    I’m not sure how well pulling out ‘just’ the health care system from Singapore would work in the US (you guys are way ahead of me on the economic theory on that one) but it does work exceptionally well over here.

    I think that defining what is meant by ‘efficiency’ may provide some added value here. I mean, if ‘efficient’ is defined as keeping Americans that have large amounts of capital to spend alive as long as possible given their lifestyle choices then I would argue that America is actually pretty efficient on that front. The leading ‘specialists’ have long been clustered in America, largely because we can afford to pay for them when needed.

    I think that losing the high end health services that America has for the sake of more ‘efficiency’ on the low end would be a mistake as that is maybe one of the most valuable assets our health care system has left..

    Just my 0.02

  27. Gravatar of Scott Sumner Scott Sumner
    1. December 2009 at 06:29

    Doc Merlin, Thanks for the info. Is there some restriction in the “fine print” that makes HSAs less attractive? Does the government regulate deductibles? Or is the tax benefit smaller than for health insurance? I am curious as to why more companies don’t offer them.

    Thanks JTapp. I should emphasize that it is obviously not my idea, as HSAs have been around for years.

    matthew, I agree, but would emphasize one point that some may overlook. Singapore’s forced savings levels are so high around 31% I believe) that even with Denmark-type egalitarianism the tax rates would still be considerably lower. That is because much of the “welfare state” simply redistributes income back to the same people, at different points in their life. The forced savings policies dramatically reduce the need for this sort of government transfer. I’d guess you could get Danish levels of redistribution at tax rates under 30% of GDP, if combined with high levels of forced saving. I think Singapore’s spending is closer to 20%, but am not certain.

    Simon K, Those are good points.

    Joe Dillon, I am always happy to get input from people who have observed Singapore first hand. I can’t disagree with anything you say, but would just add that I think there is a ‘sweet spot’ between Singapore’s 5% of GDP and our 16% of GDP where we could get high quality and and some sort of universal coverage.

  28. Gravatar of Doc Merlin Doc Merlin
    1. December 2009 at 22:32

    @Scott:
    “Doc Merlin, Thanks for the info. Is there some restriction in the “fine print” that makes HSAs less attractive? Does the government regulate deductibles? Or is the tax benefit smaller than for health insurance? I am curious as to why more companies don’t offer them.”

    The government does regulate deductibles in Mass. The deductible cannot be legally higher than the maximum federally allowed contribution to an HSA.

    For the company, I think the reason more don’t offer HSAs is because changing benefits is a slow process and they want to see how it works out for other companies first. So far the experimentation seems very positive, but I don’t see too many companies switching between now and 2010. I know the State of Texas (in the UT system) offers HSAs but they are crappy ones that are over and above coverage you already get. You have to ask for extra withholding into the HSA to use an HSA. My mother on the other hand is employed by Brenham County and has a really awesome HSA plan; its literally a debit card that she can only use for medical expenses.

  29. Gravatar of Scott Sumner Scott Sumner
    3. December 2009 at 05:53

    Thanks Doc. BTW, I’ve talked so much about Singapore, I wonder what other Asian countries are doing. Does anyone know if Hong Kong has universal health care? And if so, how is it paid for?

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