We lost.   They won.

We are:

Progressives who favor a single-payer system

Libertarians who favor HSAs

Moderate economists who favor cost control to free up money for other societal goals

They are:

Doctors

Pharmaceutical companies

Hospitals

Private prepaid health plans (for some odd reason referred to as “insurance companies”)

Medical device makers

And many other special interest groups

Kausfiles summed it up perfectly:

Today’s left and right anti-Reid activists have a common enemy in corporatism, the easy alliance between Big Government and entrenched, favored too-big-to-fail businesses (Aetna, AIG …. ) that threatens to give us all the inequality of capitalism with all the dynamic innovation and accountability of socialism.

I’m no health care expert, and don’t even know the details of the bill.  The issue that concerns me is health insurance.  I’d like to switch to a system where people paid for the overwhelming majority of their health care expenses out of pocket, like any other service.  Something like the plan Brad DeLong once proposed (but without the regressive sin taxes.)  The way to achieve this is with a combination of HSAs and catastrophic insurance.  According to the Wall Street Journal, the new bill effectively outlaws HSAs, by mandating coverage of all sorts of wasteful procedures, such as the scam of using expensive medical equipment to test for all sorts of possible diseases someone might have, even when there is no scientific evidence that the tests are helpful.

At first I discounted the WSJ report, as their editorial page has a right-wing bias and can be unreliable on occasion.  But my last glimmer of hope was extinguished when the more liberal LA Times confirmed the WSJ report.

Is there any good news in the report?  I hope one of you can cheer me up.  I heard that the tax on “Cadillac plans” survived.  That could be significant, but only if it is not indexed to inflation.  I suppose we’ll have to wait for the final committee compromise, but right now it doesn’t look good.

There is a lot of talk in the press about all the cost containment experiments in the bill.  We already have a good mechanism for experiments—it’s called “states.”  Remember the Massachusetts plan?  One of my commenters disagreed with me when I said that the Massachusetts plan outlawed HSAs.  He claimed they were allowed.  Maybe so, but this debate is now a moot point, as the Federal plan will supersede all state experiments, and Massachusetts will have to give up its HSAs.

You might think HSAs are a side issue; after all they only cover 4% of workers.  Yes, but they covered only 1% in 2006.  The medical industrial complex is made up of very smart people.  They currently rake in 16% of GDP, and the percentage is rising rapidly.  They weren’t going to stand by and allow the adoption of a system that spends only 5% of GDP in Singapore.

Sometimes I think the two political extremes blew an opportunity.  Let Medicare take over catastrophic insurance for everyone, and let HSAs cover 95% of health care bills.  Then provide a subsidy to low income workers’ HSAs.  Voila, no private insurance companies.  But realistically, how likely was it that a bunch of idealistic single-payer and HSA advocates were going to beat a $2.2 trillion dollar industry?  Once they started to pressure those Democratic “moderates” then all the talk about “bending the curve” seemed to disappear.  And the Republicans probably thought “why should we help the Democrats win a big bipartisan victory.  If we demagogue Medicare maybe we can win the mid-tern elections.”

But don’t despair.  No matter how powerful the medical-industrial-complex appears today, history shows that no special interest group is invincible (except lawyers, obviously.)  Remember back in the 1950s when 35% of workers were unionized?  I’m sure most people at the time thought that they were also politically untouchable.  Now they are down to about 7% of the private sector workforce.  Perhaps someday we’ll have drugs that can prevent or cure diabetes and cancer, and eventually the patents will expire and they’ll become generics.  Technology is probably our best hope for preventing the medical-industrial-complex from eventually swallowing the entire economy.

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.
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Last week I did a post that discussed a recent NYT article on the Dutch health care system.  The quotation I provided claimed that the Dutch health insurance industry is entirely private, with nothing like our Medicare, Medicaid, and VA plans.  I noted that conservatives would probably prefer this approach, even with universal health insurance coverage, to what we are likely to have 5 years from now.  Matt Yglesias commented on my post as follows:

The Obama plan is, in my view, sort of loosely modeled on the Swiss and Dutch systems. And it’s attracted no support whatsoever from conservative politicians. But the GOP leadership did release a health care plan, focused on deregulation of health insurance companies, that would do nothing to reduce the number of uninsured people. I think it’s perfectly fair to say that universal coverage is the issue separating the left and right. When I see conservative politicians getting behind some version of universal coverage””even something like Martin Feldstein’s plan to give everyone catastrophic coverage””then I’ll stop saying conservatives don’t care about helping the uninsured.
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The New Yorker recently published a wonderful article on health care in McAllen Texas, America’s poorest metro area.  Only in America would the government spend a fortune insuring certain poor people, and nothing on others:

In 2006, Medicare spent fifteen thousand dollars per enrollee here, almost twice the national average. The income per capita is twelve thousand dollars. In other words, Medicare spends three thousand dollars more per person here than the average person earns.

. . .

I was impressed. The place had virtually all the technology that you’d find at Harvard and Stanford and the Mayo Clinic, and, as I walked through that hospital on a dusty road in South Texas, this struck me as a remarkable thing. Rich towns get the new school buildings, fire trucks, and roads, not to mention the better teachers and police officers and civil engineers. Poor towns don’t. But that rule doesn’t hold for health care.

Suppose McAllen was an independent country with universal health care.  How much would it cost the government to insure the entire population?  If independent, McAllen would be poor relative to the US, but it certainly wouldn’t be poor in any absolute sense.  My guess is that it would come in somewhere around Portugal or Slovenia.  And I would also guess that it would spend less insuring the entire population than we now spend insuring the relatively small share of the population covered by Medicare.

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