KISS our healthcare woes goodbye

Josh Barro has a good article, which exposes the fact that the GOP doesn’t really have a good alternative to Obamacare.  But there are good alternatives (Josh is generally too pessimistic), and Obamacare is a lousy healthcare system.

We need to do three things:

1.  Make healthcare affordable.

2.  Do so without running up costs.

3.  And hold down costs without excessive inequality.

It’s not easy, but it’s actually not all that hard either.  We need to implement 4 reforms:

1.  Stop subsiding health insurance (end the tax deduction).

2.  Deregulate, deregulate, deregulate, (health care provision.)

3.  HSAs plus single-payer catastrophic.

4.  Decentralize, decentralize, decentralize.

The first item is the low hanging fruit; intellectuals in both parties support ending the tax deduction. McCain ran on it, and Obama included a very gradual phase-out in his plan.  It might take 50 years, but eventually the Feds won’t be paying 35% to 40% of the cost of health insurance.  This will put enormous pressure on providers to hold down costs.

The second item is more low-hanging fruit.  Progressives like Yglesias and reactionaries like me both want more immigration of doctors and nurses, and more ability of non-doctors to provide routine medical services.  The immigration reform will happen within a few years, but occupational licensure is a much tougher nut to crack.

The third item is the most controversial, opposed by the left and the right.  The left doesn’t like HSAs, but for the wrong reason.  If the government provides universal catastrophic (defined as coverage for health care expenses that exceed your HSA account), then the effect on equity is quite small.  Indeed compared to our current system it’s not even clear which way it goes.  HSAs do increase inequity a bit, but universal single-payer catastrophic coverage improves equity.  The GOP doesn’t like government health insurance, but once you have HSAs and universal catastrophic, there’s really nothing for private insurance companies to do, other than skim off money from the system.  If I’m wrong about equity, any deterioration could be offset in a VASTLY more efficient way with low-wage subsidies.  Having people consume health care that others pay for encourages enormous waste.  Avoiding HSAs is a very inefficient way to improve equality a small amount, when the universal catastrophic coverage has already taken care of the worst inequities.

The fourth item is more important than many recognize, more low-hanging fruit.  If we go to universal single-payer catastrophic, the public system will be HUGE.  The Feds can’t run that sort of huge system efficiently.  Look at that New Yorker article comparing Medicare in El Paso and McAllen, if you don’t believe me.  Even small Scandinavian countries don’t run it at the national level (I’m told); they run the system and raise the revenues at the county level.  So the government part of the system should be run and financed at the county level.  The only role of the Federal government should be to give lump sum payments to each county, based on population, age distribution, frequency of obesity, etc. The grant would equal the expected cost of the county’s program.  At the margin every dollar of waste in McAllen should come out of the pockets of their taxpayers, and every dollar of saving in El Paso should free up money for other programs like roads and schools.

PS.  Disclaimer:  I would massively benefit from the plan I propose.  I HATE dealing with insurance companies, and under my system 100% of my lifetime health care expenditures would (probably) come out of my HSA, I’d never have to deal with private or government insurance.  I would have spent far less on health care, and I’d don’t think I’m that unusual.  I think my plan could drive spending from 18% to 12% of GDP, i.e. the level of places like Switzerland, where people pay for much more of their care out of pocket. I’d guess it would end up being roughly 50-50 public/private in provision.  That means lower taxes for Americans.

I’d benefit so much that I’d gladly pay a much higher rate of (progressive) payroll tax in order to subsidize lower income people, so they could have HSAs too.  But no income tax, that abomination also must be abolished.


PPS.  Will be busy–sporatic blogging for a few days.



67 Responses to “KISS our healthcare woes goodbye”

  1. Gravatar of foosion foosion
    31. October 2013 at 13:36

    Now you just have to convince some Republican politicians to support your plan.

    Kerry supported single payer catastrophic when he ran for president. Every Republican I know supported it when I told them about it. When I mentioned that it was Kerry’s position, they all said they hadn’t understood and that it was a bad idea.

  2. Gravatar of myb6 myb6
    31. October 2013 at 13:36

    This is pretty much my ideal system.

    One equivication: how would you handle serious emergency care? It’s impossible for the patient or their fiduciary to be an intelligent consumer under that circumstance. You also can’t expect your catastrophic insurance company to have a price agreement with the very nearest provider when your emergency occurs.

    As a result, I’m open to some regulation is justified in the narrow case of an intense/immediate threat. I’m no doctor, so my terminology might be screwy, but I think you get my drift.

  3. Gravatar of myb6 myb6
    31. October 2013 at 13:39

    Haha, let me fix that: “As a result, I’m open to some regulation in the narrow case of an intense/immediate threat.”

  4. Gravatar of @YoungEcon @YoungEcon
    31. October 2013 at 13:43

    The same system I have been trying to sell to people as well.

  5. Gravatar of Charlie Charlie
    31. October 2013 at 14:08

    What is the benefit of HSAs? (as opposed to the same plan without the HSAs). That is, why should saving for medical expenses not be taxed? Won’t that put upward pressure on medical costs and use of medical services? Is it just because no savings should be taxed and HSAs are politically feasible or is there some reason we want to subsidize medical savings over other kinds of savings?

  6. Gravatar of Larry Larry
    31. October 2013 at 14:20

    The best thinking that I’ve found is in Goodman’s Priceless and Christiansen’s Innovator’s Prescription.

    One good idea that mostly fixes the preexisting condition problem is to allow kids to stay on their parents’ plan forever, instead of leaving at 25. In parallel, allow those who leave their job to, again, keep their policy forever. That keeps them in the same risk pool, and whatever happens to them doesn’t affect their premiums.

  7. Gravatar of Hein Hein
    31. October 2013 at 14:21

    And then you woke up

  8. Gravatar of Hein Hein
    31. October 2013 at 14:23

    Seriously, it is one thing to come up with intelligent solutions to problems, and another to actually make them happen.

  9. Gravatar of TomH TomH
    31. October 2013 at 14:31

    @Charlie- I’ve wrestled with this question a lot with regards to the HSAs, but the only consistent answer I can come up with is that politically speaking HSAs are far more viable than completely ridding of taxes on savings (I can only picture the “Now teh Koch bros can just call everything savings!” memes). It does seem like there’s some implication that because one is in a lower income bracket it means they can’t be expected to “properly” save for something like medical expenses when these things get brought up.

    I know I’m making it sound like an echo chamber, but with some work this does seem like a viable compromise between the universal-medicare/single payer visions of the left and the…well, reflexively defensive position of the right at the current moment regarding “private insurance” in the country. Certainly from a liberalizing the market pov, acquiescing to universal catastrophic in exchange for completely tax exempt HSAs and getting rid of much of the barriers to health-care provision seems like a winning proposition…

  10. Gravatar of Hein Hein
    31. October 2013 at 14:47

    Sorry, I am in a cranky mood.

  11. Gravatar of Joe Eagar Joe Eagar
    31. October 2013 at 14:48

    “The only role of the Federal government should be to give lump sum payments to each county, based on population, age distribution, frequency of obesity, etc.”

    There’s no need for this. The federal government could simply require that the countys all pay into a reinsurance system. The federal government hasn’t had much luck designing risk adjustment formulas (e.g. for Medicare). Much better to let the countys themselves do it.

    By the way, a county system would be functionally equivalent to having hundreds of insurance companies with regional monopolies, wouldn’t it? I fail to see why this would not be a complete and utter disaster, just as the public education system is.

  12. Gravatar of Dan W. Dan W.
    31. October 2013 at 14:52

    #1: Scott & I may disagree on monetary policy but we agree on this.

    #2: Larry mentions “risk pools”. I’ve long wondered how the discussion of pools makes any sense in the context of health care as a national problem. Is not everyone in the pool? In other words, we need to recognize that “insurance” loses most of its meaning if health care costs are going to be aggregated and subsidized and so on.

    The only way to bend the “cost curve” is to harness the power of individual, non-homogenous, demand curves. The simple truth is that people do not share the same personal preference for health care. It is not just that people have different health care needs. It is that different people value health care differently! But a social program built on the myth that everyone values health care the same will discover that people will spend as much of other people’s money as they are allowed, nothwithstanding their personal preference.

  13. Gravatar of Joe Eagar Joe Eagar
    31. October 2013 at 14:54

    Charlie, (pure) insurance schemes are basically savings plans based on actuarial tables. One way of reducing the third-party payer problem in healthcare is to isolate the “savings” aspect of health insurance (preventative care and other predictable expenses), rip it out of insurance plans, and put it into it’s own, special savings vehicle.

  14. Gravatar of john malpas john malpas
    31. October 2013 at 15:05

    Is the USA still a place that doctors and nurses might want to come?
    They have a broad choice these days. Australia for example.
    And who gets their medical care from the non doctors that you advocate?
    The rest of the world is getting more prosperous. Maybe you will just have to grow your own medical people.

  15. Gravatar of ssumner ssumner
    31. October 2013 at 15:18

    foosion, Well then I changed my mind. I’m against this plan.

    Chalie, No saving should be taxed, and you want to overcome the free rised problem.

    Hein, You said;

    “it is one thing to come up with intelligent solutions to problems, and another to actually make them happen.”

    I did not know that.

    Joe, There may be an argument for private insurance, but I’d like to see it.

  16. Gravatar of ssumner ssumner
    31. October 2013 at 15:19

    John, You asked:

    “And who gets their medical care from the non doctors that you advocate?”

    I’d rather get care from nurses, and save money.

  17. Gravatar of Tom Tom
    31. October 2013 at 15:53

    I must be missing something simple but I don’t mind looking like a buffoon on the internet so here goes.

    If the government would pay for all expenses that exceed an HSA account, what is the incentive for putting money in an HSA? If I faithfully put 6k a year in my HSA starting when I’m 20 and then get cancer when I’m 50 I could lose hundreds of thousands of dollars in treatment expenses.

    On the other hand, if I’ve accumulated next to nothing in my HSA because I’ve been putting the money to good use with cars and women, the government will pick up the tab?

  18. Gravatar of Bill Ellis Bill Ellis
    31. October 2013 at 16:02

    Without a mandate to have HSA’s, and subsidies for the poor to be able to afford them, I don’t see how it will work.

    And if you are OK with mandates and subsidies why not just mandate the whole mess? Do a Singapore.

  19. Gravatar of benjamin cole benjamin cole
    31. October 2013 at 16:06

    Nice ideas…but we have now 22 million Americans who get free health care courtesy os taxpayers—not only funded, but in federal facilities and from federal emplyees. It is called the VA. Soviet-style care, but no one seems to say the VA should be abolished.
    Maybe we need a VA model for citizens…held to 12 percent of GDP…

  20. Gravatar of dtoh dtoh
    31. October 2013 at 16:13

    Scott, you said;

    “Make healthcare affordable.”

    I think you meant to say make insurance for medical care affordable.

    Medical care is different than health care. You can get a lot of good health care for free (e.g. eat better and exercise more).

    Medical care is different than medical care insurance.

    The problem is not cost, the problem is that the payment system causes excessive consumption of medical care (i.e. non-optimal for a utility view point). It’s not too expensive, it’s just we use too much.

    “HSAs plus single-payer catastrophic.”

    HSAs don’t maximize utility, they still result in over-consumption of medical care, but politically they are probably the only way to wean the U.S. off tax subsidies for medical care insurance.

    Also single payer is a bad idea. A much better system is to require all insurers to offer a standard catastrophic (i.e. high deductible bare bones a la Morgan) plan for which the rate can vary based only on age, geography, tobacco and BMI. Require the plan to be easily accessible by anyone and only allow the insurance companies to sell “supplemental” insurance to people who have first bought the basic catastrophic plan.

    Single payer will result in bad pricing and allocation decisions.

  21. Gravatar of JohnH JohnH
    31. October 2013 at 16:23

    Tom, one thing you have to backfill for this to make sense is a Singapore-style forced savings system where money is extracted from your paycheck into various savings accounts.

    The government then either tops up the savings inserted (a variation of EITC) or for low-income people effective have a lower annual deductible. I’d favor topping up because then it’s still an asset to be managed. The young don’t spend much on health-care anyways so it’ll grow absent consumption – no need to keep them tied to their parent. The government still has a little room to perform social engineering, for example they can pay a baby bonus specifically to cover births.

    This isn’t a complete system, it’s good at removing small or routine expenses but probably a lot less good at optimizing for heroic treatment once the government is paying. The difficulty of a government balloon policy is it’s not health insurance, it’s non-paying customer insurance for the medical industry which they will seek to maximize. The kinds of procedures inside the savings envelope will be completely different from the procedures outside of the savings envelope making it difficult to compare costs.

    The balloon policy should have an annual limit that decreases over a person’s lifetime in theory because it’s offset by savings; and more morbidly because the societal benefit is decreasing.

    I can’t say enough about deregulation, and not just for care delivery but for technology. The medical industry invests only 1/3 the corporate average in IT technology and gets a worse return for it. Introducing any system into the medical space requires more lawyers than engineers. HIPPA made it way way worse, it’s makes Sarbanes-Oxley look like a 1040EZ. That’s why hospital billing has near soviet complexity.

  22. Gravatar of Steve Steve
    31. October 2013 at 16:25

    What do you think of the Kotlikoff Purple Plan:

    Government provides vouchers, guaranteed issue, then like dtoh said, you have to buy a catastrophic plan first, then you can buy supplemental insurance from the same carrier.

  23. Gravatar of Michael Michael
    31. October 2013 at 16:30

    Merits of your proposal aside, health insurers are never going to stand idly by while they are legislated out of existence.

  24. Gravatar of Dan S Dan S
    31. October 2013 at 16:42


    You and others have advocated a consumption tax over an income tax before. But I’ve never really seen any specifics fleshed out. I get the idea that you want to tax only labor income that is not saved, but how do you actually do that? Is it like an income tax except any savings are tax-deductible? Or is it more like a high VAT that is somehow tweaked to make it progressive? If the former, where do you draw the line on what counts as saving vs. consumption? Obviously stocks, bonds, bank deposits, etc. are saving and food is consumption, but what about things like expensive artwork?

  25. Gravatar of Dan W. Dan W.
    31. October 2013 at 17:37

    I’ve heard George Will explain that healthcare costs are a 21st century problem. It was not until the mid 20th century that medicine actually become sufficiently reliable that people could expect health care to extend their lives and worth spending considerable money pursuing.

    Thus the fundamental question is this: Who is responsible for caring for one’s health care needs? If it is government than rest assured there must be death panels. If it is the person than certainly some people will have less access to health care than others. This is the reality of health care in the 21st century and beyond. To pretend otherwise is to lie and deceive.

    Recognition that the demand for subsidized health care will always exceed supply and recognition that some health care will always be subsidized tell us what the social policy should be: Increase the supply of health care! The sad irony is that Obamacare and Medicaire further tighten the supply of health care and further limit access to it. The exact opposite of what needs to happen.

    Health insurance is not health care and thus how much time have government officials wasted on not solving the real problem!

  26. Gravatar of ssumner ssumner
    31. October 2013 at 17:57

    Tom, The HSAs are mandatory.

    dtoh, I think both are problems; waste and affordability. Even with no waste there will be many medical needs that are too expensive for people to purchase without subsidy. That doesn’t mean government is the optimal subsidy, it might be charity. But I’m simply trying to nudge the system in a more efficient direction.

    Steve, I haven’t looked at the details, but it sounds like an improvement over the current regime.

    Dan S, A VAT and a progressive payroll tax. No forms to fill out (for most people.) Taxes are withheld.

    There are always judgement calls with C and I. I’d err on the side of C. Three martini business lunches are obviously C for instance. Not sure about art, I suppose you’d tax the revenue of the auction houses, but not the art itself (except when new.)

    Dan W, Death panels for the government program, and no death panels for those paying for their own care.

  27. Gravatar of dtoh dtoh
    31. October 2013 at 18:26

    Waste is just over consumption. If you had a normal payment mechanism (i.e. get rid of low deductible policies) then waste would take care of itself.

    I don’t think government subsidies are a bad idea. You need them for people who can’t afford even a catastrophic plan and for people who can’t afford medical expenses not covered by the high deductible, but for the bulk of people who can afford the basic high deductible plan, a single payer will result in poor allocation decisions. Also single payer won’t fly politically (even with the Democrats).

  28. Gravatar of AlanInAZ AlanInAZ
    31. October 2013 at 18:47


    I’m not sure why you think Switzerland’s HC system is like your plan. They have significant subsidy of insurance premiums, mandatory insurance purchase, rates for procedures are set at the cantonal level, generous mandated basic coverage, the young subsidize the old because all ages 26 and above pay the same rate and deductibles are limited to between 300 and 2500 chf. Except for decentralization I don’t see much overlap with your ideal. In fact, I think it more resembles Obamacare more than your plan.

  29. Gravatar of Floccina Floccina
    31. October 2013 at 18:58

    I agree with you Scott, I hate to deal with insurance companies. I also hate to deal with governments (the are even worse that insurance companies).

    Also experience has showed me that MD’s care about their patient’s money but do not care about insurance company or government money and so they waste it.

  30. Gravatar of dtoh dtoh
    31. October 2013 at 19:05


    Totally agree, when I self pay, MDs will always offer discounts, discuss the cost of different treatment options, order tests at lower cost labs, etc.

  31. Gravatar of Ricardo Ricardo
    31. October 2013 at 19:39

    OTPIMCO’s William H. Gross suggests that Yellen may do NGDP targeting:

  32. Gravatar of Don Don
    31. October 2013 at 21:12

    HSA’s without a tax advantage only serves the purpose of ensuring customers have liquidity. That is weird.

    I don’t the GOP should be faulted for not having a plan. Parties have platforms, not plans. Individual politicians have plans (fuzzy feelgood ones).

    I don’t think costs are important. Costs are high, because we choose to spend a lot on healthcare. Food and electronics are cheap, so why not?

    We should focus on efficiency. My two fixes would be guaranteed issue and electronic records. Guaranteed issue would be paid for by allowing insurance companies to pass costs off to a govt. sponsored re-insurance pool. Let the lawyers and accountants fight each other while doctors and patients worry about wellness.

    Portable lifetime records will eliminate redundant testing and allow software to manage health and diagnosis. Just as Google is able to monitor all your email, web-browsing, driving, calendar,… to recommend and guide you, a Watson can integrate your health history and provide better guidance than any doctor. It would also save all that wasted time writing out health history every time you see a doctor.

    With those two things, chosing a doctor is like choosing gas station. Anything clean and well-lit will do. That is shopping and that leads to price efficiency/better customer experience. We need to remake the paradigm, not the payment system.

  33. Gravatar of kebko kebko
    31. October 2013 at 21:34

    “The fact that I have no remedy for all the sorrows of the world is no reason for my accepting yours. It simply supports the strong probability that yours is a fake.”

    H.L. Mencken

    I support your plan wholeheartedly. However, if the Republicans only idea was simply to delete every federal health policy ever passed, including the employer tax deduction, they would have a better plan than anything that apparently has a chance of passing (not that they would ever be so sensible)….which gets me to thinking, what a screwy world we live in that commenters condemn your outline as politically implausible, but somehow the Frankenstein monster we call Obamacare passed 2 houses and got the President’s signature. Yowza!

  34. Gravatar of Jason Jason
    31. October 2013 at 21:43

    Since when does the KISS principle involve choosing to implement an entirely new system that does not exist for any large country anywhere on Earth rather than copy an existing efficient system?

    Italy, Spain and Australia and Japan have the most efficient systems. Let’s just use one of them.

    The very idea of health insurance is that the more people who are in the pool, the better the statistics work. Any plan that doesn’t have “create as large a pool as possible” is not a KISS plan.

  35. Gravatar of Joe Eagar Joe Eagar
    1. November 2013 at 03:38

    Scott, I actually agree that pure insurance isn’t all that desirable in healthcare. However, I do think that managed care organizations are (the quality of a good HMO over that of “normal” insurance companies is frankly unbelievable).

    That said, I don’t think any system with a monopoly component is going to work, given the dismal quality of most American primary care doctors. Quality would continue to erode (more like plummet, I suspect), and the system would basically turn into a way for wealthy doctors, who are *de facto* little more skilled than nurse practitioners, to extract wealth from the system.

  36. Gravatar of Steven Kopits Steven Kopits
    1. November 2013 at 04:10

    Amen to that. Good post.

    Scott, could I ask you to define acronyms when you first use them? HSA are “health savings accounts”, I believe, but I had to google the term to be sure. As a matter of policy–this is something I insist on with my own analysts–acronyms must be defined on first use or first anticipated reading (not everyone starts a document at the beginning).

    So in our terms, it would look like this: “HSAs (health savings accounts)”.

    Sorry to be a busybody here, but I personally think your writing style has become much more lively and accessible–and I like reading the blog. I am, of course, just making a suggestion, but defining terms the first time would allow me to learn more from the blog more easily.

  37. Gravatar of Saturos Saturos
    1. November 2013 at 04:56

    Fed documentary “Money for Nothing” is out already:

  38. Gravatar of Dan W. Dan W.
    1. November 2013 at 05:32

    To AlanInAZ and Jason in particular,

    The US is unlike any other nation on earth as it possesses racial, cultural and economic diversity not found anywhere else. Thus it is a huge mistake to compare the country of the United States to other nations that are much more homogenous and, in most cases, much less populated.

    For example, Switzerland has a population of 8 million. Its only similarity to the United States is that both have national flags. It would be better to compare Switzerland to a specific US state, like Minnesota, which may reflect a similar homogeneity of culture.

    Likewise, Australia has a population of 23 million! Both California and Texas are more populous and New York and Florida are nearly so. Japan has 40% the population of the US but it also has a homogeneity of culture that does not exist in the US. Per wikipedia 98.5% of the population is 98.5% ethnic Japanese!

    All this is to emphasize that any talk that the US should mimic the social welfare program of less populous and much more homogenous nations is naive. The United States is also different because the nation was founded as a union of states and the Federal Constitution acknowledges these states have authorities that limit what the Federal Government can do!

    This is not to say that no national program of improved health care can work. But it is to point out that there are limits of what the Federal Government can and should do. ObamaCare greatly exceeds these limits and its failure is not surprising at all. The same would be true of “Single Payer” or any Federal program that sought to put all Americans in the same “pool”.

  39. Gravatar of rbl rbl
    1. November 2013 at 06:30

    Dan W.
    The problem with the US is that it is large and has some disfucntional intistitutions. Singapore has large ethnic minorities and Switzerland has four different native languages and is held together not by ethnic homogenaity but by shared history and institutions. Culture is important, but the most critical part of it is a sense of shared destiny. Utah works as well as it does because Mormons have a strong sense of collective identity, and I expect it to continue working well even as more and more non-European Mormons move into the state.

  40. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    1. November 2013 at 06:58

    ‘I’d rather get care from nurses, and save money.’

    Having once had a girlfriend who was a Registered Nurse, I agree. She knew more practical medicine than the guy who operated on my back. In fact, if I’d met her before I underwent surgery, rather than while I was recuperating from same, I’d have never agreed to the surgery in the first place.

    There is an interesting little bit from Rose Friedman in the 2000 appearance of the Friedmans with Brian Lamb on C-Span, in which she described how she and her family accessed health care prior to WWII, i.e. before health insurance.

    In a world without (mostly) health insurance, people still got treated. If we passed a law making it illegal to sell health insurance policies, people would still get medical care…and at a lot less expense.

    There’s also a bit from Milton in that interview about how we got untaxed health insurance, even with the IRS ruling that it had to be declared as income. A populist revolt ensued then. It would happen again if we tried to change the tax treatment.

  41. Gravatar of Dan W. Dan W.
    1. November 2013 at 07:00


    Singapore is another good example. The US equivalent would be Manhattan or perhaps Long Island. Comparing the United States to Singapore is like comparing Peterbilt tractor trailer to a Honda Fit.

    The future of Utah will be interesting. Cultures change and history reveals that people are all to prone to kill the goose that lays the golden egg (ie New York state and California)

  42. Gravatar of James Wynn James Wynn
    1. November 2013 at 08:07

    3. And hold down costs without excessive inequality.

    Your solution strikes me as unlikely to hold down costs. There is no impetus for providers to improvise to hold down costs below HSA minimum, since every dollar beyond that is guaranteed by the government.

    Same story with running HC at the country level. You’ll have the same unhappiness with health care that people currently have with public schools and Federally mandated curriculum.

    As for the solution, what is sad is that the Democrats achieved overwhelming control of the legislature and WH just as the free market was beginning to resolve the problem itself: With online efficiencies and the increase in catastrophic health savings plans with higher deductibles.

    All that was left for the government to do was to expand tax breaks to individual buyers to separate people from their employer provided HC and to phase out deductions for gold-plated plans. And then the final piece is to encourage the young and healthy to purchase the catastrophic health savings plans (trickier but a much smaller problem than producing a single solution to anyone who might be without health insurance for any reason at any time for any length of time).

  43. Gravatar of DOB DOB
    1. November 2013 at 08:07


    Very much like your approach. How do you handle high-cost chronic diseases? i.e. things that some small portion of the population finds out at some point in time will cost them a lot until their death? I’m no doctor but I imagine diabetes falls into that category..

  44. Gravatar of Doug M Doug M
    1. November 2013 at 08:19

    I am not against government-subsidized health insurance. I am against health insurance in general. More precisely, I am against health insurance as the term is currently used.

  45. Gravatar of MikeF MikeF
    1. November 2013 at 09:03

    “excessive inequality”

    This is the major issue that the democratic party is banking on…

    I must be in the minority…I really don’t care how many billionaires there are in the world…I wish there were more so they can pay all the taxes…

    “make healthcare affordable”

    The main way to reduce costs in the healthcare system is better and less costly diagnostics and better and less costly treatments. (that seems pretty obvious). We have a greatly expanded arsenal of both and it can be pretty pricey to use them indescriminately. Expending the risk pool doesn’t do anything to reduce the overall costs…it is a basic statistical problem…I don’t know what the distribution of medical cost are (probably not Gaussian..but more Chi Squared…)..but the risk pools for pretty large for the big insurance companies like BCBS already…
    Couple of things that come to mind…
    – here are needs to be performance metrics that consumers can go to for healthcare basic cost/benefits and facility/doctor rating/results.
    – Need to get doctors out of conflicting interests like owning MRI facilities etc.

    Percent of healthcare costs paid in doctor’s salaries = 8.6%
    Percent of healthcase cost paid to insurance companies < 5%…yes this is less than the government takes with Medicare…but they also do a lot more against fraud than the government does…

  46. Gravatar of flow5 flow5
    1. November 2013 at 09:03

    Private practice will be destroyed in 5 years. Obamacare is an abomination.

  47. Gravatar of MikeF MikeF
    1. November 2013 at 09:09

    And one more thing that comes to mind…Malpractice reform….get the rating/results out there and bad doctors will go out of business…the legal system is a highly inefficient and ineffective was of doing this.

  48. Gravatar of Edward Edward
    1. November 2013 at 09:13

    What about community rating?

    That needs to be obliterated too, doesn’t it?

  49. Gravatar of John Thacker John Thacker
    1. November 2013 at 09:43

    “The first item is the low hanging fruit; intellectuals in both parties support ending the tax deduction. McCain ran on it, and Obama included a very gradual phase-out in his plan. “

    And Obama ran an ad every day in Virginia (that I saw) bashing McCain for it, while promising that his plan wouldn’t do the same thing. So, yes, the intellectuals in both parties might support it, but you need both candidates to agree to avoid the temptation to appeal to the public that hates the idea of changing their current plans.

    Well, I guess technically you don’t need that, you just need a candidate like President Obama who is willing to attack the other guy for being honest, and then turn around and do what he swore he wouldn’t do. Actually pretty common among politicians of all types, though it gets them in trouble once they’re actually in office. Look at France, where Hollande ran against all sorts of Sarkozy things that he ended up accepting when in office, and how it’s hurting him now.

    The GOP doesn’t have a plan now, because when McCain ran on a plan with those features, Obama attacked him very effectively for it. It’s much more politically effective to not have a plan, when the necessary changes are unpopular. Now Obama-supporting pundits and wonks who didn’t call out the President on it when he ran against McCain expect the Republicans to turn the other cheek, and not do what Senator and Candidate Obama did?

    I’d have an easier time accepting Obama’s repeated misleading promises in a good cause on his health plan if he hadn’t literally made them at the same time as bashing McCain for McCain’s similar plan doing similar things to what Obama’s plan actually did. The backlash is rather inevitable.

  50. Gravatar of John Thacker John Thacker
    1. November 2013 at 09:47

    Here’s the debate transcript, where Senator Obama talks about how McCain’s plan is bad as it threatens the “unraveling of the employer-based health care system.”

  51. Gravatar of JohnB JohnB
    1. November 2013 at 13:12


    The three things you mentioned about improving the system are good but I’d add a fourth. One of the best ways to keep costs down would be to scale down the occupational licensing system. Occupational licensing in medical care is bad for the same reasons as any other area but they take it more seriously with medical care. It clearly restricts both the supply of standard care available and discriminates against people who want to use alternative medicine approaches. Leave it up to the consumers and consumer protection agencies to decide which doctors are good. No matter what the government says, there is no uniform standard of medical care.

  52. Gravatar of Steve Steve
    1. November 2013 at 15:59


    So here’s what I would do. If you’ve got health care already, and probably the majority of you do, then you can keep your plan if you are satisfied with it. You can keep your choice of doctor. We’re going to work with your employer to lower the cost of your premiums by up to $2,500 a year.

    If you don’t have health insurance, you’re going to be able to buy the same kind of insurance that Senator McCain and I enjoy as federal employees.

    Now, Senator McCain has a different kind of approach. He says that he’s going to give you a $5,000 tax credit. What he doesn’t tell you is that he is going to tax your employer-based health care benefits for the first time ever.

  53. Gravatar of JohnB JohnB
    1. November 2013 at 17:07


    Great quote from Obama. That was quite a blast from the past. That’s exactly how it was sold back in 2008 and not a word of it came true.

    He made it sound like there would be a national single payer system that covered politicians


    Sorry I reread the post and saw that you agreed that occupational licensing needs work although it’s politically tough.

  54. Gravatar of Geoff Geoff
    1. November 2013 at 17:15

    “2. Deregulate, deregulate, deregulate

    4. Decentralize, decentralize, decentralize.”

    If only the hypocrites would apply this to money production.

  55. Gravatar of JohnB JohnB
    1. November 2013 at 17:34

    I meant to say that Obama promised to create a single payer system where anybody would be able to sign up for very high level healthcare if they couldn’t afford a private plan. Obviously this didn’t pass the smell test at the time because of a pesky little thing called scarcity.

  56. Gravatar of Kent Kent
    1. November 2013 at 18:09

    Great overview – I am in human resources, have managed benefit plans for many years, and have said that this (your system described above) is the best way to solve the problem. Addresses the issues, pretty damn simple, and just might work!

  57. Gravatar of Saturos Saturos
    1. November 2013 at 20:37

    Lacker admits he was wrong about inflation, still thinks policy too expansionary:

  58. Gravatar of Rien Huizer Rien Huizer
    2. November 2013 at 05:22


    You are on the right track but the practical complexities are the problem here, not the principles. The main question is how much of the tail risk get socialised. The problem for the US is that it has too much tail risk in gvt provision for the elderly and small groups like the Vets. And too little premium income from low risk groups. European systems simply socialise ongoing non-tail risks (and do sod affordably) and deal with the tails is diverse ways. I do not think that there is an equivalent to Medicare (over provision, branded pharma etc) in Europe, Canada or Australia. In Japan the PM suggested that he would do the honourable thing if he were to become a burden to society. A bit over the top, perhaps. However, over provision to the elderly (i am elderly) and under participation of the young does not provide the politically desirable outcomes and leads to a low-productivity economy. Obamacare is a perverse/flawed e attempt to create a proper healthcare system in a society that seems to not “deserve”e it.

    The above is all well known. My question is, Why is the US so different from the OECD type?

  59. Gravatar of Scott Sumner Scott Sumner
    2. November 2013 at 12:06

    Alan, I did not say my plan is like Switzerland, except that in both plans people would pay a large sharo of health care costs out of pocket.

    Don, You said;

    “Costs are high, because we choose to spend a lot on healthcare.”

    Only because it is heavily subsidized–I would spend far less if it wasn’t subsidized.

    Jason, These ideas have been tested elsewhere. And I’m not really proposing a nationwide system, which would be a big mistake. decentralization will allow 100 flowers to bloom (actually 3000–the number of countries.)

    Joe. Yes, HMOs have their good points.

    Doug, You said;

    “More precisely, I am against health insurance as the term is currently used.”

    Me too.

    DOB, That would be covered by catastrophic, if the HSA money ran out.

    Rien, The US is different in all sorts of ways, we are richer, more gun-loving, more energy guzzling, etc than other developed countries. This is just one area.

  60. Gravatar of Philippe Philippe
    2. November 2013 at 14:19


    what would happen if the Fed raised the Fed Funds rate now, would long term rates also rise or would you get an inverted yield curve?

    If I remember correctly you’ve said elsewhere that the Fed is trying to get long term rates to rise through QE. However others argue that QE is holding down long term rates, and that the Fed should stop QE and raise the FF rate now to get long term rates to rise. Are they wrong, and if so why? Thanks.

  61. Gravatar of ssumner ssumner
    3. November 2013 at 06:04

    Philippe. Sometimes when the Fed raises short term rates, long term rates will fall. Other times they rise. It’s hard to predict.

  62. Gravatar of TESC TESC
    3. November 2013 at 09:01

    “2. Deregulate, deregulate, deregulate, (health care provision.)”

    Dr. Sumner, wouldn’t be better if we talk about “simplifying regulation”rather than deregulate? To non-economist
    ‘deregulate’ equals anarchy, which is not, so it just muddles the conversation.

    This for the purpose of supplying more health care services. In general, when I talk about any service that its cost is rising , the rising prices signals society to supply more of that service, not to subsidy more.

    Simplifying regulations to the point of importing that specific service seems appropriate to increase supply of health care and reduce its prices.

  63. Gravatar of Claron Claron
    4. November 2013 at 06:02

    As I understand it, the states are free to apply for a complete waiver from the ACA in 2017 if they can reach some minimum coverage threshold under any system they want. Maybe Texas or Oregon could lead the way with your proto-Singaporean plan and let the decentralization wave begin.

  64. Gravatar of ssumner ssumner
    4. November 2013 at 09:50

    TESC, Not sure we need any health care regs.

    Claron, I don’t know if the states can do unlimited tax free HSAs. Does anyone else know?

  65. Gravatar of Bob Bob
    4. November 2013 at 10:54

    Counties seem a bit too small. Around here, I’d not be surprised if we’d see counties play the exact same games as we see municipalities do.

    My metro area of residence spans 5 counties, and at least 3 times as many municipalities. They all have pretty different economic conditions: It’s one of the most segregated areas in the US. Many people work in one county and live in another. The counties and then the municipalities play all kinds of games to try to keep the people that use services living somewhere else, but shopping in their jurisdiction.

    County level distinctions in healthcare would just feed us even more segregation. Downtown already feels a bit like Detroit. It’s not as if governments need even more reasons to use taxes and zoning laws to keep the poor people out.

  66. Gravatar of ssumner ssumner
    5. November 2013 at 06:11

    Bob, Fiscal transfers from the Feds would offset income differences.

  67. Gravatar of Suvy Suvy
    5. November 2013 at 20:41

    Insurance only makes sense for emergencies. This basically means that health insurance only makes sense if premiums are low, deductibles are high, and everyone is on it. The problem with health insurance right now is equivalent to car insurance paying for your oil change. What would happen if car insurance paid for your oil change, brake pads, a new bumper, new headlights, etc? Well, costs would spike. That’s exactly what’s going on in health insurance.

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