Current Events

Becker and Posner on Presidential Candidate’s Healthcare Reform proposals

Richard Posner and Gary Becker, two preeminent economists, discuss some of the presidential candidate’s plans for healthcare reform.

Posner laments that the U.S. spends 16% of GDP on healthcare, but only has 37th best healthcare system according to the World Health Organization.  What is to be done?  Most candidates promise to reduce costs and increase health insurance coverage.  But expanding insurance coverage will likely increase cost.

Posner derides some of the other reform ideas:

“Some of the proposals for reducing aggregate costs are either fluff, like reining in jury awards in medical malpractice cases (those awards are a tiny fraction of total health costs, and already are being reined in by judges and by tort-reform measures adopted by state legislatures), or measures that the market is in process of implementing, such as the digitization of medical records. Other economizing proposals have hidden negative implications for quality–such as placing price controls on prescription drugs, reducing the protection that the patent laws provide against competition by generic (nonpatented) substitutes, and permitting the reimportation of drugs from countries that have price controls on drugs.”

What is the solution?

“The way to economize on expenditures on health care, though it is utterly infeasible politically, would be to eliminate the tax subsidies for health insurance and health care and institute a means test for Medicare, and at the same time to limit medical services. Then both the demand for and the supply of those services would be reduced, and the percentage of GNP that goes for health care would drop. But the principal result might be to reallocate consumption spending to goods and services that most people value less at the margin than they do health care. Moreover, there is an economic argument for some level of tax subsidies for health insurance premiums or health care. Medical care increases human capital, and is thus an investment, and investment expenditures need not be (probably should not be) taxed as long as the revenues generated by them are.”

In Becker’s post, he supports four main health care reform ideas:

  1. Eliminate the link between employment and the tax advantage of private health insurance
  2. Encourage the spread of Health Savings Accounts.
  3. Medicare reform. “This is why I would greatly increase the generosity of Medicare drug coverage, and compensate for the additional expense by cutting down on allowances for lengthy hospital stays, and raising other co-pays.”
  4. Mandatory catastrophic health insurance.  Becker believes that we should “…require that everyone must contract for private catastrophic health care since the uninsured tend to use taxpayer and philanthropic funded medical care facilities to pay for the costs of any major illnesses. Medicaid should be extended to cover anyone who cannot afford such catastrophic insurance. Compulsory coverage would integrate the 45 million or so uninsured Americans into an overall health care system while still preserving the desirable decentralized private system of health care.”