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Momma said wonk you out

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Percentile Equality

Brad's point that:

The way things are going, in the future people are going to be choosing to spend X percent of their income on health care. X will get larger and larger over time, by choice. So let's say X is 40 percent. From one standpoint, it really doesn't make a difference whether you pay 40 percent of your income for private health care, or 40 percent of your income in taxes that then go to government-administered health care.

That's a very specific standpoint Brad's using. Because paying for government-provided health care leaves you in an enormous pool that guarantees you access to these procedures, no matter their cost and no matter your income. Private insurance, however, is different. If you want comprehensive health care, you have to buy into (or have your employer buy into) pretty expensive plans. For many, that much income simply cannot be spared and, thus, they simply won't have access to many of those treatments. To even try and get close to the top plans, poorer workers won't be paying out the same percentage of their incomes as richer workers, they'll be spending much, much more. The reason single-payer is worthwhile is precisely because everyone pays out roughly the same percentage of their income (with some income brackets a bit more and some a bit less) and receives comprehensive care in return.

Update -- The more I look at this post, the more I think I have Brad's point wrong. He knows health care way better than I do, and wouldn't have overlooked this. So I suggest reading his post in full, as I'm well open to other interpretations of it.

Posted by Ezra Klein on February 24, 2005 3:10 PM | Permalink

COMMENTS (12)

No, you're original intuition was right, I think, and the post was a bit muddled. The "you" in the quoted passage above should probably be "society" (or whatever), and I meant to focus on macroeconomic effects rather than the redistributional effects you're talking about.

Although... assume we had no government health care, and society was spending 40 percent of its GDP on health care. Most of this spending would be concentrated in the upper income tiers, since they're the ones who can afford it. So if we switched to a government health care system that cost 40 percent of GDP (assume this is possible), financed by a suitably progressive tax structure, there's not a huge shift in the burden, although presumably the upper income tiers would be getting less for their money.

Hm. Well I'm open to being shot down.

Posted by: Brad Plumer | February 24, 2005 3:40 PM

An interesting question is to what degree the decrease in transaction costs of having a single-payer system is offset by the inrease in administrative costs by having a government-run system.

Alas, I doubt there exists *any* scholarship on this matter which is not ruined by political bias.

Posted by: aphrael | February 24, 2005 3:56 PM

I'm not sure where you draw the line between transaction costs and administrative costs, but I'm pretty sure the administrative costs of the US system are higher than most other developed countries. Certainly there are far, far more bureaucrats in hospitals in the US.

Posted by: Ginger Yellow | February 24, 2005 10:28 PM

Absolutely. Remember, you're doubling, tripling and quadrupling administrative costs across different insurers with positions that'd be redundant in single-payer. Remember -- Social Security, one of the largest programs out there, is also extraordinarily efficient, with less than 1% of it going towards administration. Beat that in the private sector...

Posted by: Ezra | February 24, 2005 11:01 PM

There's a good deal wrong with what's been said here.

1. Ezra, I don't think what DeLong was saying was meant to be analyzed as you have, or at all really. I think he was just acknowledging the equivalence at a very broad level between alternatives--

2. Brad Plumer is wrong, I think, in his assumption that a "state of nature" healthcare system would involve the rich paying more and having more healthcare. The intrinsic market failures in both insurance and healthcare imply that there will always be both rationing and discrimination. If a rich person goes to the insurance man, the salesman will say "you can have x units of healthcare and it will cost a." If a poor person tries to buy healthcare, he will be told "You can have x-y units of healthcare and it will cost a+b." Whether those facts result in rich people having more health insurance depends on assumptions about how rich and poor will respond to that; ie, poor people could have a lower price elasticity of demand due to the need to defray risk, whatever the cost. What I'm really saying is that the state of nature healthcare system is inequitable because of the x-y and the a+b, not because the result of that would be poor people having a low amount of insurance. Thus, you can dispense with the premise of a progressive tax system--the policy solution need only address the market failures themselves.

3. Aphrael, there is plenty of non-biased scholarship that shows i. that the government can supply healthcare more efficiently (that one is easy) and ii. that healthcare decisions had best be made as FAR from the market as possible due the difficulty that individuals have discerning the 'quality' of the good purchased. They generally rely on signals that are easily manipulable by providers. If that is correct, the optimal health policy would be the one where a faceless evil bureaucrat who is a member of a public employees' union mandates that I, Marshall, purchase x units of healthcare from doctors who are direct employees of the government for the price y.

4. Finally, recent work has examined the increasing returns to scale in healthcare, which include time spent with one provider only. See, for instance, the recent Washington Monthly article on the VA system. They talk about a study that found huge returns to the intimate knowledge that medical staff gain from prolonged work with one patient unthreatened by changes that are inherent in the efficient running of a market.

Posted by: Marshall | February 25, 2005 9:30 AM

There's a maxim in the insurance industry:

Premiums = claims + adminisrtative expenses

(profits come from investing the money, that's how Warren Bufffet got rich...Berkshire Hathaway was originally a carpet company)

So Brad Delongs point is simply this if claims and admin expenses for a senior equal 40% of income, what difference does it make if it's paid to a corporation or the government?

Posted by: Tom Coffin | February 25, 2005 12:06 PM

Here's a much easier way to bring down insurance premiums.

Right now, medical insurance companies are only allowed to operate in one state. Hence, you have fifty seperate, fragmented markets. If you allow companies to operate across the country (like any NORMAL business), premiums will drop like a load of bricks.

Posted by: Mastiff | February 25, 2005 1:04 PM

Thanks Marshall, that makes sense. (Though the original point quoted by Ezra was mine as well, not that other, uh, smarter Brad's.)

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