…because I’m an economist and a mom–that’s why!

Why Paying for Health Care Reform Is Hard to Do

June 22nd, 2009 . by economistmom

Donald Marron provides a very clear explanation of why it’s so hard to find offsets to pay for expanded health coverage that indeed would cover its costs over the longer run (emphasis added):

In short, it is particularly challenging to find offsets for new health spending, since that spending tends to rise faster than other parts of the budget.  That suggests that offsets that are also driven by health spending might be particularly attractive. CBO notes that one potential source of such offsets would be reductions in other health spending. On the revenue side, the obvious potential source would be reductions in the tax exclusion for employer-provided health insurance.

Finding an offset that would truly offset rising health costs is hard to do, because there are so few parts of our economy that can be expected to grow so much faster than the economy like health care costs do.  So yes, daring to touch (scale back or even eliminate) the big tax exclusion is a really good idea because it has the potential to raise an amount of revenue that would rise along with health care costs (and it would improve incentives to help “bend down” health costs at the same time).  And yes, reducing other health spending would also save an amount of money that would tend to rise with the costs of the new health spending.  But a still surer way to save an amount of money that grows with the costs of the new health spending?  Don’t do the new health spending.

Now, I don’t really mean to suggest that’s a good idea in the context of health care reform (to just not do it), but I use the example to illustrate that this general principle applies to the costs of any new government spending (or tax cut) that’s proposed that the Administration and Congress seem to have trouble paying for.  When you can’t find a way to pay for it, the answer shouldn’t automatically be “so let’s not pay for it.”  The best answer could very well be “let’s not do it.”  I say this because (it’s well known that) I’ve always disliked the deficit-financed Bush tax cuts, and I dislike them even now that they may become the deficit-financed Obama tax cuts.  When politicians “explain” that we can’t possibly pay for the extension of these tax cuts because that would be “the largest tax increase in American history” (or variants of the same argument), the right response is not “so don’t pay for them.”

5 Responses to “Why Paying for Health Care Reform Is Hard to Do”

  1. comment number 1 by: Josh

    There are four things that make me worry about the health care reform:

    1. Simply giving people access to health care by providing insurance won’t necessarily improve health or decrease health disparities in the US. This comes from the British National Health Service data.

    2. It’s not clear to me that the balance between primary care and specialty care is adequately addressed. When there are less than 5% of internal medicine residents staying in general internal medicine, less than 300 geriatricians graduating each year and fewer and fewer family docs graduated each year, primary care is dying. The current reimbursement structure (where a dermatologist can make 3-4 times what a family doctor makes) does not incentivize people to go into primary care.

    3. People don’t necessarily want the type of care that will improve their health. Some people would rather get a heart cath than listen to a doctor tell them to eat healthy, exercise and lose weight.

    4. Since insurance companies stand between patient and physician when it comes to payment (i.e. patients pay insurance and insurance pays doctors), people see little reason to not see a specialist for every thing even if it costs much more because of the current reimbursement structure.

    It’s hard for me to take any health reform seriously that doesn’t address the underlying problems of the health care system. Simply giving everyone full access to a screwed up system that isn’t optimized to deliver good health isn’t going to necessarily make anyone more healthy. Or save money. I’m honestly not sure what it is going to do.

  2. comment number 2 by: economistmom

    Josh: I totally agree! –Diane

  3. comment number 3 by: Kristin

    I agree that the Obama plan does little to address the true problems of our health care system. The cost of care for uninsured individuals that hospitals have to absorb is about 5 percent of all care provided. In contrast, it is estimated that 33% of care is either unnecessary or of little benefit. In my opinion, the following points should be central to health care reform:

    1. Redirect money away from acute care and toward preventative public health measures. This could include things like taxing the hell out of pharmaceutical companies that come up with a drug that does not provide a substantial benefit compared to other drugs on the market and yet mark up their product 8000%.

    2. Reward HMOs for reducing acute care spending and sponsoring health promotion programs.

    3. Make health care costs more salient to the consumer and provide financial incentives to those who do not abuse the system.

    4. Cap punitive damages for medical lawsuits to reduce the spending on defensive medicine.

    In addition to this, medical and nursing schools must spend SIGNIFICANTLY more time educating students about promoting health and doctors need to spend significantly more time TALKING to their patients and practicing evidence-based medicine. As a practicing physician I can tell you that the doctor you rely on for his or her expertise probably knows no more about nutrition or exercise than the average Self magazine subscriber. These topics are barely skimmed over in medical school.

    Additionally, I also believe agricultural and energy reform would significantly improve our health. With the current farmer tax subsidies and cheap oil it is simply too affordable to drive everywhere and buy cheap junk food. It’s ridiculous that a person who chooses to eat fresh fruits and vegetables has to spend so much more money that someone who eats chips and pizza. This is partly why obesity is so rampant amongst the poor.

  4. comment number 4 by: Rodger Malcolm Mitchell

    It widely is believed large federal deficits are unsustainable, cause negative economic effects and will be paid for by our grandchildren through higher taxes. I am looking for data to support these beliefs. If you have such data, please send it to me at Thank you for your assistance.

  5. comment number 5 by: Jim Glass

    “It widely is believed large federal deficits are unsustainable, cause negative economic effects and will be paid for by our grandchildren through higher taxes…”

    Not by our grandchildren. By us.