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Health care reform

What’s at stake: After months of back and forth with leaders from both major political parties, Senator Max Baucus, the chairman of the Senate Finance Committee, released a health care reform proposal on Wednesday that meets many of the requirements that President Obama stipulated in a recent speech to lawmakers. Mr Baucus’ earlier efforts to […]

By: Date: September 16, 2009 Topic: Banking and capital markets

What’s at stake: After months of back and forth with leaders from both major political parties, Senator Max Baucus, the chairman of the Senate Finance Committee, released a health care reform proposal on Wednesday that meets many of the requirements that President Obama stipulated in a recent speech to lawmakers. Mr Baucus’ earlier efforts to craft a bipartisan compromise bill among the "Gang of Six" Republican and Democratic senators had resulted in significant delay for the reform effort, threatening the very possibility of reform and triggering the president’s recent speech to a joint session of Congress.

What’s in the Baucus’ plan: Although there would be no public option and the plan would allow for varying degrees of healthcare coverage, it would make insurance coverage mandatory and eliminate the possibility for insurance companies to exclude people for pre-existing conditions. The purchase of insurance plans would be subsidised through the Healthcare Tax Credit for those who can’t to afford to buy one. The plan would preserve the state-by-state system of providing health insurance, but would require states to create a standardised marketplace for buying insurance somewhat emulating the Massachussets model, whereby there’s a simple place to find and apply for healthcare.

Basic facts: The most common figure for the uninsured used in the US health debate is a Census estimate that 46.3m people, or 15.4 per cent of Americans, lacked coverage in 2008. A Treasury report released this week found that almost half of US citizens experienced a period without insurance, leaving them vulnerable to missing out on treatment or paying for it themselves between 1997 and 2006.

Jonathan Malloy says what has been missing these past few months is a vision. Having used up his superpowers on the global recession, Obama has been left to slug out the health-care debate with nothing but facts. But facts are remarkably unimportant when a country needs to overcome a national myth that denies health care as a public good.

The Tax Policy Center Blog says that after a summer of confusion, Obama told us what he wants health reform to look like: Everyone would be able to buy insurance at a reasonable price, regardless of health status; everyone would have to purchase coverage; government subsidies would be available to help many (though not all) of the uninsured buy coverage; and any bill would be fully funded. Obama’s goal with that speech was to convince Congress that a health bill is now inevitable and to pick off the fence-sitters one-by-one. That’s why all that pomp and ceremony was aimed mostly at a half-dozen swing senators.     

Paul Krugman says that something along the general lines of the Baucus plan might be acceptable. But details matter. As it stands, the plan is badly conceived as it doesn’t create real competition in the insurance market. The right way to create competition is to offer a public option, a government-run insurance plan individuals can buy into as an alternative to private insurance. The Baucus plan instead proposes a fake alternative – non-profit insurance cooperatives – and places so many restrictions on these cooperatives that it is very unlikely that they will manage to establish a significant market presence in many areas of the country.

Gregory Mankiw says that the push for universal coverage is based on the appealing premise that everyone should have access to the best health care possible whenever they need it. That soft-hearted aspiration, however, runs into the hard-headed reality that state-of-the-art health care is increasingly expensive. At some point, someone in the system has to say there are some things we will not pay for. The big question is, who? The government? Insurance companies? Or consumers themselves? And should the answer necessarily be the same for everyone? As health care becomes an ever larger share of the economy, we will have no choice but to struggle with the questions of how far we should allow such inequality to extend and what restrictions on our liberty we should endure in the name of fairness.

Ilian Mihov says that dealing with the rising costs of healthcare may indeed help not only resolve issues of healthcare provision in the US, but indirectly might be the most important tool for addressing global imbalances as the dramatic rise in US consumption in the 1990s and early 2000s is almost entirely due to healthcare and education. Medical care plays the major role as its share in personal consumption expenditures rose from 10.2% to 18.3% while education accounts for one percentage point in the increase in consumption.

To go further, Ezra Klein is always the best place to go for the latest on the health-care debate in the blogosphere. Marginal Revolution has also a few interesting links. For other pundit reactions to the Baucus’s plan, you can refer to this round up by the NYT Economix Blog. And, as always, Economist’s View will likely provide an exhaustive list of reactions within the next few days.

*Bruegel Economic Blogs Review is an information service that surveys external blogs. It does not survey Bruegel’s own publications, nor does it include comments by Bruegel authors.


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