My favorite economists, Brian Wesbury and Bob Stein:
Let’s be absolutely clear: the health care system in the United States is excellent…just inefficient. No one lacks care. Stories of people being kicked out in the street have proven to be fabrications. Nonetheless, the system is politically untenable. It’s a patchwork of third-party payers – both private and public – and the population is aging. The result is rapidly rising costs, surging anxiety, and a desire to do something. …
The magic of America, as seen by the Founders, was that we could try something new. The typical European way of dealing with problems – more government, more compulsion and more regulation – is a recipe for disaster, as European history continues to prove. The Founders believed, and fought for, freedom and free markets which as Larry Kudlow likes to say “are the best path to prosperity.” …
But, given human nature, government always tries to over-reach and involve itself in areas it shouldn’t. For health care, this began in the 1940s, when insurance became a deductible corporate expense. Then, in 1965, Medicare and Medicaid started. Since then, free markets have gradually receded, giving way to our current “third-way” health-care system.
The results were predictable. As Milton Friedman said, when government gets involved, costs rise and quality falls. We will add that happiness does, too. One reason this happens is that all that cost shifting we talked about a few paragraphs ago creates frictions and involves bureaucracy.
Which inevitably leads to where we are today. Politically, the nation must go one way or another, either toward a European system of more compulsion – attempts to fix the system with more rules and regulations – or, toward a more free market system built on the American way.
Last Thursday’s Supreme Court decision on health care reform was a punch in the gut to those hoping for a more free market approach. Essentially, Chief Justice Roberts took the position that the government cannot make you eat broccoli, but can tax you if you don’t eat enough of it.
He ruled that, as the law was written, it was unconstitutional under the Commerce Clause. Some conservatives think this was a victory. They believe limiting the use of the Commerce Clause is important over the long run. But then, Justice Roberts said that if it was really a “tax” and not a “penalty,” the law was just fine.
So, the US now faces a very important election season. Liberals want to “move on,” and if we believed the US should look like Europe we would want to move on too. Conservatives want to stand and fight.
This is one of the most important political battles of our lifetimes. With a presidential election later this year, there is a significant possibility of a shift in power toward those who support a more free market approach. If that side wins, the vast majority of what was enacted two years ago will likely be repealed and replaced through the budget reconciliation process in the Senate, where no filibuster would be possible and a simple majority would rule.
It is also important to recognize that even if the law is implemented, it is not going to accomplish the popular goals its supporters claim it will achieve. This means we will eventually go back to the drawing board anyhow. …
Although the law will expand insurance coverage (if we include insurance policies paid by the government), this will lead to an emphasis on cost control that threatens to stifle innovation, undermining health outcomes in the future. That doesn’t mean health care will get worse, it just means the pace of improvement will slow compared to where it would otherwise be. Other countries, which have had lower costs because they’ve been “drafting” behind the innovations developed in the US, will suffer as well. This also means economic activity, which is already subdued (the Plow Horse Economy) will remain that way.
The better approach, toward more free markets, would be to move away from an employer-based system, by treating health expenses the same regardless of who makes them. Back in World War II, allowing companies to deduct health benefits was a way of getting around wartime wage and price controls. Now, 70 years later, we’re still stuck with a system in which almost no one pays directly for their own health care or insurance. As a result, no one has an incentive to reject high cost “defensive medicine” and many are willing to use high cost procedures that generate little to no benefit.
The Court’s decision on Thursday makes these reforms tougher to achieve in the near term, but we remain confident that, in the end, markets will win out over government.