Tuesday, August 04, 2009

Iconic Economist: You Get More of What You Pay For

Arthur Laffer is famous as an economist (at least as famous as economists can get) as the deviser of the Laffer curve: the estimate adopted in the 1980s by Ronald Reagan that lower taxes would increase revenue to the federal government because then-current tax rates were a powerful discouragement to economic activity. His prediction proved right, of course, though the rightness of it was not widely acknowledged. Still, Laffer is as responsible as anyone for the economic growth that began in 1983 and continued until relatively recently.

Tomorrow's WSJ runs an opinion piece by Laffer offering as clear a critique and as clear an alternative to Obama's healthcare initiative as one could imagine. Laffer calls attention to the healthcare "wedge," i.e. the difference between what healthcare costs and what the patient pays. When people pay less than something actually costs, they inevitably demand more of it, driving the cost still higher, even if someone else pays the difference. That, Laffer argues, is what drives healthcare inflation: government subsidies insulate patients from real costs and so drive up demand. Thus, Laffer concludes, Obama's plan will simply drive costs still higher.

His alternative? Patient-centered healthcare, which . . .

begins with individual ownership of insurance policies and leverages Health Savings Accounts, a low-premium, high-deductible alternative to traditional insurance that includes a tax-advantaged savings account. It allows people to purchase insurance policies across state lines and reduces the number of mandated benefits insurers are required to cover. It reallocates the majority of Medicaid spending into a simple voucher for low-income individuals to purchase their own insurance. And it reduces the cost of medical procedures by reforming tort liability laws

By empowering patients and doctors to manage health-care decisions, a patient-centered health-care reform will control costs, improve health outcomes, and improve the overall efficiency of the health-care system.

What's wrong with that suggestion? Well, much was proposed by George W. Bush, so it's self-evidently not just wrong but evil. All it has in its favor is everything that we know about human behavior.

4 comments:

aaronburgess said...

High deductible, low premium, independent health insurance policies have been around for a long time and are a good alternatives to cadillac policies.

They basically protect you against catastrophe but force you to pay out of pocket for regular inexpensive medical costs (under $5,000). In reality, it is either pay now or pay later with health care.

If you get the right policy the most you will ever owe the hospital would be $5,000. Most healthy people could get a policy like this for $80-$200 a month. Cheaper than a cellphone bill!

I have owned these types of policies and essentially paid out of pocket for regular inexpensive health care costs such as dental work, physicals, eye wear and even a few trips to the ER.

What most people don't know is that if you receive a medical bill most hospitals will allow you to negogiate the bill and even work out a low cost monthly payment plan.

For example, 3 years ago my wife scratched her cornea putting in her contacts. We went to the ER with a high deductible plan. 30 minutes in the ER cost $600! But they fixed her eye and relieved her pain and it was the best $600 I ever spent.

I called the billing department at the hospital and negotiated the bill down to $350 and paid them $25a month (interest free) for about two years. The AR specialist at the hospital gave me the option to pay $5 a month (interest free) which would have taken us 5 years to pay off the bill! But it was interest free.

I am still amazed at how so few people know about this form of health insurance or about how hospitals allow you to pay bills in this manner.

If your employer's health insurance premiums are high, you ought to go into the free market and look for a high deductible plan from Humana or Blue Cross and Blue Shield. In the long run it will save you money.

Also, more ought to be said about how hospitals and doctor's usually will work with you to pay a bill. Every medical bill I have ever received I have paid in installments and interest free.

Anonymous said...

minor point from the peanut gallery........ www.lafferhealthcarereport.org states that "Dr. Laffer was noted in Time Magazine's cover story “The Century s Greatest Minds” for inventing the Laffer Curve." while in fact this is actually a Keynesian idea (and actually the N. African Abd al-Rahman Abu Zaid Wali al-Din ibn Khaldun in the 14th century).

His prediction was right because we were operating on the left side of the curve - question is are we operating on that side today?

reagrdles - opinion pieces are just that - opinions - if you listen to TOTUS and minions they are actually empowering these same patients as laffer sugests - it's just at someones (e.g. businesses and specific dmeographic taxpayers)expense.

When you really get sown to it - its another CARS stimulus program - different industry (healthcare) and the governement is driving demand.

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