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The Independent Institute
Commentary

Why the Left and the Right Can’t Talk to Each Other About Health Care


Josh Barro is the latest in a long line of left-of-center critics who fault Republicans for not being real partners in the health care debate. He writes:

Liberals are tired of being lectured by conservatives about what’s wrong with their approach to health policy because conservatives haven’t been a productive partner in seeking a fix.

Josh is half right. Yes, the left gave us a “fix” in the form of ObamaCare. But I believe it’s fair to say that no serious effort was made to work with Republicans. Remember: ObamaCare didn’t get one Republican vote on final passage. That’s not surprising. A few years back, when the Republicans pushed through the Part D drug benefit under Medicare, I don’t think a single Democrat offered to help with the legislation.

I’ve been a close observer of health care politics for a quarter of a century and in all that time I have seen very little productive interchange between the left and the right on this subject. And this is not just true of Washington. It’s true generally across the country.

Why is that?

At the most fundamental level, the left and the right approach the subject from completely opposite directions. The left invariably focuses on benefits. The right invariably focuses on costs. The left is concerned about what people are going to get. The right is concerned about how we are going to pay for it. You can find left wing health reform plans that barely mention how the reform will be paid for—or who will pay what for anything. You can find right wing reform plans that don’t even mention what medical care anyone will actually receive.

This, of course, is part of a larger division. In general, the left focuses on spending. The right focuses on taxes. But in health care the division is more pronounced. In fact, in health care the two sides don’t appear to be talking about the same subject.

On the left, Zeke Emanuel and Victor Fuchs published a health plan in the New England Journal of Medicine a few years back. They proposed to replace all private and public insurance with a universal health insurance voucher, funded by a value-added tax (VAT). Yet the two did not even do a back of the envelope calculation of what kind of VAT tax would be required or whether there is any country in the world that successfully collects a VAT tax of that magnitude.

On the right, Marty Feldstein has proposed a universal scheme under which every family would receive a voucher sufficient to buy an insurance plan that would cover all medical expenses above 15% of the family’s income. True to form, Feldstein tells us almost nothing about the benefit side. (What expenses count in arriving at the 15%, for example?) But he tells us quite a lot about how the financing works:

A typical American family with income of $50,000 would be eligible for a voucher worth about $3,500, the actuarial cost of a policy that would pay all of that family’s health bills in excess of $7,500 a year.

The family could give this $3,500 voucher to any insurance company or health maintenance organization, including the provider of the individual’s current employer-based insurance plan. Some families would choose the simple option of paying out of pocket for the care up to that 15 percent threshold. Others would want to reduce the maximum potential out-of-pocket cost to less than 15 percent of income and would pay a premium to the insurance company to expand their coverage. Some families might want to use the voucher to pay for membership in a health maintenance organization. Each option would provide a discipline on demand that would help to limit the rise in health-care costs.

Now here is the interesting thing, and I can’t believe I am the first person to have noticed this: THERE IS NO INCONSISTENCY BETWEEN THESE TWO PLANS!

Hard to believe, but true. If you want to fill in the missing details on how the Emanuel/Fuchs plan would actually be financed, one way to do it would be to turn to Marty Feldstein. If you want to fill in the missing information about the benefit side of the Feldstein plan, one way to do it would be to turn to the Emanuel/Fuchs proposal. I am not saying that you have to complete the proposals this way. But it is possible.

Economists have long known that specialization and comparative advantage create opportunities for gains from trade. So why not let the left specialize in designing the benefit side of things and let the right specialize in designing the financing side?

[There is one possible impasse I am glossing over here. The left believes in defined benefits. The right believes in defined contributions. That is, the left wants to fix the benefits that it wants everyone to have and then leave it up to the political system to somehow find the money to pay for them. The right wants to fix the amount of money each family has to spend and then let competition in the marketplace determine what the buying options are. I’m not entirely sure how serious this impasse is.]

Let’s go back to Congress for a moment. In the 2008 presidential election, the most important domestic policy issue was health care. Barack Obama had a vision of benefits that he wanted everyone to have, but he had no clear explanation of how they would be paid for. John McCain had a very clear vision of how to reform our system of paying for health insurance, but he had no clear vision of what the product would finally look like or how people would get it. I would argue that these two visions are not inherently at odds. It seems possible that the two approaches could have been merged in a way that left both sides satisfied.

What if President Obama had asked John McCain and Max Baucus to jointly propose a health reform plan? What then? It would have been much better than what we got.

Since the Republicans were completely left out, we got something that should have been predictable. On the benefit side, everyone is more or less equal. The whole country is being pushed toward a standard benefit package, ultimately defined in Washington. On the financing side, however, we have a Rube Goldberg contraption that is creating havoc in the labor market and that defies all common sense.

Ah, what might have been.

P.S.: Megan McArdle has a reform plan that is superficially similar to Marty Feldstein’s and which she describes this way:

[T]he McArdle Plan...eliminates the tax subsidy for employer-sponsored insurance, zeros out coverage mandates, gets rid of Medicare and Medicaid, and has the government provide 100% insurance for all expenditures above 20% of income. Simple, efficient, and keeps the incentives where they belong.

Well not quite. This sounds more like national health insurance with a high deductible. And if that is what is it, the pressure to lower the deductible would be enormous.


John C. Goodman is a Senior Fellow at the Independent Institute and author of the award-winning and widely acclaimed Institute book, Priceless: Curing the Healthcare Crisis. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”


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