Phantom Markets

I haven’t commented on John McCain’s plan for healthcare insurance reform:

TAMPA, Fla. — Senator John McCain detailed his plan to solve the nation’s health care crisis in a speech here Tuesday, calling for the federal government to give some money to states to help them cover people with illnesses who have been denied health insurance.

Mr. McCain’s health care plan would shift the emphasis from insurance provided by employers to insurance bought by individuals, to foster competition and drive down prices. To do so he is calling for eliminating the tax breaks that currently encourage employers to provide health insurance for their workers, and replacing them with $5,000 tax credits for families to buy their own insurance.

His proposal to move away from employer-based coverage was similar to one that President Bush pushed for last year, to little effect. And his call for expanding coverage through market-based competition is in stark contrast to the Democrats’ proposals to move toward universal health care coverage, with government subsidies to help lower-income people afford their premiums.

Mr. McCain had previously described aspects of his health care plan but on Tuesday offered new details on how to cover people with existing health problems, in a nod to the growing concerns about the difficulties that many sick, older and low-income people have getting insurance. Democrats had said that his market-driven plan, by not compelling insurance companies to cover people with health problems, would ignore the plight of people who have trouble getting coverage.

largely because I couldn’t find a hook to comment on it. Megan McArdle characterizes the plan this way:

The plan’s heart is mostly in the right place: break the link between employment and health care, make the plan revenue neutral (ish), change Medicare reimbursement so that we pay for results rather than procedures.

The problem is, it’s heavier on theory than practice. Every health care economist in the country wants to pay for health rather than treatments. The problem is, health is very hard to measure–as David Cutler told me, “Health care and education are the two fields where output is hardest to measure. It’s not surprising that costs in those areas are increasing much faster than inflation.” When output can’t be measured, input will be.

which in turn reminded me of a comment of Lincoln’s. On hearing that Maj. Gen. George McLellan had proclaimed that he had his “headquarters in the saddle”, Lincoln responded that the problem with McLellan was that he had confused his headquarters with his hindquarters.

Sen. McCain’s heart may be in the right place on healthcare reform but I’m not really sure where his head is on the subject. As I’ve noted before, I think that Sen. McCain is inclined to see markets where there are no markets and healthcare insurance doesn’t have a functioning market, it is unlikely to develop one, and I’m not convinced that we want one. Insurance, generally, is highly regulated both by the federal government and the states and that regulation limits entry in such a way that, rather than a functioning market, what you have is an oligopoly.

Healthcare insurance isn’t actually insurance at all and as long as healthcare costs are high, healthcare insurance costs will be, too.

That’s why I think that the problem we’re facing is that healthcare costs too much, it costs too much largely because of constrained supply (rather than excess demand as most conservatives seem to believe), and, consequently, costs will continue to be high unless we can sharply increase the supply of healthcare in the country.

Senators, particularly the lifetime tenure millionaires and/or lifetime civil servants that hold the title these days, are so insulated from the realities of the systems they’ve created that their attempts to maneuver in them to enact reform resembles nothing so much as somebody who’s never driven attempting to get somewhere solely on the basis of the directions given by Google Maps. There’s no substitute for coping with the problems day to day to give you an intuitive grasp of the lay of the land.

Their hearts may, indeed, be in the right place. Where are their heads?