Friday, July 3, 2009

The Latest Health Care Reform Bill

In a letter to Senator Kennedy, the CBO offered its initial assessment of the new draft legislation on health care reform. The bill would add just under $600 billion to the national debt over ten years, and would likely cover about 2/5 of the uninsured.

The revised draft that came out of the HELP committee includes an employer mandate, which "would virtually eliminate the migration of employees from their employer-based insurance to public insurance, thereby reducing the financial burden on the government." This equates to a dramatic $400 billion reduction in the net cost to the federal government.

In addition, employees would no longer receive a federal subsidy to purchase coverage through the insurance "gateways" if their employer is already offering insurance -- even if that employer-provided coverage has been deemed "unaffordable."

Regarding the public option, the CBO estimates no "substantial effect on the cost or enrollment projections, largely because the public plan would pay providers of health care at rates comparable to privately negotiated rates -- and thus was not projected to have premiums lower than those charged by private insurance plans in the exchanges."

Greg Mankiw sees this latter point as a vindication of his earlier position on the public option. Meanwhile, Ezra Klein offers pragmatic support for the employer mandate . . . well, sort of.

The problem with employer-provided insurance, as many economists have pointed out, is that it distorts price signals and encourages consumers to "buy" more health care. When you're not paying for something directly, you tend use more of it. But employees really are paying for their employer-provided coverage -- the cost is generally passed on to workers through lower wages.

If it's true that employer-provided coverage encourages overuse of health care and deflates wages, will an employer mandate really help to reduce health care costs in the long-run?

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