CHP #8 of n

Topics: Health
09 Feb 1994

From: ervan

The CBO reported yesterday that the CHP would add $74G to the deficit
over 6 years instead decreasing it $59G as Clinton claimed.
Several short points:
1) Clinton is making up pretty numbers, heedless of reality. We already
knew that of course.
2) "Over the next 6 years" does not really make any sense. Adding $12G
to the deficit adds $12G to the debt every year. I assume that's what
the CBO meant.
3) The CBO was not talking about cost increases of course, only deficit
increases. The taxes to cover it are going way up too, just not as much.
4) Medicare cost over 10 times (in inflation adjusted $) what is
was projected to 20 years later. So, even CBO projections are
not worth much here.
5) The CBO also said that the health care tax was a tax and not an
off-budget fee as Clinton wanted. Hurray for that, anyway.
Now, if only we could get family leave, ADA, & AA properly counted
as taxes, sigh.

Anyway, my main point here is that such projections are entirely
meaningless no matter how they are calculated. It would be easy
to reduce costs to $0, simply outlaw medical care. Would not that
be a good savings? That's exactly what Clinton is trying to do,
but only on the margin. The CHP would set budget caps that could
not be exceeded. If you want medical care after the cap is execeed,
you are out luck. It's not merely that you would be unable to get
more subsidized medical care from the government, it would be flat
illegal to even try and buy it on your own (paying for medical
services becomes bribery under the CHP). So, if Clinton does not
like the CBO figures, it's easy to turn a deficit into a savings,
just lower the cap.

I'm reminded of the cable re-regulation act. It was supposed to lower
rates and improve quality (are you laughing yet?). The opposite
was just the case. Rates were raised and quality fell. The quality
part is easy to understand, the government mandated that cable
companies carry material that people did not want to see (in lieu
of channels which they did). Rates went up for several reasons,
but the primary one (it seems to me) is that regulation creates
a monopoly which then raises operating costs (and gets them
approved by the rate board) instead of profits. But, the effect
is the same. In the debate that ensued, congress and the FCC were
busying arguing about why rates went up. No one was even asking how
much quality had been impacted. The flip side of this was our
previous debate on Head Start. The argument was not over how much
it cost but over whether it did anything at all, no matter the cost.
In all three cases, Head Start, cable TV, and the CHP, one aspect
of the problem (either quality or cost) is being focused on while the
other is being allowed to slip to arbitrarily bad levels.

Cost effectiveness does matter. People, left to their own volition,
will buy just as much of a good as appears to be cost effective. There
is no a priori way to say that for health care to consume 14%
of the GDP is too much. In 1990, Americans consumed 8% of the GDP
in the form of agricultural products. Is that too high? Is it too
low? No, it's neither. It's just the amount that people wanted
to spend. Comparisons to Europe are inherently flawed for this reason
(among others). There is more medical care in the U.S. available
for purchase. So, people buy more.

I am *not* saying that medical care 'should' be expensive, or food,
or anything else. But, given that it does cost what it does, people
buy as much as they want given the production possibilities.
If it is possible to lower the cost of medical care by changing
the regulatory environment, then let's do it. But whatever can
be done in that regard should be done regardless of the amount that
people want to spend for the services that do exist. Let me
put it another, trying to fix supply problems by artificially
limiting demand cannot work.