Brad Delong on Obama's health care plan...

the UC Berkeley economist chimes in on Obama's new health care plan...

It is an iron law of American politics that Democratic party politicians who propose relatively detailed healthcare reform plans – as Barack Obama did last Tuesday – get trashed. If they propose a plan that might actually pass, securing the 60 needed votes to close off debate and proceed to a final vote in the Senate, they will be trashed for having abandoned their base and their own principles. If they propose a plan that corresponds to the world that they wish they could attain, they will be trashed as having no practical sense. In either case, they lose. It is like hitting yourself on the head with a hammer: a pointless and painful exercise.

This is too bad, as the US needs to have a debate on its healthcare system. It spends twice as much as western Europe for little clear benefit: Americans are no more healthy or long-lived than western Europeans. If the US could get the same value for its healthcare dollars as western Europe, it would have an extra $800bn a year to spend: enough to pay room, board and private college tuition for every American 18-21 year old, and still have enough left over for Marshall Plan-scale economic development programmes for Bangladesh, Pakistan, Egypt and the Maghreb.

There is an extraordinary opportunity for the US to spend the $1,700bn a year it spends on healthcare better. The most visible and damaging part of the failure of its spending is that 45m Americans lack health insurance. Mr Obama is trying to avoid performing the political equivalent of hitting himself on the head with a hammer by proposing something more like a gardening effort. Instead of doing the equivalent of declaring that there must be an aspidistra five yards from the main gate, he is talking about providing seeds, fertiliser, water and hoes. In this way, Mr Obama’s advisers hope, he will please those party activists who want a vision of utopia and those who want a successful legislative road map.

The gardening plan begins with a tax on employers who do not offer their workers employer-sponsored health insurance – “pay or play”, it is called. If this tax induces them to do so, then the number of uninsured falls to a small and manageable number that can be covered by public hospitals: this particular flowerbed flourishes. If employers do not respond, then the government collects the tax and has money for expanded public health programmes or to subsidise affordable healthcare coverage for the uninsured working poor.In the US, however, there is an additional problem. If you are a single individual without employer sponsorship it is very hard to buy affordable health coverage. “Why do you want to be insured?” the insurance companies ask. “Are you sick? The fact that you want insurance means you are a bad risk.”

Thus the second part of the gardening plan: offer the Federal Employee Health Benefit Program to everybody. It works for federal employees. It should work for everyone – especially with subsidies to cover the cost for the working poor. If the take-up is high, then well and good: uninsurance is reduced to a minor nuisance. If people do not find FEHBP attractive, then move on to the third stage of the gardening plan: health exchanges to serve small companies and individuals the way that benefits departments currently serve the workers of large corporations, collecting bids and assuring quality from insurance companies, and so offering families choices.Mr Obama’s people are betting that at least one of these three flowerbeds will flourish: that people will opt for at least one of these options and that the problem of covering the 45m uninsured will disappear. If not – if, say, young, healthy and rich people become free riders in large numbers – then they move on to mandating coverage and levying taxes. But all four roads lead to the same place: a US that no longer has a massive uninsurance problem.

In a country with rational politics, such a plan ought to be attractive. All should recognise that failure to reform healthcare is a wasted opportunity. The right should embrace it for its market elements – allowing people to vote with their feet for the mechanisms that they want and the promise to support successful institutions. The centre should embrace it because the right has no strong ideological reason to oppose it – hence it is politically viable. And the left should embrace it because it promises the utopia of ending the problems of the uninsured. Unfortunately, however, judging by the brickbats the plan has already received, Mr Obama is set to be another victim of the iron law of American politics.