Some Thoughts on Health Care

Brad Delong shares. (Just in case anyone happens to be really interested in issues in this campaign.)

In this context, it is heartening to see that John Kerry's healthcare advisers have been thinking hard about steps forward. They are, alas, only baby steps: even proposals that look big from a federal budget perspective are small, given that America will spend $8,000bn on healthcare over the next five years. But they are steps forward.

The most important element is that Mr Kerry's people have dusted off a clever idea from Stuart Altman of Brandeis University: the government reinsures private insurers and HMOs by constructing a “premium rebate” pool to pay annual healthcare bills over $50,000. This greatly diminishes the cost to insurers and HMOs of covering the really sick, and diminishes their incentive to make sure they do not provide insurance to anyone who needs it. Insurance rates fall and, as they fall, the incentive for the healthy to go uninsured falls. It is a serious and clever proposal for the government to do something - spread risk - for which it has, potentially at least, a powerful comparative advantage. It is a government programme that would significantly diminish the market failures that gum up the private-sector portion of the healthcare-financing system.

It is a Kerry idea. But why is it not a Bush idea, too? What reason does a Bush administration have for existing, if not to lay the foundations for the market system to work its powerful magic? And what does the Bush campaign need more right now than credible proposals to show that it is serious about improving opportunity for Americans, not just millionaires?