Saturday, March 13, 2010

Twin Mistakes: The US Health Care Debate and the Euro

I have been spending my spare time reading and following the European Debt debacle. Everyone saw it coming, they saw it coming before the Euro was created. Greece begged to be part of the Euro, it was very good for Greece in the beginning. Now they are stuck and there is no way out. Anyhow, that's not what I wanted to talk about. I wanted to talk about how the Euro and the US Health Care debate are related. Both the Euro and US Health Care reform are parts of a good idea, but both will fail because in both cases there is no way to implement the whole idea; In both cases partial implementations lead to worse state than inaction and therefore neither should happen (or have happened).

First I will discuss the problem of the Euro. This topic has many books written on it, so I will be brief. In essence, Monetary Union strips individual European Governments of any monetary policy tools (such as managing inflation, or devaluing currency). In essence the European Central Bank is responsible for a central Monetary Policy which is applied to Europe as a whole and national banks are neutered. The problem is that good economic management require complimentary Monetary and Fiscal policy. Europe doesn't have a consistant Fiscal Policy; there is no central Fiscal Policy body while there is a central Monetary body (ECB). In short, Europe (parts of it) will continue to have major problems until there is a uniform and consistant Fiscal and Monetary policy for Europe. This is the case with the United States (also a Monetary Union): though Michigan is screwed because it can't devalue its currency, it does have Fiscal transfers from the federal government to prevent the starvation of its citizenry.

This European problem was well understood at the time of the forming of the Euro. The original advocates of the Euro also wanted a more powerful European Government, they wanted the central Fiscal Policy. However, that never happened. It was a pipe dream. There were many Europeans who dreamed of a United States of Europe with common Monetary/Fiscal and Foreign policy. Those leaders envisioned several steps to a grander union. In fact, I think they thought getting the Euro (the carrot) first would make it much harder for Europeans to reject the grander United States of Europe plan. That's the rub: integrated Fiscal Policy was always difficult, it involves pain and getting trans European consensus would always be hard. Getting a common Monetary policy was easier (it was hard to convince Germany) but peripheral nations would realize more benefits than detriments. With the exception of Germany, no European country really had a stable currency and all benefited with joining with Germany. However, people did reject it, and a tighter integration looks impossible now. But everyone is still stuck with the common Monetary Policy. And Greece is screwed, in fact they are all screwed.

How does this relate to the US Health Care Debate? Well, lets start with a few facts and take them as tautological.

1) US Health Care is broken --pretty much everyone agrees to this and I don't dispute it.
2) Any plan that imposes more requirements on any insurance plan will raise the price of the insurance plan as a whole.
3) All the plans proposed in congress (House and Senate) impose more requirements on insurance plans. The largest of which is the requirement that insurance plans can't drop someone once they sign up.

Items 2 and 3 mean prices are going up for those of us with insurance. I think everyone knows this. If you don't, spend some time thinking about it. The real question is not if prices will rise, it is "Is the extra cost worth it?" The republican's say no, and the democrats side step the issue and propose taking the extra money from rich people (or some group other than the people they are talking to at the moment). The truth is, if you are not getting your insurance from the government (like getting it from your employer) you are about to be screwed. Rates will skyrocket on the bill's passage. If you are getting it from the government (and even if you aren't) your taxes will go up, or the national debt will go up, or both. Chances are you will loose your insurance if you work for a small company, or have to pay more out of pocket if you work for a large company.

Please note, it doesn't matter if you think the requirements imposed on the insurance companies are good or bad. Either way, you are going to pay more. If you think the requirements are good, then that's good for you, maybe you think its OK to pay more. Either way, you pay more. Read it, believe it, this is well established economic fact.

Okay, how does this related to the European Economic Union? These changes to the US Health Care system will make things worse without OTHER required changes. Mostly the changes required are either to a single payer system with massive government transfers (mostly from the young to the old) or significant rationing, or a much higher percentage of American's without insurance. There are also other cost cutting measures like liability limites, or price caps. Both of these have problems of their own.

You say this is great if you are a supporter of a single payer system. I think some of these supporters realize passing these health care bills now will cause more pain, but that the pain will force people to embrace a government single payer system. Here is the rub, the fix will never make it through congress, its DOA. The current bills will just raise costs, with none of the required long term solutions; much like the Euro, this is half of a plan. And just like the Euro the political climate is changing and all that will be passed is the easy half of Health Care Reform. The effort to pass the first bill has sucked all the air out of Washington. There will be no way for anyone to change anything after this bill. Not for many years, not until the pain is even greater. You will feel it, and its going to hurt. There will be no medicine for many years.

1 comment:

A Fuss said...

I don't think that Democrats side step the issue -- it's just that they don't give the answer most people want to hear. The answer they do give is: the cost is less important to us than the well being of others. It's the exact same answer most people give in their personal lives (i.e. health insurance is expensive but you still buy it for your children, because their health is more important than your bottom line, or your luxuries), the nay-sayers of the plan just don't want to look at it from a personal point-of-view. Democrats often practice governance from a doctor's point of view -- i.e. cure one thing at a time (treat the infection, then treat the cause). Historically its been proven to work -- but in the current political machine which is still operating on the Rovian philosophies of spin, it doesn't sell well.

Newsweek had a great article on the health care polls by the way. When a polling audience was asked if they support the individual items in the health care bill, the audience was 78% in favor of every item. When asked if they supported the plan, they were 28% in favor. When told that the items they had previously been in favor of, were part of the plan they were against, only 10% changed their answer. The mindset of the average American is a fascinating thing.