Let ‘er Rip on Health Care Spending? I Don’t Buy It

Just below, Mark quotes Jane Galt to the effect that “health spending is great! What’s the problem?” It might be that, in a pure utility maximization sense, health spending is not a problem (although on this I’m not even sure). But we’re not in that pure state. First, a large amount of health care is funded by corporations (albeit subsidized through the tax code). Health care inflation will tend to put pressure on this provision, leading to lower coverage. Second, a large chunk of all the rest of health care finance is processed through government. State governments have very limited (political) capacity to raise revenue–therefore, given that a lot of health care is financed through Medicaid, there is a significant likelihood that health care inflation will cause less spending on other thinks states do (like education, infrastructure, police, etc.) While the federal government has greater fiscal capacity than states do, its political capacity to raise revenue is also limited–so health spending is likely to accelerate faster than the political capacity of the government to raise revenue, which means another zero-sum relationship with other spending.

Now, maybe we believe that all the other stuff that government is spending money on is a big waste of resources, OR that governments are likely to cut the least valuable spending to make room for health care. I doubt either are true. Responsible policy recommendations have to START with institutions as they are currently configured, or around which they might reasonably be reconfigured in the near future. The argument (of David Cutler for example) that health care spending is no big deal completely ignores this. The onus is on the “let ‘er rip” school of health care spending to show how they will restructure the politics of health care finance to be permissive of greater spending without damaging either the scope of coverage or other government spending commitments. Until and unless that happens, I’m unconvinced.

Author: Steven M. Teles

Steven Teles is a Visiting Fellow at the Yale Center for the Study of American Politics. He is the author of Whose Welfare? AFDC and Elite Politics (University Press of Kansas), and co-editor of Ethnicity, Social Mobility and Public Policy (Cambridge). He is currently completing a book on the evolution of the conservative legal movement, co-editing a book on conservatism and American Political Development, and beginning a project on integrating political analysis into policy analysis. He has also written journal articles and book chapters on international free market think tanks, normative issues in policy analysis, pensions and affirmative action policy in Britain, US-China policy and federalism. He has taught at Brandeis, Boston University, Holy Cross, and Hamilton colleges, and been a research fellow at Harvard, Princeton and the University of London.