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Health-care reform needs government

Glenn Hubbard

TEXT OF COMMENTARY

KAI RYSSDAL: John McCain officially accepts the Republican nomination tonight in St. Paul. It's the most formal chance he's had yet to roll out his platform and tell us why he ought to be president. This week we've been asking some prominent Republicans to tell us where they think the party hasn't been doing so well. Commentator and economist Glenn Hubbard chose health care. He says Republicans are wrong to think that reform isn't going to mean some kind of government involvement.


GLENN HUBBARD: Rising health care costs are draining consumers, harming the global competitiveness of American firms, and driving future federal budget deficits.

Can the Republican party succeed by keeping government out of health care? In a word, no.

What we need to do is focus on getting more value for the health care dollar. Republicans propose tax subsidies for health insurance bought through your employer or on your own. This change can reduce wasteful spending by tens of billions of dollars per year.

But these reforms do not mean that government has no role -- subsidizing insurance for low-income individuals is obviously still important.

And there is a big missing piece: If we move toward more individual markets, what about high-cost individuals? What about the chronically ill? Insurance markets provide good protection for unforeseen medical expenses. But they don't work well for persistently high-cost patients. Will market reforms leave them behind? And if reforms keep them in private insurance pools, must they raise the cost for everyone else?

The simple answer is no. But, we need to spend more federal dollars to jump-start reform.

Here's how: We should give subsidies to chronically ill individuals so they can purchase private insurance.

The subsidy would provide partial coverage to an eligible person once health expenses exceeded a specified multiple of that person's area-average expenses.

That cost is still substantial -- at least $5 billion per year to begin. But the cost is an essential downpayment if we want market reforms.

If we pay this cost, the chronically ill will not be left behind by market-oriented health care reform. And insurance costs will fall for many Americans, so more households will be able to afford insurance.

Championing market reforms in health care to reduce costs to households and the government sounds good. But making the GOP's reform work will require a strong government role. In particular, some smart upfront additional spending on the chronically ill may be just what the doctor ordered.

RYSSDAL: Glenn Hubbard is the dean of the business school at Columbia University. He used to run the Council of Economic Advisers for President Bush.

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It seems that our representatives and senators of both parties are fixated on Rube Goldberg style solutions to the health care crisis. Why can't they keep it simple?

My own idea is to form a government corporation mocdelled loosely on the Canadian National Railroad, with an outside board of directors of not more than 11 members to administer it and appoint a director. The premiums would still be collected as they are now.

The headquarters should be way outside Washington, say Richmond, Indiana. That would keep most congressmen from looking over their shoulder.

Left unaddressed in Glenn Hubbard's proposal is how to address the moral hazard that comes from above-average subsidizing of the chronically ill. That is, if you know you're going to be taken care of if you get very sick, might that not encourage some people to pay less attention to maintaining good health?

The 800 pound gorilla in the room of health care reform is the 14-year patent protection granted by the US government. Drop this number down to 4 years and the the big pharmaceutical companys could still turn a profit on research and development.

I am disappointed that Glen Hubbard did not mention this.

As for free markets? How many patients with "full coverage" or a "co-pay" know the actual cash price of the prescriptions they buy? Few to none of these patients have any clue what these drugs cost. What is worse is that most doctors are clueless about the "cash price" of the medicines they prescribe.

Finally, why must we allow drug companies to advertise prescription drugs on television? Could we not find a strong correlation between the increase in spending on prescription drugs the advent of TV advertising?

Dear Marketplace:

For your information, and quality assurance purposes, I noted the following ommission and addition to the transcript of Dean Hubbard's commentary, that have some bearing on it's meaning.

Omission from Transcript: "Republicans propose (leveling) tax subsidies for health insurance bought through your employer or on your own."

Addition to Transcript: The subsidy would provide partial coverage to an eligible person (free of charge) once health expenses exceeded a specified multiple of that person's area-average expenses.

I enjoy your program.

Henry Blade

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