• Public Debt and the Public Option

    As health care reform goes down to the wire, one concern raised by opponents of the public option is the impact on the national debt.  This concern seems strange, since according to the CBO, both the House and Senate bills including a public option would reduce future deficits.

    Some have argued that notwithstanding the express provisions in the bills that a public plan must be funded entirely by premiums, once it is established, we won’t be able to help ourselves from expanding it with deficit spending.  Perhaps this is a sad fact about Americans.  But is it generally true?

    If public financing of health care generally tends to produce public deficits, one might expect countries that fund a greater portion of their health care costs publicly to accumulate greater public debt.  To examine this hypothesis, I ran a multiple regression analysis of public debt to GDP as a function of the publicly funded portion of overall health care spending for twenty-eight of thirty OECD member countries from 2000 to 2007, controlling also for overall health spending in proportion to GDP, and taxation as a proportion of GDP.  I found no statistically significant correlation.

    Now this result does not exclude the possibility that the effect of public financing of health care on public debt may be hidden by the effect of some omitted variable.  But it does suggest that such an effect is not obvious.  And those who assert that the effect exists have not done the careful work that would be required to substantiate their claim.

    • Interesting – but I how does this correlation work? How are they funding such if not via debt. After all – they money has to come from somewhere – right?

      The reason the CBO works is because the “taxes” built in pay for it. I know, they do not always call them taxes – but the end result is Americans – and in particular American businesses – will foot the bill.

    • That’s right, the model suggests (though it does not necessarily prove) that those countries that publicly fund health care are willing to tax themselves accordingly. This does not mean that raising taxes to provide universal health care is or is not a wise policy decision. It only questions the claim that we won’t be able to help ourselves from resorting to deficit spending to fund it.

    • Selection bias seems like an obvious problem here, so I’m not sure your regression tells us much. Countries who have a high confidence in their governments ability to supply healthcare without going into debt are probably going to have a higher demand for public provision of health care, don’t you think?