Uwe Reinhardt Replies

This post originally appeared on The Finance Buff.

Earlier today I posed questions to Uwe Reinhardt about his NY Times Economix post that drew a parallel between a public health plan and the federal program for student loans. I was essentially asking for a standard, pure, economic welfare argument in favor of a public plan. He was kind enough to respond at length.

The reason I asked what I did of Reinhardt is that I am struggling to come to a decision about how I feel about a public plan myself. (Since writing this my thinking has progressed. I make a proposal for the role of a public plan in a follow-up post.) My own world view predisposes me to be in favor of such a plan, but my knowledge of economics pushes me the other way. My fundamental concerns are for efficient use of tax payer dollars and maximum benefit to society. Finally, my experience studying Medicare makes me well aware of the problems with both public and private coverage of health care. I am not convinced a government plan is the right answer, nor am I convinced a private-only system will be “fair” (in some “you-know-it-when-you-see-it” sense).

I more-or-less know the standard economics argument for private markets. Do they apply to health care or not? Are we certain there would be market failures that would justify a government role? If so, what are the failures, and need that role be a public plan, as opposed to, say, enforcement of anti-trust laws, regulation, clever methods of assigning ownership of externalities, and so on.

My quest is not complete. I am still looking for the economics argument for a public plan. Uwe Reinhardt’s response didn’t bring me any closer to it. He essentially rejected the premise that there is such an argument. He’s right that economists’ notion of “welfare” is not welfare as “straight-thinking people” would view it. But I’m not aware of any other objective way to judge the correctness of prices and quantities. Are the prices and quantities set by a public program (e.g., FFS Medicare) better? Do they lead to higher welfare (in any sense) or not? How do you know? Are you sure? Really? I’m not.

When I find better answers to these questions I’ll post them. In the meantime, if any reader finds an economics argument for a public plan, please direct me to it.

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