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Brooks Wilson's Economics Blog: Orszag on Health Costs

Tuesday, May 26, 2009

Orszag on Health Costs

Peter Orszag, the director of the White House Office of Management and Budget, pitched the Obama administrations health care reforms as budget makers ("Health Costs Are the Real Deficit Threat," Wall Street Journal, May 15, 2009).  Rather than using the egalitarian and humane argument that health care should be expanded to cover all, including the poor, Orszag argues that health care can be reformed to lower costs without compromising the quality of care.  In fact, he doesn't mention  that the plan expands coverage (see "The Obama Medical Plan").  Expanding coverage will expand the taxpayers bill.

Orszag asserts that cost lowering, quality enhancing reforms can be achieved because,
In health care, unlike in other sectors, higher quality currently seems to be associated with lower cost -- not the opposite.
This assertion if simply not true. Goods and services that have a lasting place in the market provide consumers the most satisfaction per dollar.  The 2010 Toyota Prius, costing approximately $25,000, will not have a successful competitor offering lower quality at $32,500.  Rather than argue for more government intervention in highly regulated health care markets the Obama administration should begin by asking why health care markets fail to achieve the common outcome of less regulated markets.  Could it be that the tax code and insurance market regulation contributes to a decoupling of price and quality?

1 comment:

  1. I think the whole health care system is too regulated and too much red tape. I can't count the number of times I've been to a dr to have them say I'm not sure try these pills and call your insurance to see what they will cover. Also how many trips to the ER I've made without insurance and been told by the ER doctor "see a specialist" instead of helping figure out what was wrong. I don't think cost has everything to do with quality, I was willing to pay for services to get me better, not get a $3,000 ER bill to have a doc say we can't help you here without insurance. I think that's where a lot of the negative outlook actually comes from.