Health Care Reform Contradictions

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James Surowiecki writes,

the public's skittishness about overhauling the system also reflects something else: the deep-seated psychological biases that make people resistant to change.

He goes on to list all of the irrational biases that lead people to want the status quo and resist real health care reform. He never mentions labor unions. Yet unions are a major political factor in the status-quo bias that Surowiecki laments.


Because of unions, the Democrats are in a love-hate relationship with private health insurance.  They hate private health insurance companies, but they love the employer-provided health insurance system, which is where private health insurance companies are entrenched.

I, too, hate private health insurance companies, but I have no labor union pressuring me to support the continuation of the tax deduction for employer-provided health benefits.  So I can support a policy of getting rid of that deduction, which might produce meaningful change.

The other contradiction concerns Medicare.  Medicare is in worse shape than private health insurance.  It faces trillions of dollars of unfunded liabilities.  Medicare is what President Obama is talking about when he says that America's health care system is unsustainable and something has to change.

But the status-quo bias in Medicare is enormous.  Seniors are happy with it, because the costs are borne by future generations. 

So, we have a Democratic Party that wants health care reform but at the same time wants to entrench Medicare and employer-provided health insurance.  In a way, the Democrats are lucky that they have political opposition.  Without it, they would have to face up to their own contradictions.

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Arnold Kling

Arnold Kling earned his Ph.D in economics at MIT. He was an economist on the staff of the Federal Reserve Board. From 1986-1994 he worked at Freddie Mac. He started Homefair.com in 1994 and sold it in 1999. His fourth book, From Poverty to Prosperity, co-authored with Nick Schulz, is due out in April of 2009. He blogs regularly at Econlog.
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