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What Will the Market Think?

This is an interesting argument from Simon Johnson and James Kwak on the fiscal importance of succeeding on health-care reform. They separate the long-term success of the bill at restraining costs from the simple fact of getting a bill through the Congress. The best scenario is that we get a bill that does both. But if the cost controls are weak in this first round, it's still better that a bill passes, as the scariest thing to an investor concerned about America's long-term solvency is further evidence that our political system is incapable of making changes to the health-care sector:

According to Congressional Budget Office projections, the long-term change in the government's fiscal situation is entirely due to growth in Medicare and Medicaid spending. From an investor's perspective, the primary risk is that the government will do nothing; in that case, Medicare costs will explode the budget within our children's lifetimes. Insofar as long-term budget imbalances are a threat, and insofar as that threat has been increased by the recession, the argument for health-care reform is only strengthened. ... If our government cannot produce some kind of reform, that will only reinforce the perception that our political system is incapable of resolving our largest, most difficult problem -- and that is what will make investors think twice about investing in America.

Passing health-care reform once is evidence that we can pass it twice, if need be. Failing, however, is evidence that America's political system is paralyzed. If we can't even do the easy stuff, why should the world trust our ability to do the hard stuff?

By Ezra Klein  |  September 1, 2009; 12:28 PM ET
Categories:  Health Economics , Health Reform  
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Next: The Uncertainties of Reconciliation

Comments

"the scariest thing to an investor concerned about America's long-term solvency is further evidence that our political system is incapable of making changes to the health-care sector"

Really? Because as someone concerned with America's long-term solvency, the scariest thing to me is the changes the political system has already made to the health-care sector.

You can look Medicare square in the eye and demand the government do something about healthcare without ever acknowledging that government created Medicare in the first place.

Posted by: whoisjohngaltcom | September 1, 2009 12:54 PM | Report abuse

JohnGalt: Even if you Medicare's the devil, it ain't going away. So, getting costs under control is a good thing for long-term solvency.

http://www.prospect.org/galleries/img_articles/EK_entitlements_three.JPG

Ezra: If the bill is watered down, is there a point would you not support the health care bill?

Posted by: Chris_ | September 1, 2009 1:07 PM | Report abuse

Too bad that none of the bills being proposed actually do anything to control Medicare or Medicaid costs. Further each bill front loads the savings before coverage expansion even starts. Thus even IF a bill had a net cost of $0 over the first ten years, it would still increase the deficit every year after that (according to the CBO).

Ezra you say. "Passing health-care reform once is evidence that we can pass it twice". The problem is that the first time just adds a new entitlement and the second time would need to cut entitlements. You're comparing apples to oranges. You're essentially saying if we can increase spending now, then we can decrease it in the future. I'm skeptical.

Posted by: mbp3 | September 1, 2009 1:11 PM | Report abuse

"Even if you Medicare's the devil"

Actually, I think it's a God-send. Without it, this public option nonsense might be getting somewhere.

Posted by: whoisjohngaltcom | September 1, 2009 1:13 PM | Report abuse

In a Congress (and society) where the very people most ostensibly concerned about deficits are also the most vocal against cost control measures like effectiveness research, rational late-in-life care and reimbursement reform, (i.e., Republicans and older people) getting health care costs under control is impossible.

While you are right that doing it once shows that it can be done again, doing it with mandates and no cost controls and hoping some future Congress enacts cost controls is what drove us to this point in the first place.

Posted by: Mimikatz | September 1, 2009 1:20 PM | Report abuse

I've tended to agree with T.R. Reid when he states that getting true UHC enacted should be the primary goal, because that itself will provide the political conditions to make the tough decisions on cost control. But in any event, I think people tend not to take into account the awesome strength of the bond market. In other words, if we pass a UHC bill, and it's on the expensive side (because of excessive subsidies to private insurers, lack of a public option, etc.), it seems very unlikely that the government won't be forced, in relatively short order, to get much more aggressive on costs.

Posted by: Jasper99 | September 1, 2009 1:21 PM | Report abuse

"the scariest thing to an investor "concerned about America's long-term solvency is further evidence that our political system is incapable of making changes to the health-care sector"

Huh? Explain then, every time health reform teeters on the brink, MCO and pharma stocks pop? Hardly a shaky market or one that needs reassurance that its govt will "do good."

Posted by: BradF1 | September 1, 2009 1:50 PM | Report abuse

If our political system is incapable of controling costs when 15% of the population is covered why on earth would you think that it would be easier to pass when more of the population is covered? Covering 15% is by your own admission bankrupting the country and you want to expand that coverage without worrying about cost control at all. Ridiculous.

Posted by: spotatl | September 1, 2009 1:52 PM | Report abuse

BradF1...MCO and pharma stocks pop because the market looks quarter to quarter. It has never looked out ten years and never will. It is all about the short term.

Posted by: scott1959 | September 1, 2009 2:55 PM | Report abuse

scott
exactly.
brad

Posted by: BradF1 | September 1, 2009 3:00 PM | Report abuse

What would really help markets and the America competitive position in global markets the most is to relieve business of the responsibility for health care, to de-link employment and health insurance. You would think the business community would support Medicare for all.

Posted by: cmpnwtr | September 1, 2009 3:28 PM | Report abuse

Guys- when you talk about markets you're talking about two seperate things. Most of the public thinks the market = the stock market. And yes, no reform is good for health insurance stocks. But Ezra is talking about the bond market, specifically the market for US Gov't debt. This market absolutely dwarfs the stock market in size. And he is technically correct- if the US enacts policy to signal it will contain healthcare costs then interest rates will go down and we won't find it as hard to issue debt down the line.

Posted by: Quant | September 1, 2009 3:39 PM | Report abuse

Quant has it right. And the Federal Reserve System, which controls the choke points of our economy, and which we seem to be offering evermore power to for some reason, holds the bond market as its principal focus of fidelity (after the banks, which are family).

In other words, how the bondholders perceive America is how the Fed will either cripple or unencumber our productive economy, at any given time.

Posted by: wapomadness | September 1, 2009 4:08 PM | Report abuse

"According to Congressional Budget Office projections, the long-term change in the government's fiscal situation is entirely due to growth in Medicare and Medicaid spending."

This being the case, why ought we turn still more of our health care system over to the government? Taken together the government already controls 45% or the nation's health care spending. Let the Dems demonstrate their ability to control costs in the government health programs already in their conctrol.

Posted by: tbass1 | September 1, 2009 4:51 PM | Report abuse

"If our government cannot produce some kind of reform, that will only reinforce the perception that our political system is incapable of resolving our largest, most difficult problem -- and that is what will make investors think twice about investing in America."

If the CBO isn't impressed with the bills' ability to control health care costs why do you imagine the investment community will be?

The government-run health programs are already insolvent. If Obama and the Dems would fix them first they'd gain a measure of the investment community's - and the public's - respect and trust. Having done that they'd be in a much better position to pass comprehensive reform.

Frankly, I don't beleive the Dems believe their own rhetoric about their ability to control costs. Hell, they went after the HMOs in the late nineties for managing costs too aggressively/effectively. Now they have the gall to proclaim market failure.

Posted by: tbass1 | September 1, 2009 5:08 PM | Report abuse

Yeah Mr Klein, but the reason we can't pass the easy stuff is because it's just going to make it even harder to pass the hard stuff.

Posted by: staticvars | September 1, 2009 11:48 PM | Report abuse

The comments to this entry are closed.

 
 
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