Sunday, March 08, 2009

Two Visions of Healthcare reform: Bush v. Obama

The NY Times recently laid out succinctly Obama's plan for healthcare. Something that sounds eminently reasonable, especially to an economist. Roll out a national system of electronic healthcare records, which will create a dataset that the government can spend $1 billion to analyze, so that they can design the proper incentives system to give doctors the right incentives to treat patients efficiently.

It all sounds very reasonable, especially to an economist. Because economists don't have tools to understand its central flaws: big government projects tend to screw up. A national electronic records system sounds eminently sensible, but the industry that creates such software systems (Enterprise Resource Planning ERP) is more known for its multi-billion dollar failures than its successes. The FAA has been trying to computerize for the past 40 years but so far is still using 40 year old technology. Plus, assuming that underpaid government bureaucrats can properly interpret the data and create the right incentives is a heroic assumption.

Seeing the Bush plan, first hand, you see a clear difference. It favored electronic records but it was hesitant to mandate a national system, preferring to make ways for private enterprise like google to solve the problem. It recognizes the failings of the free market (failings economists are quick to recognize) such as moral hazard, adverse selection, externalities, myopia, but also recognizes the main advantage, that competition leads to cost minimization, whereas lack of competition such as the case of government bureaucracy leads to potentially massive waste.

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