A Post-Primary Look at Indiana’s Prospects

May 3, 2010

A Post-Primary Look at Indiana’s Prospects

To accommodate election-day deadlines, this week’s column is for immediate release (691 words)


It’s always hazardous to speculate about the future, especially in politics and economics. But I have a few ideas about our economic and political future and want to get them on the record.

The most obvious point is that we have no clear idea where things will go politically in 2010, 2012 and 2014. Will voters “punish” the Democrats for the continuing recession, going against the public’s will on health care, etc.? And if the GOP gains seats or even control of Congress or the presidency, what will they do with it?

Moving to a more subtle point: As I’ve often written, the chief problem in health care is over-insurance. Consumers pay about 10 percent of the overall tab. So, they pay little attention to costs. Health insurance is forced to cover all sorts of things that take it away from the role of traditional insurance — to cover rare, catastrophic events. (That’s the primary reason it’s so expensive.) But in recent years, the market for health insurance has been limping toward standard insurance — as co-pays and deductibles have increased markedly.

Under ObamaCare, we can expect premium increases to accelerate, which will accelerate the move toward catastrophic insurance. The fascinating thing here is that the market may get us to a far better place before coverage of the uninsured begins in 2014. If so, then it will be extremely difficult to hold the promised status quo. Either you’ll have individuals with privately-financed catastrophic insurance who are being heavily taxed to provide Cadillac coverage for others. This would be politically unacceptable. Or you’ll have phenomenally expensive Cadillac coverage for all. This would be prohibitively costly.

Consider also the “cultural” changes already underway in health care. When I addressed a group of local CEOs a few weeks ago, one told the story of an employee whose son had broken his finger. The doctor said they’d X-ray it. But the parent slowed him down and asked what he would do if the finger was broken. The doctor replied: “Put it in a splint.” The parent’s reply: “Well, let’s just put it in a splint now.” The point? The parent was thinking much more carefully about the cost of the service, because it was going to come out of her pocket.

Consider another example: allergy shots. With low-deductible policies, allergy shots are virtually free. Under a high-deductible policy, one will likely pay the full “cost” — about $25 a shot. I’m not positive, but I’d guess that the marginal cost of providing an allergy shot is not $25. I’m more certain that most people will be unwilling to pay that much. So, the price will come down dramatically or this industry will wither. The point? The market will see large-scale changes in the next few years — in particular, reducing costs in some sectors — as people bear the costs of their activities.

Finally, under BushaNomics and now ObamaNomics, the government continues to insist on redistributing money from one party to another — and kicking the economy when it’s down. For the macroeconomy, the health-care legislation was rough, since it increased costs for business. Beyond that, since no one knows what the health-care legislation will do, it failed to reduce risk and uncertainty — a key concern for businesses making capital investments and expanding payroll. As a result, the macroeconomy is even less likely to emerge from its 27-month Bush-Obama funk.

Of course, that’s important in its own right. People will continue to suffer unemployment, reduced incomes, and so on.
But consider the impact on state and local governments. State and local budgets are already under significant strain — modest in some states and tremendous in others. In southern Indiana, New Albany closed four schools; in Fort Wayne several more. In Kansas City, they shut down nearly half of their public schools. In California, tuition at state universities increased by 32 percent (since the subsidies to higher education were reduced).
Looking into the future, state and local governments will likely apply tax rates to diminished economic activity and reduced property values — decreasing tax revenues. This will increasingly squeeze lawmakers into increasingly unpleasant choices.

D. Eric Schansberg, Ph.D., an adjunct scholar with the Indiana Policy Review, and the editor of SchansBlog, is a professor of economics at Indiana University Southeast,


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