Excellent piece by John Cassidy on the real implications of what the health care legislation package means.

But what about the economics of it all? In general terms, as I’ve said before, the case for reform is unassailable. Health care provides a textbook case of an industry plagued by numerous forms of market failure, including moral hazard, adverse selection, and free riding, as well as ad-hoc government interventions. The result is a horrendously costly mishmash, which manages to combine excessive expenditure in some areas (diagnostic testing) with too little expenditure in others (preventative care), and overall health outcomes that are middling, at best. According to Wikipedia, the U.S. ranks 38th in the global life-expectancy league table, just below Cuba (!) and just above Portugal.

Unfortunately, the reform bills that Congress has passed don’t tackle some of the system’s underlying problems, such as the lack of incentives to limit health-care expenditures. Yes, there is financing for pilot schemes that might eventually generate some savings, and, yes, a new independent board of experts will be tasked with identifying possible cuts, but to conflate these initiatives with a guaranteed cure for cost inflation is to fall victim to wishful thinking. Unless I am mistaken—and I hope I am—the reform will end up costing taxpayers considerably more than the Congressional Budget Office is predicting, and it won’t cover nearly as many people as hoped for. In another decade or so, Congress will be back at work, trying to provide genuine universal coverage at a more affordable cost.

The problem is fundamental. Setting aside the expansion of Medicaid and some long-overdue restrictions on the egregious behavior of health insurers, this isn’t really health-care “reform”: it is a significant expansion of the current system of private insurance, with the taxpayer footing the bill…a peculiar amalgam of egalitarian intent and corporate welfare: egalitarianism in the form of providing health care to those who can’t afford it; corporate welfare in the form of paying corporations such as Aetna and Wellpoint generously to take on millions of new enrollees. If the average American doesn’t realize this, people on Wall Street do. Since Obama’s election, in November, 2008, Aetna’s stock has gone from $20 to $35; Wellpoint’s has gone from $30 to $63.

Read The Full Article in The New Yorker