How to Rescue New York’s Economy

by Reihan Salam

Paul Howard of the Manhattan Institute offers a sobering analysis of the problems plaguing New York state’s economy — problems rooted, in his telling, in the state’s dysfunctional politics. New York state spends more than any other state on its Medicaid program. Yet health outcomes in New York are mediocre, and the state has the worst rate of avoidable hospital admissions in the country. Howard notes that while New York lawmakers have relied on the financial services sector to shoulder the burden of financing the growth in medical expenditures, the non-profit health sector now employs more workers (570,000 as of 2010) than financial services (487,000). One reason the non-profit health sector has grown so robustly is that it is exempt from New York’s corporate and property taxes. Wealth is being transferred from a highly-competitive, knowledge-intensive tradable sector (financial services) to a non-tradable sector plagued by inefficiency and a lack of competition, in which political connections are key to getting ahead. The result is a slow-motion fiscal crisis as the health sector crowds out other public investments and as a rising tax burden dampens growth potential. 

To address New York’s political economy dilemma, Howard calls for a two-fold strategy: first, the state ought to encourage a shift towards consumer-directed health care; and second, it ought to provide consumers and employers with better access to reliable data on health care outcomes. Howard reports that New York state is inching in the direction of liberating data with its new public-private partnership, the state-wide Health Information Network, SHIN-NY:

The easy political sell for the SHIN-NY is that it will improve safety (if you’re unconscious, and can’t relay critical medical information, providers can still access it), reduce duplicative services (allowing providers to access an X-ray or other clinical services provided at a different hospital), and save money.

But I think this just the tip of the iceberg. Liberating clinical information (and merging it with other data) will allow investors and entrepreneurs to build new tools for measuring outcomes and costs, empowering patients with information that makes them into true consumers. There are real privacy challenges to navigate here, but they’re manageable – starting with ensuring that patients own and control their own health data and can always control who sees it, and when.

Howard believes that SHIN-NY could lead to a more competitive and innovative health sector, as entrepreneurs make use of the new data to build new business models. And the really good news for New York state lawmakers is that these disruptive new enterprises would be taxable for-profits, unlike the non-profit health care behemoths that are contributing to the deterioration of New York state’s tax base.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.