Austan Goolsbee on Health Care
By Arnold Kling
If you set up a market-based health system, allowing insurance companies to pick and choose who and what they will cover, you give them overwhelming incentives to dump, deny, avoid and neglect the sick people.
But the data do not show this. Brad Herring and Mark Pauly have shown that insurance companies engage in risk pooling, not adverse selection. It comes as a great disappointment to many economists, but adverse selection is not the core problem of our health insurance system.
Goolsbee gets much else wrong.He says,
A single-payer system here would have to also include some truly major rearrangment of the tort system to bring those costs down.
Lawsuits, like adverse selection, are over-rated as a cause of high medical costs. We would like to believe that there is an enormous free lunch out there from tort reform. There might be some modest savings, but not enough to make a dent in overall health costs.
Goolsbee goes on,
we should start by fixing the most glaring problems of our system without ripping it up and starting over. We could use pooling to move away from the dump-and-deny insurance we have now. We could reward doctors for doing a good job, the way they do in the United Kingdom. We could focus more on preventing sickness, the way they do in Cuba, to reduce the number of illnesses.
In the terminology of this essay, Goolbsee represents the Democratic wonks, as opposed to the revolutionaries. But the wonks do not have much to offer.
Preventive care is like motherhood and apple pie, but we don’t have any hard evidence that we can use preventive care to save money. I would argue that some types of preventive care, such as cancer screening, tend to have a very high cost per life saved.
To “reward doctors for doing a good job,” you have to know what a good job is and you have to be able to measure it from far away. This is extremely difficult. Imagine trying to run a system in Washington to pay professors for “doing a good job.”
Forced-pooling health insurance is not a solution, because “dump and deny” is not the main problem. A bigger problem with the individual health insurance market is that there are 50 state regulatory fiefdoms, and insurance companies are not allowed to market products across state lines. The biggest problem is that most people think that employer-provided health insurance is “free.” So when they do not get insurance from an employer, they cannot bring themselves to pay for what other people get for “free.”
The biggest problem of all is that nobody, here or in other countries, wants real insurance. Instead, everybody’s idea of health coverage is to be insulated from costs.
As I pointed out in the essay, the wonks want to keep the existing system going, with a few patches here and there. If the Democrats take the wonk route, then they had better lower everyone’s expectations about what they will accomplish. They certainly are not going to slow the rate at which health care spending is gobbling up tax revenues. They certainly are not going to slow the rate at which employer-provided health insurance is unraveling under the pressure of swelling costs. They certainly are not going to address the coming bankruptcy of Medicare. They are not going to come to grips with America’s extravagant use of medical procedures with high costs and low benefits.
The wonks do not wish to confront Americans concerning our beliefs about health care–the belief that someone else should pay for it, the belief that cost-benefit analysis is inappropriate, the belief that someone who is suffering or dying should be spared no effort in terms of treatment, and so on. If the beliefs persist, then so will all of the major problems. There is no clever wonkish way to get around them.