The Median Economist Speaks on Health Care
By Arnold Kling
Liberals are right that fundamental cost control can only come from the supply side. Consumers are poor and ineffective shoppers in the medical arena. Ultimately, they will do what their doctors tell them to do.
…But here is where conservatives are right: …what if consumers weren’t so insulated from the financial consequences of their health insurance choices? The typical employee pays only a small fraction of the full costs of employer-sponsored insurance and has no idea what the total costs are. Moreover, the premiums that all employers and most employees pay are exempted from both income and payroll taxation, unlike wages. This shields firms and employees from reaping the financial benefits of lowering insurance costs.
To the left of Gruber is the health reform being discussed this year, and to the left of that is single-payer. To the right of Gruber is consumer-driven health care, and to the right of that are the proposals in my book. Needlessly to say, I take strong exception to Gruber’s “poor and ineffective shoppers” allegation. Instead I would describe consumers as embedded in an institutional environment that takes away their motivation to compare costs with benefits.
Gruber wants to tinker with the tax deductibility of employer-provided health insurance. That idea was taken off the table by labor unions. Even though Gruber and I are far apart, Bryan is right that I would be happier if I were ruled by the median economist than by our current political process. I predict that I will find less to like in President Obama’s speech to Congress on health care than I did in Gruber’s article.