The latest Wall Street Journal blogger celebrity death-match features Russ Roberts and John Irons on health care. Here’s Russ:

Because of various government subsidies, out-of-pocket spending is a little more than 10% of total health spending (thanks to Alex Tabarrok at Marginal Revolution for the link). The rest comes from the government and insurance.

…Overall, the [President’s Budget] proposal is a micromanager’s dream — a bewildering patchwork array of tax credits, new programs and more bureaucracy. That desire to micromanage is what has created most of what is dysfunctional in our health-care system.

Here’s John:

The demand for health care is relatively insensitive to price, and this is especially true for the kind of care that is exceptionally expensive, such as end-of-life care.

…The second way fundamental way that health care differs from other goods is an information problem. For the obvious reason that people are unsure about their health and the risk of incurring large medical bills, people find it useful to have health insurance. One problem with the health insurance market is that you, as a purchasers of health insurance, know much more about your health than do health insurance companies. Insurance companies are therefore very worried about offering good health insurance for fear that only those who expect to have very high medical expenses will buy the insurance. The result is an overall breakdown in the private market

…For me, it comes down to whether we want to throw more people into the private market for health insurance — which we know has fundamental flaws. Or do we instead have an effective system of public supports? I would suggest that the latter is the only feasible solution.

Let me finally address your statement that patients are “spending other people’s money.” …A recent report found that 50% of bankruptcies were due to medical expenses. This is hardly a free lunch.
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That last link that John provides is interesting. The report on medical-related bankruptcy says

Among those whose illnesses led to bankruptcy, out-of-pocket costs averaged $11,854 since the start of illness; 75.7 percent had insurance at the onset of illness.

…Our data highlight four deficiencies in the financial safety net for American families confronting illness. First, even brief lapses in insurance coverage may be ruinous and should not be viewed as benign…

Second, many health insurance policies prove to be too skimpy in the face of serious illness…

Third, even good employment-based coverage sometimes fails to protect families, because illness may lead to job loss and the consequent loss of coverage. Lost jobs, of course, also leave families without health coverage when they are at their financially most vulnerable.

Finally, illness often leads to financial catastrophe through loss of income, as well as high medical bills. Hence, disability insurance and paid sick leave are also critical to financial survival of a serious illness.

My reading of this fascinating study is that health insurance is neither necessary nor sufficient to provide financial support for families struck by illness. I am coming to believe that health insurance is designed for the benefit of health care providers, in order to make their incomes more reliable. It is not of value to consumers.

What consumers need is illness insurance, which provides payment based on a combination of the health costs and the disability costs of an illness. It would be more useful to a consumer to receive a large lump-sum payment for an illness that is expensive in both dimensions than to merely insure reimbursement for medical procedures.

UPDATE: For a critique of the bankruptcy study, see this article.

For Discussion. If we got rid of today’s health insurance, might the market provide the sort of insurance that would keep more people from being bankrupted by the cost of illness?