Mark Thoma on Health Insurance
Do health markets suffer from substantial market failure? My assessment of these markets says the answer is yes and, in particular, the most difficult problem to solve, adverse selection, is the most serious problem plaguing these markets. My preferred solution is a universal coverage single-payer system, but there is room for disagreement on this.
Crisis of Abundance challenges this view. I write,
why now? If private insurance is inherently unworkable, then it should have been unworkable in 1955 and in 1975…
I also cite work by Mark Pauly and Bradley Herring that suggests that risk pooling in health insurance does not break down.
I think that the most important point about health insurance in the United States is that it is not really insurance. Thoma says, “In general, insurance gives us financial protection from unexpected events — a tree falls on our house, we have a car accident, we become unemployed, we become sick and need health care, and so on.”
But what we call health insurance covers things like new eyeglasses, which is not a rare, catastrophic event. It seems to me that the big market failure in health insurance is that it exists to protect health care suppliers from having to bill patients directly rather than to protect consumers from catastrophic loss. That is, the failure is not in the way risks are managed by insurance companies, but in the very structure of what we call health insurance.
Before we leap to having single-payer health insurance, we ought to change health insurance to something that looks like insurance, not like a scheme to insulate individual consumers from all health expenses. Unless Thoma, Krugman or some other economist can justify such insulation, it seems presumptious to suggest that we need government to provide more of it.