Over at U.S. News and World Report, Matt Bandyk has a follow-up question for my last post on mandatory insurance and adverse selection:

Here’s my question to Dr. Caplan: But far from being populist
anti-intellectualism, isn’t the objection that “poor people will not be
able to afford health care in a free market and so the sick ones will
die” a very real challenge that requires a response? Does the fact
that, by Caplan’s own admission, a free market in health insurance
would underserve sick people show a real problem with the laissez-faire

There are several layers of responses to this question.  I’ll start with the textbook answer, then move on to successively more controversial observations:

1. The smart response to market failure varies sharply depending on what the market failure is supposed to be.  If the problem with free-market health care is just that poor people can’t afford health care, then the smart response is simply to give poor people more money (or possibly a cash voucher), and leave insurance companies alone.  Think about how we usually handle hunger among the poor.  We don’t set up byzantine regulations for grocery stores.  We give the poor welfare checks and/or food stamps, and leave the grocery stories alone.

2. On further reflection, the fact that health insurance is too expensive for the poor is actually an important argument for deregulation of the health industry in order to bring costs down.  For starters, there are many regulations on the books that specify what health insurance companies have to cover – mental health being the most notorious.  In a free market, insurance companies could offer more restrictive policies that the poor might actually be able to afford. 

More importantly, though, health insurance is expensive because regulation sharply raises the cost of health care itself.  Medical licensing regulations, for example, sharply raise the cost of medical labor.  Economists like Milton Friedman have been arguing for decades that mere certification, or even reputation, could give you the same protection at much lower cost.  And while you probably want an M.D. to do your brain surgery, licensed physicians are over-qualified for much, if not most, of the work they do – as you might have noticed if you ever saw a dermatologist for acne.

3. On top of all of this, almost everyone familiar with the data admits that at least in First World countries, the difference in health between rich and poor has little or nothing to do with access to medical care.* It’s easy to find anecdotes of poor people who suffered or died because of inadequate medical care, but when you look at the big picture, you realize that these anecdotes must be quite rare.  So despite response #1, more redistribution wouldn’t actually help the poor’s health very much.

4. My most controversial point: While redistribution is the most logical response to the health market’s performance, I still oppose it.  In the grand scheme of things, poor people in the First World are doing fine.  If they weren’t, why would millions of people be delighted to immigrate here to take low-skilled jobs?  For thoughtful humanitarians, the quest to improve the health care of the U.S. poor is a red herring.  The crusade that deserves our support is open immigration.

Matt also asks me to reply to a point from Ezra Klein:

I would pose to Caplan a question that Ezra Klein, a good representative of the anti-free-market view on health care, asked on his blog recently:

Are we really sure we want a bustling market in how to cleverly revoke the insurance of people who prove to be sickly?

If you read Ezra’s post, there are actually two distinct complaints about free-market health care.  The first is that insurers engage in near-fraud – rescinding coverage on flimsy pretexts when people get seriously (and expensively) ill.  If this were more than an anecdotal problem, which I doubt, I don’t see why lawsuits or advertising couldn’t handle it.

Ezra’s second complaint, though, is “insurers rid themselves of unprofitable accounts by slapping them with intentionally unrealistic rate increases,'” a business practice known as “purging.”  Frankly, this story makes no sense.  If a customer is expensive, a company might want to raise his rate so he’d be profitable to insure.  As long as there’s competition, though, firms have no reason to raise the rate higher. 

Of course, if the problem is that you want to buy insurance against the possibility of becoming a high-risk customer, you should pick a company that lets you lock in your rate.  See e.g. life insurance, where you can get a fixed low rate for life if you buy your policy when you’re young.

Any more questions, Matt?

* Start reading the link on p.181.