Categories:
Economics of Health Care
John A. Nyman has a theory under which it is efficient to stimulate health care spending with health insurance.
When the care that was deemed to be welfare-decreasing is reclassified as welfare-increasing, health insurance becomes much more valuable to consumers than health economists have hitherto thought it was.
Pointer from Mark Thoma and Austin Frakt.
I agree that if you take all of the cost-ineffective medical procedures that people undergo and “reclassify” them as welfare-improving, then by golly health insurance becomes more valuable. But if Nyman were to debate Robin Hanson on the empirical realism of this, my money would be on Hanson.
READER COMMENTS
Adam Ozimek
May 4 2011 at 9:56am
That would be great if someone could make this debate happen.
Austin Frakt
May 4 2011 at 10:12am
Arnold,
Fuller quote, from the ungated paper you referenced:
“Moral hazard” refers to the additional health care that is purchased when persons become insured. Under conventional theory, health economists regard these additional health care purchases as inefficient because they represent care that is worth less to consumers than it costs to produce. A new theory, however, suggests that much of moral hazard is actually efficient. When the care that was deemed to be welfare-decreasing is reclassified as welfare-increasing, health insurance becomes much more valuable to consumers than health economists have hitherto thought it was. As a result, there is a new argument for national health insurance: efficiency.
The paper is an easy read. His book takes far more effort, but has far more crucial detail. (See my post, to which you link for a link to his book.) I encourage those interested in this area to do more to understand what Nyman has done. If one wishes to differ with him, one should look for ways in which his theory is a worse fit with observation than the conventional one. Read his book. He goes through it. Find the flaw(s).
Austin Frakt
May 4 2011 at 10:19am
Why isn’t Nyman invited to be on EconTalk, as I’ve suggested (among others): http://theincidentaleconomist.com/wordpress/an-open-letter-to-russ-roberts/ .
Maybe he has been invited. Still, I’m puzzled why that program has had no health economists by my count. (Health economists are different from economists talking about health.)
Shangwen
May 4 2011 at 11:17am
Arnold, I think Robin Hanson is spot-on with some philosophical issues about why we desire and consume health care, and also on some other general issues. But if you put him in the ring with anyone Austin suggested, my money would be on a tapout in the first round.
Lauren Landsburg (Econlib Editor)
May 4 2011 at 12:34pm
Hi, Austin.
You asked:
Have you ever commented on EconTalk or asked on EconTalk about inviting Nyman? I don’t actually see any comments by you on EconTalk.
A good start would be to post a comment with your suggestion on EconTalk. I’m sure your personal blog is very influential, but perhaps no one from EconTalk ever saw your open letter or suggestion. Or perhaps not enough people saw it.
You are right that health economics has not been a big topic on EconTalk of late. There have certainly been some recent past podcasts on health, though. Here is the list from the category Health:
http://www.econtalk.org/archives/health/
You make a good point that health economists are different from economists talking about health. But, curiously, why are they different? Frankly, in today’s world, I’d rather listen to an economist with a broad background talking about x than an economist with a specialty in x talking only about x. But I could be persuaded.
Pete
May 4 2011 at 1:15pm
Arnold,
Nyman’s point is that the moral hazard increase in spending can be split into an income transfer effect and a price effect. He claims that since people are paying for that income transfer in the event that they get sick, the resulting moral hazard increase in spending from the income transfer is welfare increasing not decreasing. That is why he claims that some what is conventionally thought of as welfare decreasing moral hazard should actually be thought of as welfare increasing.
I haven’t read the article you linked to, but he makes the argument more technically here.
His argument (at least in the paper I linked to, and I suspect in the paper you linked to) has nothing to do with the effectiveness or ineffectiveness of medical care, it is simply about how “efficient” the moral hazard increase in health spending is. I think you are confusing medical effectiveness with economic efficiency.
Austin Frakt
May 4 2011 at 4:58pm
Pete nailed it.
Thanks Lauren. I’ve sent email to Russ and to the show’s address. I’ll also try to find other ways to comment.
Health economists specialize in health. Many in sub-areas. If one is going to do a show on the economics of X, it makes sense to include an expert on X. As for health, it is 1/6-th of our economy. Seems like it is worth specializing in and paying attention to those that do so.
Sorry to say, many economists make errors when trying to extrapolate their thinking to health. This is not their fault. The same is true of health economists trying to extrapolate to, say, international trade. It’s just not their specialty, and that matters.
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