A Cure for Our Health Care Ills
By David Henderson
Some progressives claim that they have an easy solution, one that proceeds from their belief that more government it is often the answer: Medicaid or Medicare for all. What is the easy solution of classical liberals? There are two sets of reforms: one on the demand side and one on the supply side. On the demand side are a surprisingly simple combination of out-of-pocket payments, a new type of event-based health insurance, traditional care-based health insurance for some, and, perhaps, judicious subsidies. A later article will deal with reforms on the supply side.
This is from Charles L. Hooper and David R. Henderson, “A Cure for Our Health Care Ills,” Econlib Featured Article, June 4, 2018.
One of my favorite lines is the last line in this paragraph, written by co-author Charley:
A fascinating 2008 experiment in Oregon punctured this double-barreled myth. Oregon’s government conducted a lottery to enroll a limited number of low-income adults in Medicaid. The results? According to an article in the New England Journal of Medicine, those in the Medicaid group spent about 35 percent per person more than those in the control group. But, although the increased spending did lead to some improvement in mental health, it “generated no significant improvements in measured physical health outcomes.” If Medicaid were a new drug, the Food and Drug Administration would reject it.
Also, although we will deal with supply-side reforms in a future article, we note the likely effect on the supply side of our proposed demand-side reforms:
Although, as noted at the outset, we have purposely avoided discussing supply-side reforms of health care, we should note that the demand side reforms we offer would have a salutary effect on the supply side. Because the reforms would cause consumers to be much more cost-conscious, their awareness of costs would drive positive changes in supply. One of the best illustrations of this is the evolution in eye surgery over the last few decades–a corner of the health care market that is largely free of government and commercial third-party interference. The original surgical procedure, called radial keratotomy (RK), relied on the skill of the surgeon to make large cuts in the cornea, required a six-week recovery, and originally cost about $8,000 ($18,600 in 2018 dollars). Today, LASIK has largely replaced RK for those who are eligible. According to George Mason University economist Alex Tabarrok, in 1998 the average price of LASIK laser eye surgery was approximately $4,400. Just six years later, the price had fallen to $2,700, a 38-percent reduction. Adjusted for inflation, the price had fallen by over half, a result we are used to seeing in computers but rarely in medical procedures.
Read the whole thing.