POLICY: Me. A loony libertarian?

Not exactly but I am up at Cato Unbound with a piece replying to Arnold Kling’s fascinating essay "Insulation v Insurance." Read his first, then read mine. It’s called Abundance Is Insulated from a Crisis–For Now.

In his insightful book and in this interesting essay, Arnold Kling
has made several leaps forward from the pack of “America-first free
marketeers." If you want to see them in action, take a look at the comments page
of any blogger who dares to suggest that spending nearly double what
its economic competitors are spending on health care—primarily because
it is paying its providers more for more or less the same volume of
services—may mean that the U.S. is not getting too good a deal.

apparent to any serious student of health care that the impact of
medical care on overall raw measures of health is not sufficiently
important that differences in spending here or there makes too much
difference to health. The somewhat pedantic arguments over life
expectancy and infant mortality, and the slightly more real ones over
the appropriate treatment of predominantly elderly people with serious
diseases, are all massively less important than the political and
medical culture in which the health care system exists. So there is
broad agreement, I believe, among most rational observers that the
activities Kling describes as "premium medicine" are far more in the
interests of providers and suppliers (including those middlemen who
mark up the price without taking on much risk) then they are in the
interest of patients&mdash, and certainly of society as a whole. Continue.

BTW before the brickbats start flying; “loony libertarian” is a term of affection. Actually most of the Cato guys are very sensible libertarians whom I agree with on almost all social & civil liberties issues.

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4 replies »

  1. I second Alex’s comment. Matthew has hit a grand slam.
    I am glad that the word “correct” can still be used with respect to values at least in some places. I hope that the definition of “correct” has something to do with “truth” understood in the Aristotelian sense.
    > If you want a real “insurance” market you’re going to
    > have to let them suffer. If you want a social
    > insurance model, you’re going to have to subsidize
    > them.
    Quite so. One distinction I think may be made has to do with who or what is being subsidized. Right now we subsidize great waste and inefficiency in provider organizations, and indeed in the medical profession itself. Somehow we must find a way to subsidize the poor without greatly subsidizing at the same time technical or organizational inefficiency, or incompetence. I think Enthoven has a better idea than Fuchs in this respect. Kling’s solution depends on information a great deal more perfect and on rationality much less bounded than is found in the human condition.
    > the decision for conservatives seems to be whether
    > they want to retain any free marker for health care
    > or take Medicare for all when it their other options
    > fall apart.
    The term “conservative” is by itself pretty meaningless – everything depends on whose values are being conserved. It is the “for all” part that some “conservatives” have trouble with, but I note these conservatives are liberals. They consider themselves free of any bond of solidarity with their fellows save those voluntarily entered. Some “conservatives” consider themselves free at any moment to repudiate even voluntary bonds when they find they have been insufficiently selfish. The “conservative liberals” will object to being made to participate in Medicare the same way they object to being made to fund public parks, using approximately the same arguments.

  2. That’s the best essay you’ve ever written.
    I think the answer to you’re free-meketeer question is pretty straight forward. If you want a real “insurance” market you’re going to have to let them suffer. If you want a social insurance model, you’re going to have to subsidize them. Given that we have decided, correctly, that we don’t want people to suffer, the decision for conservatives seems to be whether they want to retain any free marker for health care or take Medicare for all when it their other options fall apart.

  3. A couple points of interest from Kling’s piece:
    “The MRI exam that I had when I hurt my back moving furniture was pointless—the treatment would have been rest and anti-inflammatories, whatever the exam showed. My doctor’s referring me to a nephrologist for microscopic hematuria (blood in a urine specimen not visible to the naked eye) was equally pointless—like many people, I have this symptom sometimes, and then it mysteriously goes away.”

    In most cases it is pointless. Rarely, however, that MRI or hematuria workup will find something serious. When the doctor waits for it to “mysteriously go away” in rare cases, it won’t. If physicians are worried about being sued for missing or delaying serious diagnoses (and if our medico-legal system rewards patients/lawyers hansdsomely in such situations), they feel compelled to chase these often benign symptoms. That’s the whole crux of defensive medicine, and it has substantial costs.

    “Harvard University health care economist David Cutler, in a conversation with economists at Cato, made such a point. He said that consumers do not really differentiate between necessary and unnecessary health care. As a result, he predicts that if consumers have to pay for more health care out of pocket, they will cut back proportionately on both cost-effective and cost-ineffective health care. Wasteful spending will decline, but so will useful spending. Ultimately, consumers’ health will suffer.”

    I agree it will be the rare patient with the wisdom and information to decide which care is “worth it.” Doctors often don’t really know what care is worth it, so to expect patients to figure it out is bordering on the absurd. The more interesting question is whether it would matter. If we’re at the point where a significant amount of the care delivered is overkill, having people cut back on physician services across the board might not make much difference in aggregate care measures. (and would save a lot of money). Comparing canada/europe to the U.S. in health care outcomes certainly hints that we may be at the point of diminshing returns with much of our spending.

  4. I agree with the thrust of Arnold Kling’s argument about insulation vs insurance. To help consumers better understand this, I think it would be helpful if the cost of an insurance policy were unbundled into a catastrophic coverage piece (say, 100% coverage after the first $5K of expenses) and the “insulation” piece (the first $5K of charges – with or without modest co-pays). Perhaps even Medicare could be repackaged into one comprehensive policy as opposed to the current Parts A, B, and D. Beneficiary premiums could be reset to cover, perhaps, 50% of the cost of the insulation piece and 10% of the catastrophic coverage piece or some similar combination that would raise the same amount from beneficiaries as they currently pay.
    The most significant challenge would be to develop a means tested formula to help the poorest people afford coverage. A sliding scale subsidy up to 3X the FPL might be the way to go. If we went to a taxpayer funded approach (with vouchers) that covered the non-Medicare eligible population, catastrophic insurance coverage should be mandatory while people above 3X the FPL could be given the opportunity to opt out of buying the insulation piece and pay for those costs out of pocket instead if they can pass a financial asset, income or credit score test. The unused voucher value could be used as a credit against income tax liability and carried forward if it exceeded the taxpayer’s income tax due.
    While adequate pricing transparency is challenging to achieve in healthcare for a variety of reasons, including the difficulty in assessing quality and doctor performance, it should be a breeze to achieve for the cost of health insurance. If we are interested in efficient resource allocation, I think unbundling the cost of insurance into an insulation piece and a catastrophic coverage piece would be a useful strategy.