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Do We Now Get the Healthcare We Want?

April 17, 2009

Ignoring problems of aggregation, probably so.

Mickey Kaus writes somewhat confusingly this morning that:

I’m for universal health care in large part precisely because I think the government will be less tough-minded and cost-conscious when it comes to the inevitable rationing of care than for-profit insurance companies will be. Take Arnold Kling’s example of a young patient with cancer, where "the best hope is a treatment that costs $100,000 and offers a chance of success of 1 in 200." No "rational bureaucracy" would spend $20 million to save a life, Kling argues. I doubt any private insurance company is going to write a policy that spends $20 million to save a life.  But I think the government–faced with demands from patient groups and disease lobbies and treatment providers and Oprah and run, ultimately, by politicians as terrified of being held responsible for denying treatment as they are quick to pander to the public’s sentimental bias toward life–is less likely to be "rational" than the private sector.

That is to say, the government’s more likely to pay for the treatment (assuming a doctor recommends it). So it’s government for me. 

Huh? Kling’s point is that because the government is subject to interest group pressures (from the sick) it is likely to spend more on healthcare than individuals would choose to spend if they they actually paid the cost of the care out of their own pockets or through insurance policies that they purchased. Why would we want to spend more than this?

Absent a postulate of market failure in the insurance market, the reason insurance would not cover this procedure is that ex ante, is that the purchasers of the insurance policy would rather spend their money on other things than buy insurance to cover this type of treatment (i.e. one that costs $20 million per life saved). If consumers did value having a right to such a treatment, a well functioning insurance market should be able to provide insurance that covers it for a competitive price. If consumers didn’t really value this right, insurers would not provide it and their not providing it would be evidence of how little consumers valued the right (a revealed preference!).

I agree that controlling the cost of healthcare is not inherently desirable. For largely the reasons explained by Megan McArdle and Mickey Kaus: we’re rich, why shouldn’t we spend more on healthcare? But we don’t place an infinite value of healthcare. At some point the marginal value is less than the marginal cost. We should stop buying it at that point and have a system that let’s us do that. Private insurance is such a system as long as we have a well functioning market.

It is likely that we don’t have a perfect market for health insurance and I am open to arguments that there might be superior systems (including tweaks to the current one), but I have seen no proposed changes involving universal coverage (or even a significantly greater government role) that I think would actually be an improvement on the current system that would make people better off in any concrete way.

Universal coverage could make everyone more equal, but at the cost of making them worse off (at least in terms of satisfaction of concrete revealed preferences). I think that is a tradeoff Mickey would be willing to make, but I remain skeptical.


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