Missed Opportunities

I haven’t seen any of the details, but it looks like the Republican health care plan suffers from many of the same defects as Obamacare, and is in some ways worse.

Mainly: As far as I am currently aware, the plan pretty much leaves in place the main ongoing problem with health care, which is that most people are grossly overinsured, so that health care choices are too frequently made by insurance companies instead of by (cost-aware) consumers and providers. The solution, in broad terms, is to replace insurance with individual health savings accounts (which, if you’re worried about this sort of thing, can be just as heavily subsidized as insurance is). Plenty of Republicans know this, and have been saying it for a long time. But — at least according to what’s in the early news reports — they seem to have come up with a bill that ignores it.

In fact, the Republican bill makes things worse in at least one way, by lifting the Cadillac tax on employer-provided health care plans, thereby encouraging even more overinsurance.

Presumably this was the compromise among feuding factions that the Republican caucus was able to hammer out. Presumably, too, a little leadership from the one person with veto power could have yielded a much better outcome. Too bad the one person with veto power is a self-obsessed loonybird. I do believe a President Bush or a President Cruz — or even, perhaps, a President Clinton — would have insisted on something far far better.

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51 Responses to “Missed Opportunities”


  1. 1 1 Jonathan Kariv

    The solution, in broad terms, is to replace insurance with individual health savings accounts (which, if you’re worried about this sort of thing, can be just as heavily subsidized as insurance is).

    A clarifying question. How do health savings accounts differ from just plain savings accounts? The whole point of insurance as I understand it is to pay a fixed sum instead of a (smaller in expectation, but possibly enormous) variable sum. How do the “health savings accounts” work exactly?

    Mainly: As far as I am currently aware, the plan pretty much leaves in place the main ongoing problem with health care, which is that most people are grossly overinsured, so that health care choices are too frequently made by insurance companies instead of by (cost-aware) consumers and providers.

    Another question here. I had a vague impression that a big part of the high costs of US health care was the high rate of litigation and doctors paying for legal insurance and passing it on. How much of a role does this actually play?

  2. 2 2 Bennett Haselton

    If you try to replace insurance with individual health savings accounts, what happens if someone suddenly needs a procedure that costs more than what’s in their account?

    (Or do you mean HSAs for the small-to-medium-sized stuff, plus *some* health insurance plans for catastrophes, on the assumption that health insurance will be much simpler if it’s only used for catastrophic expenses?)

  3. 3 3 Harold

    As I understand it (which admittedly is very badly) the Trump plan will require cover for pre-existing conditions. Surely this will inevitably lead to ill people seeking cover and well people avoiding paying premiums. Obamacare got round this by requiring everyone to have a policy. How is Trumpcare going to get around this problem? He seems to have introduced a penalty for allowing a policy to lapse rather than a penalty for not having a policy in the first place. Is this essentially the same thing, or is it doomed to failure?

  4. 4 4 Steve Landsburg

    Harold (#3): I don’t yet know enough about the plan to answer your questions, but they’re good questions.

  5. 5 5 Steve Landsburg

    Bennett Haselton (#2): Yes, you’d need some insurance for catastrophes, and you might also want some “insurance” (though it pains me to call it that) for preventive care.

  6. 6 6 Steve Landsburg

    Jonathan Kariv (#1): The difference between an HSA and a savings account is that the HSA can only be used for medical expenses. The point is to force people to have some savings that they can spend on health care, so they don’t turn up at emergency rooms demanding that someone else pay for their procedures. (Of course if the HSA is funded with other people’s money, then someone else is still paying for their procedures — but the key difference is that the consumer feels the expense at the margin and therefore has an incentive to economize.)

    As for your last paragraph, I believe (maybe an expert can enlighten us further on this) that the main cause of inappropriately high health care costs is overuse of the health care system by customers who are so heavily insured that they have no incentive to stop and ask themselves “Is this procedure really worth having?”.

  7. 7 7 Advo

    The health savings accounts are a terrible idea.
    They work only in the frictionless universe of libertarianism where there is no such thing as information cost.

    Sure, forcing people to make their own healthcare decisions will lower healthcare expenditures. But the decisions are largely quite random, no better than a coin flip.

    To give you an example I read about recently:
    An older patient was taking a medication which *could* damage the liver. He was supposed to have a blood test done for liver enzymes every three months. He chose to save that money (probably $30 or something). Now he has liver cirrhosis and requires a transplant.

    Forcing patients to make such healthcare decisions is not going to produce efficient results because they lack the required information.

    @Professor Landesburg:

    I have been frequenting this blog for several years, and I read one of your books.
    In all that time, I have never once seen you acknowledge the existence of information problems, despite the central role these play in the economy, and in particular in the healthcare market.

    I suppose that is because as soon as you start taking information problems/information costs into account, the logical policy solutions that present themselves will look a lot less like Milton Friedman and a lot more like something the European Commission might come up with.
    That fact, however, is no justification for disregarding them.

  8. 8 8 Steve Landsburg

    Advo (#7): I think you’ll find that information problems permeate the text of The Armchair Economist, and that Chapter 3 is the first of several chapters that are entirely about information problems. I think you’ll also find that information problems permeate the text of More Sex is Safer Sex, and that the first of several chapters that are entirely about information problems is Chapter 1.

    As to your substantive claim that asymmetric information is a sufficient reason to abandon the principle of consumer choice, the same applies, of course to food choices and housing choices, where people make bad mistakes all the time. Do you think things would work better if a large bureaucracy planned your menus and chose your living quarters?

  9. 9 9 Zazooba

    One of the weirdest part of US health insurance is that no one knows what the price of any medical procedure is. (This is only a slight exaggeration). Providers make up ridiculous prices, each insurer pays what they claim to be liable for under their particular contracts, back offices fight it out, the patient pays little attention to the bewildering bills, and the patient has almost no idea what a procedure cost before they are ordered. (This is less true for small-ticket items, but this is true big time for hospital stays and surgery.)

    So how is a free market to function in such an environment? It seems like the HSA idea would bring some competition to small ticket items, but big ticket items would still suffer this problem.

    It is easy to see why people like John Derbyshire think a broad majority are ready to just say screw it and give into single payer or Medicare-for-all. I wish it weren’t so, but I don’t see how we can avoid it.

    Factor into this that we are not prepared to deny allegedly high-quality medical care to the poorest among us, and I also don’t see how you don’t have a huge and increasing percentage of the population on some form of government healthcare.

    Perhaps if we started from scratch, a free market system might work, but I don’t see how we get there from here. Again, I wish it weren’t so.

    Something we should talk about more: there are a lot of different healthcare systems in the world, some of them quite free market, iirc (Switzerland iirc.) Seems like instead of theorizing in the ether, we should be looking at actual systems that actually exist and so have shown themselves to actually be actually feasible.

    FWIW, dental care seems to function reasonably well. Dentists tell patients up front what things will cost and that is what patients pay. This seems to work only because dental costs, even at their worst, are still pretty reasonable – they won’t destroy your life unless you are seriously poor. But, of course, non-catastrophic costs are exactly where you don’t need insurance, so the dental market is not a good guide to health insurance.

  10. 10 10 Advo

    @Steve,

    I think you’ll find that information problems permeate the text of The Armchair Economist, and that Chapter 3 is the first of several chapters that are entirely about information problems. I

    Damn. Now I shall have to buy those.

    As to your substantive claim that asymmetric information is a sufficient reason to abandon the principle of consumer choice

    That is obviously not the claim I was making.
    However, I’d argue that the food/restaurant market as a whole would not work very well if the government wasn’t doing a lot of things which eliminate or ameliorate information problems (i.e. health inspection of restaurants, prohibition of transfats).
    Insofar as people make bad food choices, they generally do so DESPITE having the required information, or at least despite having easy access to the required information.
    What kind of examples did you have in mind? Also, what examples did you have in mind with regard to housing?

    The problem with healthcare is that for many/most healthcare expenditures, it is simply not feasible for the customer to cost-efficiently acquire the necessary information to make an informed decision.
    Do you argue that this is to a large degree the case in the restaurant/housing markets? I can’t really see how.

    The information problems that present themselves in the healthcare market are much larger than in pretty much any other sector of the economy.

    In practice, the healthcare market isn’t really a market at all.
    The suppliers of healthcare, aka the doctors, also actually determine the demand for healthcare. But if supply and demand are not independent of each other, price determination via free markets simply breaks down – there is no equilibrium price level that would bring supply and demand in line with each other and clear the market.

    And you cannot solve this situation by forcing the patient to make the decisions, because he generally cannot cost-efficiently acquire the necessary information.

    That is why every country in the developed world is treating healthcare very differently from the more-or-less free-market approach they apply in the other sectors of their economies.

  11. 11 11 Advo
  12. 12 12 Harold

    Zazooba “Perhaps if we started from scratch, a free market system might work, but I don’t see how we get there from here.”
    Unusually I find myself agreeing with you.

    Advo – a very suitable topic for The Armchair Economist! Just to complicate it a bit more, why is that the case in the USA but not the UK?
    https://www.amazon.co.uk/s/ref=nb_sb_ss_i_1_22?url=search-alias%3Dstripbooks&field-keywords=the+armchair+economist&sprefix=the+armchair+economist%2Cstripbooks%2C195&crid=26VOLJN6YAPI8

  13. 13 13 Zazooba

    Below is a very interesting link. It has simple descriptions of 10 health insurance systems around the world. Particularly interesting are Switzerland, Germany, and France. I highly recommend it.

    http://people.howstuffworks.com/10-health-care-systems1.htm

    The debate here in the US is pretty brain-dead. The left only talks about single-payer and the government taking over more of the system. The right only talks about micro policies like HSAs and selling insurance across state lines. So, for a long time, I didn’t even know there is a range of systems in other countries. I thought everywhere else was Canada/UK.

  14. 14 14 Harold

    France seems to come out very well in international comparisons.

  15. 15 15 Jonathan Kariv

    @Steve #6. Fair enough, that’s a difference. The reply questions I had in mind was “What about disasters?” which Bennett already asked and you answered.

  16. 16 16 Windypundit

    “I believe…that the main cause of inappropriately high health care costs is overuse of the health care system by customers who are so heavily insured that they have no incentive to stop and ask themselves ‘Is this procedure really worth having?’.”

    As I understand it, a lot of the high costs are in the details — choices of materials, medications, equipment, accommodations — so it’s not just whether they ask if a procedure is really worth having, but whether they ask if it’s really worth having a more expensive drug, or whether it’s really worth having a high-cost surgical drape vs a cheaper one that still does the job, and so on…choices which customers are usually not offered. In many cases, these costly details are baked into the capital allocations — private hospital rooms, all the latest equipment, etc. — so that hospitals and providers couldn’t offer a choice without incurring heavy costs to replace capital, which means that market reforms would either be slow or very disruptive.

    I’ve heard some healthcare economists suggest that the best way out is through: It would be easier to add market reforms to single payer than to try to fix what we have. I have no idea.

  17. 17 17 Jimbino

    Why not force posting of all prices on the web? I don’t see how we’ll ever have anything resembling a free market as long as prices are hidden. I can find prices for products at Harbor Freight, Lowe’s, Menards and for drugs and procedures in Brazil, and for hotels, flights, buses and trains the world over!

    Why don’t Dems, Repubs and Libertarians talk of price signaling in health care?

  18. 18 18 nobody.really

    Why not force posting of all prices on the web? I don’t see how we’ll ever have anything resembling a free market as long as prices are hidden. I can find prices for products at Harbor Freight, Lowe’s, Menards and for drugs and procedures in Brazil, and for hotels, flights, buses and trains the world over!

    Why don’t Dems, Repubs and Libertarians talk of price signaling in health care?

    Econ 101 rarely mentions the difficulty and expense of securing price information—but it’s a real factor, and not just in health care. It arises with sui generous goods/services. People can issue requests for proposals (RFPs), but the more burdensome the work of submitting a proposal, the fewer proposals you’re likely to get, and the higher the mark-up you’ll pay bidders for the work and risk they bear in preparing a burdensome proposal without guarantee of remuneration.

    In short, is health care more like buying a Snicker’s bar, or more like hiring an architect or litigator? Perhaps some aspects are more Snicker’s bar-like, and some more architect-y. In the latter case, setting a fixed price may be prohibitively difficult. How many contingencies would it have to list to cover the care provider’s risks?

    Or perhaps the price list would be simple: “All procedures $1 billion (with partial refunds if the worst-case scenario doesn’t materialize.)”

  19. 19 19 iceman

    Advo 7 – Basing policy on anecdotes is a terrible idea. My understanding is that preventive treatment, screening etc. is not in fact cost effective for most things. (Of course when something bad happens it would’ve been.) That doesn’t make it a bad idea.

    HSAs are meant to be paired with a catastrophic policy, and are at least an attempt at cost control, consistent with a recognition that at some point you’re either a free society or you’re not. [The ACA was virtually designed to increase costs (cheaper access for some by requiring others to buy more than they ‘need’).]
    The HSA “deductible” involves expenses over which people should be largely capable of exercising some discretionary judgment. Unless of course we treat them like they’re not.

    I’m also all for finding ways for the govt to help disseminate information.

  20. 20 20 mlanier

    How did you come to this conclusion

    “main ongoing problem with health care, which is that most people are grossly overinsured”

    It was my understanding that the issue is the adverse selection issue in the risk pool combined with an aging population that lives longer and is more obese? Have I missed some key point?

  21. 21 21 Harold

    In the UK our death panel is called NICE. the national institute for healthcare and clinical excellence.

    They do a pretty good job to my mind by analyzing the evidence for the efficacy of drugs and treatments. If it costs more than some figure, £30,000 or so, to give one qualy (quality life year) then it doesn’t get funded on the NHS. It is more complicated, but that is the essence.

    Except cancer drugs are expensive and high profile. So the Govt set up a separate fund for buying expensive drugs that will prolong life few months at huge expense. The fund of course is over-subscribed.

    There is probably an option to take out insurance for expensive cancer drugs. If one is particularly worried about not getting treatment should one find oneself in that situation, that could be solution.

  22. 22 22 Advo

    My understanding is that preventive treatment, screening etc. is not in fact cost effective for most things

    That wouldn’t surprise me; it is an issue I haven’t looked into, though, but that has always been at the back of my mind. I will try to find out more on that topic.
    But the patient is in any event not able to make a cost effective decision about which treatment/screening is cost effective.

    HSAs are meant to be paired with a catastrophic policy, and are at least an attempt at cost control, consistent with a recognition that at some point you’re either a free society or you’re not.

    Having looked into the issue at great length over many years, I have come to the conclusion that you can have health insurance or freedom, but not both. In general, the more consumer freedom you have in the healthcare market, the more cost-inefficient and cruel it is.

    The outcome of HSAs would in the main not be educated consumers making cost-efficient decisions, but instead people failing to go to the doctor until they start puking blood, at which point the catastrophic insurance would have to pay.

  23. 23 23 Jonathan Kariv

    @Advo 22: Given a fixed supply of medical resources (doctors, nurses, beds, machines, drugs etc) I’d expect that once you have people “not going to the doctor until catastrophy fund has to pay out” would make doctor’s offices quiet enough to lower the cost of going. How do you expect this dynamic would play out?

  24. 24 24 Advo

    @23
    There is no such thing as a fixed supply.
    The number of doctors will shrink and the next generation will take up less useful professions such as lawyer or economist.

  25. 25 25 Daniel

    New idea, let me know what you think:

    I was thinking about a market for universal coverage in which insurance companies would be paid the average amount of US health spending to cover everyone to begin with and would be randomly assigned based on the percent of the current insurance market that each insurance company currently has. And then insurance companies could buy or sell individual insurance policies on the open market.

    The higher your age specific death rates in comparison to the average each year, the less new babies you get assigned. You could use a Euclidean distance formula to punish bigger deviations from the mean more heavily. Since children and young adults have much lower average costs, the incentive to get assigned new ones is very high.

    The advantage to selling insurance policies between insurance companies would be that insurance companies that are not good at dealing with particular diseases could sell the policy for less then average US health care spending to an insurer that specializes in helping that disease. Market could be continuous (insured could pay other companies to take their insurance policy). Insurers would be required to pay all major categories of health expenses (cancer, diabetes, heart disease, liver disease, etc.) but could decide on other things like preventative services at their discretion.

    What do you think?

  26. 26 26 Harold

    Daniel,
    “I was thinking about a market for universal coverage…”
    my first question is how do you make this universal? Do you compel the healthy young to have policies?

  27. 27 27 Daniel

    Harold,

    Everyone is covered. Government pays insurance companies directly, no choice. You don’t choose your insurance company, your insurance company chooses you.

  28. 28 28 Daniel

    By, insurance company chooses you, I mean on the market, after initial random assignment. After a few rounds the insurance companies that have the lowest average age-adjusted mortality rates should be the one’s with the biggest market share, because of baby assignment.

  29. 29 29 Jonathan Kariv

    @Advo 24
    Of course the supply isn’t fixed. Given a drop in demand I’d expect a shrink in supply (over time, the next generation becoming lawyers and economists instead takes a few years), I’d also expect a drop in price and some people being willing to go to the doctor’s office at the cheaper price, and this readjusting the price.

    I suppose this means an equilibrium with less medical resources existing and fewer people using them in the “new equilibrium” (at I don’t know what price). I guess this means fewer people being treated, Steve seems to be saying that these would be (to a large extent) people who don’t actually need the care, and you’re saying it would essentially be randomly selected people due to information cost. Is this roughly how you see the “supply shrinks” vs ” price shifts” dynamic here?

  30. 30 30 nobody.really

    Of course the supply isn’t fixed. Given a drop in demand I’d expect a shrink in supply [of healthcare workers] (over time, the next generation becoming lawyers and economists instead takes a few years)….

    What if the current supply of physicians was artificially constrained (say, by an artificial limit on the number and size of med schools) in order to keep prices high through the extraction of economic rents? In that case, a fall in demand could lead to a fall in price, but without any shrink in supply, because health care would still remain the most appealing opportunity for those in, and going into, the profession.

    Note that one way we’ve managed our limited supply of physicians has been to reduce the time a doctor spends with a patient, and to shift ever more of a doctor’s duties to paraprofessionals—physicians’ assistants, registered nurses, etc. If demand really fell, we might expect to find more physicians spending more time with each patient on average, and taking back more duties. In short, the demand for a physician’s time may be more elastic then we think.

  31. 31 31 Jonathan Kariv

    @Nobody 30, I was searching for the word “elastic” when writing that post. I was indeed making an assumption on the current equilibrium being non-artificial and I guess I don’t have any reason for supposing that so.

  32. 32 32 Bob Murphy

    I think Steve (and other free market economists) are way off base on the tax code stuff. Sarcastic post here, which links to my more sober critique.

  33. 33 33 Will

    I work in health insurance, and I’ve enrolled in an ACA individual plan, and have helped several people I know who work as contractors enroll in ACA plans. Many (in some states most) ACA compliant bronze and silver plans have very high deductibles and can be partnered with a healthcare savings account. Healthcare savings accounts + high deductible plans are also the direction the employer based market has been moving over the last several years.
    Look at the complaints consumers actually have about the ACA- the deductibles are too high, the coverage too narrow.

    If you think the long term solution is HSAs, then you probably like the ACA more than you think you do.

  34. 34 34 Teddi

    Steve,

    You ask where the bulk of the costs are coming from. Back in 2010, I read a study showing the bulk of the costs come from outpatient care. For those who don’t know, it’s visits to the doctor who don’t need an overnight stay.

    Essentially, the bulk of the costs (the study said about a third of the costs) are due to insurance companies paying for routine check-ups. Of course, the study says it is not their job to justify whether those costs are reasonable or not – that is a moral question. Their job is to just state how the costs are divided.

    To put it another way, it’s as if your car insurance policy covers oil changes as well as accidents.

    This is why I always find it politically disingenuous to frame the question as little Timmy needs an expensive surgery to live, but can’t get that surgery (or is doomed to debt “enslavement”) because his family doesn’t have the dosh.

    Anyway, this is my personal take on it. It’s interesting to see how you might help rectify the situation though.

  35. 35 35 Rick L.

    Steve, I have a very broad-based, big-picture type of question.

    What is it about health insurance that is so different, so strange, that (if I’m reading you correctly) it requires government intervention to make it work?

    I’ve read a LOT about how people over-insure and don’t know or bear the real costs, etc. And that the G. must fix it in some way.

    How is health insurance so different from auto ins. or home ins.? Why don’t people over-insure their cars?

    Health insurance is so different, that even YOU see a repeal of a tax (Cadillac plans) as a bad thing. The G. must step in and keep people from buying a thing that they would otherwise purchase. Why is this so?

    I’m asking all of these questions in sincerity; it’s never been explained to me why even the most free market thinkers in the world have cures for health insurance other than “Get the G. out, and let the market work.”

    I understand completely why insurance is tied to our jobs (WWII wage and price controls is what I’ve read), but beyond fixing that, the answer always seems to involve some government control.

    What, exactly, has the government done to screw up health insurance? Or is there something about HI that is flawed in its very inception, flawed in ways that other insurances are not?

    Thanks much…

  36. 36 36 Chuan

    “One of the weirdest part of US health insurance is that no one knows what the price of any medical procedure is. ”
    I feel like I have to concur Zazooba on this point. I recently had a surgery to reconstruct ACL in my left knee, which is not exactly a major surgery. And to this day I have no idea how much it costs. Of course I have student’s insurance from school (Columbia). My point is if I, a previous student of economics (hi Pf Landsburg!) and math, couldn’t figure out how much a healthcare procedure costs after a reasonable effort, I cannot fathom how average consumers would behave on the margin.

  37. 37 37 Advo

    Steve seems to be saying that these would be (to a large extent) people who don’t actually need the care, and you’re saying it would essentially be randomly selected people due to information cost. Is this roughly how you see the “supply shrinks” vs ” price shifts” dynamic here?

    Essentially yes.
    The real key to understanding the HSA problem in my view is that an HSA system is a DIY healthcare system.
    Under an HSA system, you as the HS account holder to a large degree assume the function that a medical doctor has under a third-party payor system.

    Unfortunately, you don’t have any medical training to carry out that function efficiently, and acquiring sufficient medical expertise is prohibitively expensive.

    The difference between “buying healthcare” under an HSA system and “buying consumer goods” in other markets can be summed up as follows:

    You don’t have to be a car mechanic to buy a car, but you need medical training if you want to buy the right healthcare services.

  38. 38 38 Steve Landsburg

    Rick L: Pressed for time, but here’s a quick answer to a small part of your post:

    Health insurance is so different, that even YOU see a repeal of a tax (Cadillac plans) as a bad thing.

    Health insurance is heavily subsidized. I like taxes that cancel subsidies. That’s no different in this market than in any other.

  39. 39 39 Steve Landsburg

    Advo (#37):

    You don’t have to be a car mechanic to buy a car, but you need medical training if you want to buy the right healthcare services.

    You are being ridiculous. You also don’t have to be a car mechanic to get your car repaired, even though you might know nothing at all about how cars worked. What you do is you seek out a mechanic you trust, you get him to give you a rundown of the likely outcomes from various choices (“we can do something quick-and-dirty that has a 50/50 chance of working, or for $600 more we can do something that’s almost sure to keep things working for the next few years or so, or we can do this other thing that would reduce the chance of a future breakdown by such-and-such an amount…”), and then you make an informed choice using both the information you get from the mechanic and the information that only you have about how much you care about your car versus, say, being able to go out to eat more often.

    The mechanic has some information that you don’t have. You have some information the mechanic doesn’t have. The problem is to have one person acquire all that information and then make the decision. It works much better when the info flows from the mechanic to you, and then you decide, then it would the other way around. You haven’t given the slightest reason to think that medical care is any different.

  40. 40 40 Advo

    What you do is you seek out a mechanic you trust, you get him to give you a rundown of the likely outcomes from various choices…

    You haven’t given the slightest reason to think that medical care is any different.

    First of all, car repairs are a terrible example because people get ripped off constantly. The car repair market isn’t working very well at all.
    I haven’t been able to find any studies on the English internet, but I’ve seen many investigations by magazines and TV shows in Germany which show that overcharging, unneccessary repairs, misdiagnosis etc. are pretty routine, in particular when the client is a woman.

    Secondly, it doesn’t work like that with medical care.
    Wasn’t it you who said that the point of the HSAs is to “keep people from going to the doctor every time they have a cold”?
    A very big part of the medical decision process is deciding whether you want to go to the doctor in the first place.
    And that is a decision that the patient has to take on his own, unaided by any doctor.
    Once you’re there, you’re already incurring substantial costs.
    Car problems usually don’t go away on their own the way most medical problems do, so the question of whether or not to consult a car mechanic doesn’t present itself.

    Thirdly, asking the doctor to explain diagnostics and treatment options to you is MUCH more expensive than having the car mechanic explain car issues, because the doctor’s time is much more expensive. Doctors like to shuffle their patients from their office in as short a time as possible – if they have to explain lab science to them on every visit, healthcare costs will rise dramatically.
    And even if the doctor explains something to you, does that really help you that much? Not necessarily. There’s usually a great range in particular of diagnostic options, which are medically defensible but not economical. Without a solid understanding of medicine you generally have no way of knowing whether or not the advice of the doctor is cost-effective. You will just know that given the incentives of a fee-for-service system, the advice of the doctor will always skew towards overdiagnosing and overtreating.

    And lastly, the worst thing that can realistically happen with a car repair is that you get overcharged or your car breaks down.
    The potential damage is infinitely higher when you have to decide whether you want to go to the doctor with that strange constrained feeling in your chest.
    There are many parts of the economy that don’t work very well because of information issues; the reason why the issues in those other markets are not considered a major problem is because the stakes and costs aren’t as high as in the healthcare market.

  41. 41 41 Steve Landsburg

    First of all, car repairs are a terrible example because people get ripped off constantly. The car repair market isn’t working very well at all.

    Working very well compared to what? Do you honestly believe that an Obamacare-like reorganization of the car repair market would be an improvement?

  42. 42 42 Steve Landsburg

    There are many parts of the economy that don’t work very well because of information issues; the reason why the issues in those other markets are not considered a major problem is because the stakes and costs aren’t as high as in the healthcare market.

    I’d have said that the reason why those issues in other markets are not considered a major problem is because the price system functions in those markets, and, imperfect as that system might be, it’s clearly the best we can do.

    To suggest that health care is more important and therefore less in need of the only thing that works (i.e. prices) seems to have things exactly backward. I’d have thought that we’d care more about solving information problems in markets that are more important. And you cannot solve information problems without prices.

  43. 43 43 Advo

    @SL:

    There has long been a consensus among conservatives (and among many thinking liberals) that a large part of what’s wrong with American health care is that consumers, being overinsured, have an incentive to demand expensive treatments they’d never ask for if they were bearing the cost. This includes things like visiting the doctor because you think you might have a cold.

    That really cuts to the heart of the matter – a large part of the cost-saving potential of HSAs is that it incentivizes the patient not to seek professional advice in the first place.
    Once you step into the doctors office and the doctor starts running tests, the battle for cost-efficiency is already half over.
    That’s why I’m saying that HSAs = DIY healthcare.

  44. 44 44 Steve Landsburg

    Advo: And finally, I see that you persist in ignoring the information issues. How is my doctor supposed to know whether I’d rather have a lifetime supply of Lipitor or a better equipped kitchen?

  45. 45 45 Advo

    And you cannot solve information problems without prices.

    I don’t know about that.
    You can try to get away from the fee-for-service model completely, there are various approaches for that.
    The idea is that the healthcare provider will then not be incentivized to act cost-inefficiently.

    Here’s an overview:

    https://www.theatlantic.com/health/archive/2012/05/moving-away-from-fee-for-service/256755/

    All of these have their own advantages and drawbacks, of course.

  46. 46 46 Advo

    How is my doctor supposed to know whether I’d rather have a lifetime supply of Lipitor or a better equipped kitchen?

    As I already acknowledged, this kind of decision can only be made on an “average person” basis, so there is necessarily some inefficiency there.
    Unless, of course, in cases where consumer decisions are generally inefficient. Behavioral finance has a lot to say about inefficient decisions relating to uncertain costs and probabilities.

  47. 47 47 Steve Landsburg

    Advo (#46): How is my doctor supposed to know whether I’d rather have a lifetime supply of Lipitor or a better equipped kitchen?

    As I already acknowledged, this kind of decision can only be made on an “average person” basis, so there is necessarily some inefficiency there.

    That’s a big acknowledgement. The same is true of meal planning: If the government chose all my meal plans for me, they’d be handicapped by not knowing what I want to eat. I presume that in that case you’d also acknowledge that there’s going to be some inefficiency there. For most people, the magnitude of that inefficiency is self-evidently pretty big — big enough that nobody thinks the government should be plannning our meals (even though most of us are, incidentally, every bit as ignorant of nutrition as we are of medicine).

    I imagine a commenter who wants the government to do all our meal planning, because nutrition is complicated. I point out that we all have different preferences, and that some of us are happy to pay for a really good steak while others are just as happy with hamburger. The commenter breezily “acknowledges” that, and then goes right on as if it had never been mentioned or acknowledged. I think I would start to be a little frustrated with that commenter.

  48. 48 48 Floccina

    Advo the medical care market might have an advantage over the auto mechanic market (also life and death BTW) in that your GP could act as go between for the consumer and if GP knew their customers where paying they might look for the monetary well being of there customers alone with there health.

  49. 49 49 Thaomas

    Ah, but the political opposition to ACA was not about delivering subsidies for health care more efficiently. It was about NOT taxing high income people to subsidize low income people’s health care.

  50. 50 50 Richard D.

    q

  51. 51 51 Richard D.

    SL: “I haven’t seen any of the details, but it looks like the
    Republican health care plan suffers from many of the same defects
    as Obamacare, and is in some ways worse.”

    There’s something I don’t get.

    If one spills liquid, he’s obliged to acknowledge his blunder,
    and clean it up. If you break a window, you have to repair the
    hole, or replace the window. Either way, one must restore to
    the previous status. The legal principle is “make him whole.”

    Why don’t the Repugs state that ObamaaCare was a blunder, forced
    down our throats by the Dem landslide of 2008? Then simply
    repeal, restoring the status quo previous. Undo the damage.

    Then present it to the emperor… “Here ya go, Your Draintheswamp
    Majesty, the suction pump you need.”

    What’s he going to do – veto? How will millions of Trumpkins
    react, when the latest messiah shows himself the Savior of
    ObamarxistCare?

  1. 1 Free-Market Economists for Massive Tax Hikes
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