Health Policy: Finkelstein-Einav, Cowen, and me
The inevitable two-tier health care system
Matt Yglesias summarized the proposals in a new book on U.S. health policy by Amy Finkelstein and Liran Einav.
A universal basic insurance system, covering both catastrophic and routine care but at a bare bones/no frills level of service.
A global budget, set by Congress, to determine how much money the basic plan has to spend on meeting the public’s basic needs, paired with expert panels to decide which services to cover.
An additive system of private top-up insurance that people could (and they anticipate mostly would) buy into to secure access to shorter wait times and more creature comforts.
I observe also that Obamacare passed, and American life expectancy fell. I do not blame Obamacare for that, but I do notice it. As a result, I have grown increasingly interested in “how can we boost biomedical scientific progress?” and increasingly less interested in “how can we reform health insurance coverage again?” All the more because we seem to be living in a biomedical progress of science golden age.
I agree with Cowen. I would add that I have grown increasingly interested in “how can we reduce behaviors and environmental conditions that make people unhealthy?”
The most important health policy problem is not Stiglitzian market failure in insurance.1
The most important policy problem is that people want unlimited access to medical services without having to pay for them. When the political system tries to accomplish this, the result is excessive spending on medical care.
Most medical procedures have some benefits. If nothing else, they provide hope, or reassurance.
But when you look at aggregate spending and compare it to outcomes, it is clear that Americans make extravagant use of procedures with high costs and low benefits.
There are two ways to curb spending on procedures with high costs and low benefits.
One approach is centralized restrictions on access to medical services, which in Finkelstein-Einav is implicit in “expert panels to decide which services to cover.”
The other approach is to have decentralized decisions to forego medical services, because people pay out of pocket rather than using insurance. In my book, Crisis of Abundance, I sketched out how to do this while providing catastrophic coverage for people who are very poor or for people who become very sick.
Either way, we end up with a two-tier health care system. For Finkelstein-Einav, this is implicit in “private top-up insurance that people could (and they anticipate mostly would) buy into to secure access to shorter wait times and more creature comforts.”
This makes it sound like if you’re rich your insurance plan will give you a hospital room with nicer decor and better food. In fact, what it will cover are those procedures with high costs and low benefits that the
death panels panels of experts decide not to cover.
With my approach, the decision to forego procedures with high costs and low benefits will be a matter for individual choice, not for expert panels. Yes, rich people will be able to afford more procedures. The rest of us will have to think about costs and benefits. Some people in the middle class will choose to get routine colonoscopies after age 60, and some will not. Some will choose to get an MRI when they experience back pain, and some will not.
But I would reiterate that health insurance coverage is a minor issue in health care. All sorts of studies show that people with “better” coverage do not on average enjoy better health outcomes. The key to better health in this country is to come up with a way to reduce the incidence of obesity and substance abuse.
This essay is part of a series on human interdependence.
substacks referenced above:
Joseph Stiglitz asked what would happen to an insurance pool if you had really sick people and really healthy people, and you let each choose whether to buy insurance. The sick people know who they are and the healthy people know who they are, but the insurance company does not know (in this story). At an average premium, only the sick people will buy insurance. So the insurance company will realize that the premium has to be high enough to cover the cost of insuring only sick people. Which makes insurance a bad deal even for sick people. So the market results in no insurance for anyone.