Thursday, January 25, 2007

More On Health Insurance

Bush's SOTU speech used the term "gold-plated" health insurance policies to denote policies which cost more than the deductible he advocated. These "gold-plated" policies would be taxed under his scheme, presumably to give the insured incentives to shop around and to buy a cheaper policy. But cheaper policies usually cover less and come with a higher deductible (the amount you have to pay out-of-pocket each year before the insurance kicks in). This means that cheaper policies make consumers less insured.

Now, conservatives see this mostly as a good thing. The idea is that if it is your very own money you are spending on that appendectomy you will be more careful to shop around. If you have too much health insurance you might just ask the health care system to do their utmost for you, because someone else is paying the bill in the immediate sense. In the longer-term sense, of course, the higher bill you are causing will make insurance in general more expensive and ultimately drive the policy premia up for everybody. Especially as the "you" in this would be every rationally thinking "you".

This isn't completely wrongheaded. It's pretty obvious that people with medical insurance are likely to use more health care services than people without medical insurance, and some form of cost control will be necessary in, say, a universal health insurance scheme. It could take the form of physician gatekeeping as in the United Kingdom or some form of cost regulation as in both the United Kingdom and Canada. It could take the form of defining which services are to be covered by a universal insurance scheme and which are not. Or it could take the form of letting those who can afford it get better care. Or a combination of all these rationing mechanisms (as they are called in economics) could be employed simultaneously.

But the pro-market view assumes that the consumers themselves can be given the task of cost-control. This doesn't really work, because the information necessary for these choices is not something most of us have at our fingertips, and at our fingertips we need it when illness strikes. And even if it did work (in the sense of keeping costs low) the health consequences would probably be bad.