David Henderson takes on the latest CEA report on health care. His basic problem is that it's inconsistent with itself. For example:
On adverse selection, for example, he [CEA senior economist Mark G. Duggan, who authored the report] laid out how asymmetric information leads to adverse selection, writing:
Insurers cannot perfectly determine whether a potential purchaser is a large or small health risk. (p. 186.)
But then later, in discussing the House and Senate bills, he writes:
These regulations would correct insurance market failures by preventing health insurers from responding to adverse selection by raising rates and denying coverages . . . . (p. 202)
Huh? Just 16 pages after laying out that the adverse selection problem occurs because insurers can't adjust rates to risk, he says that these regulations, which he seems to think are good, will prevent insurers from adjusting rates to risk.
And then:
On moral hazard, Duggan writes:
A second problem with health insurance is moral hazard: the tendency for some people to use more health care because they are insulated from its price. When individuals purchase insurance, they no longer pay the full cost of their medical care. As a result, insurance may induce some people to consume health care on which they place much less value than the actual cost of this care or discourage patients and their doctors from choosing the most efficient treatment. (p. 187)
But in a section titled, "Declining Coverage among Non-Elderly Adults," Duggan writes:
The generosity of private health insurance coverage has also been declining in recent years. For example, from 2006 to 2009, the fraction of covered workers enrolled in an employer-sponsored plan with a deductible of $1,000 or greater for single coverage more than doubled, from 10 to 22 percent....
If the goal is to have people pay more attention to cost when buying health care, this is good news, right? Yet Duggan seems to lament it.
The more I read, the more convinced I am that there's nothing wrong with an open market for health insurance. Fancy sounding phrases like "adverse selection" and "moral hazard" seem to be caused as much by government regulation as helped by it. And while progressives use these phrases a lot in describing why they need to nationalize health insurance, their proposed solutions only seem to exacerbate these problems. And in fact, their preferred model – universal first-dollar coverage with no ability to charge sick people more – is the absolute extreme breakdown of these two conditions.
If nothing else, it's disingenuous to claim to be fixing problems like these when in the end you regard them as features rather than bugs.
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