The Healthcare Insurance Biz

THE HEALTHCARE INSURANCE BIZ….Tyler Cowen argues against healthcare mandates:

The way most goods and services become excellent — I mean really excellent — is through competition. Yes, right now health insurance has lots of screwy incentives, most of all cost shedding. But if you stifle competition and write off hope of getting a better-functioning private insurance market…well…I believe you have not thought long and hard enough about just how much of the social value on Planet Earth has come, ultimately, from competition in the provision of goods and services.

….If someone needs covering, for whatever reason, give them some stuff. If need be give them some government stuff. Some kind of plan. Give them whatever. But don’t overregulate private insurance companies and take them off the table as a source of future productivity improvements and super cheap coverage, however partial it may be.

Here’s what I don’t get. If you were to argue that we should do away with group insurance entirely and move back to a 19th century model in which people simply pay doctors and hospitals for their services directly, I’d get it. I wouldn’t be in favor of it, but at least I’d understand the argument: namely that this sets up a competitive industry with plenty of price signalling, and competitive industries are, in the long run, the most efficient and most innovative.

But that’s not what’s on the table. Instead, Tyler is arguing for keeping the insurance industry competitive. But I simply don’t see what that buys us. Even if the health insurance industry were dramatically improved, this wouldn’t especially make healthcare any more efficient. It would only make the insurance industry more efficient. That would be nice, but hardly earthshaking — and in any case, many decades of keeping healthcare insurance regulation at a modest level have produced one of the least efficient industries on the planet. What makes us think that’s going to change anytime in the near future?

Competitive industries, generally speaking, are good things. But right now in the United States we have a Rube Goldberg system that gives us the worst of both worlds: the administrative inefficiencies and lack of universality that comes from a private system, combined with the bureaucracy and lack of effective price signalling that comes from shielding consumers from having to pay for healthcare directly. The former could be addressed with national healthcare, which is difficult but at least feasible. The latter, conversely, could be addressed only by getting rid of employer-supported healthcare and forcing consumers to buy either health insurance or health services directly with their own money. That’s just flatly not going to happen. It’s an absolute political nonstarter.

It seems to me that libertarians would be better off accepting that, and instead spending their time figuring out the best possible way to construct a national health plan that still retains elements of competitiveness and incentives to innovate. It wouldn’t be perfect from their point of view, but it would be better than banging their heads against a wall that just gets higher and harder every year. Healthcare is an unusual market, and it’s one in which “insurance,” which is something of a misnomer in the first place, simply hasn’t produced either innovation or lower costs, and probably never will. Why keep fighting for it?

UPDATE: Matt unpacks “It’s an absolute political nonstarter” here and makes the appropriate point a little more plainly than I did: a more efficient health insurance industry might be a good thing in some purely economic sense, but it would produce results that are wildly unacceptable to the electorate. It ain’t gonna happen.