Whitman on Health Insurance

Glen Whitman, a former student from my NYU years, has a nice article in Business Week on Health Insurance and why government mandated programs just drive up costs.  Glen's work with Mario Rizzo on the new paternalism is outstanding and offers a great challenge to one of the biggest threats to the libertarian presumption in the economics literature today.

Thanks to Greg Mankiw for the pointer.

Comments

[David J. Heinrich]

It was a good article, as far as it went...I have a few concerns:

"The federal government could assist by guaranteeing customers the right to buy insurance offered in any state, not just their own, enabling patients to patronize companies in states with fewer costly mandates"

If by guaranteeing people the right to buy insurance in any state, he means removing any regulatory restrictions against such that's great. If he means forcing insurance companies to insure anyone from any state, then that's horrible. If ins. companies wouldn't insure ppl from other states voluntarily, it's because doing so would be too costly (maybe that's because of other interventions, which should be repealed).

"But as long as the public has to subsidize the formerly uninsured, the problem with free riders has not been solved. We're just paying for them in a different way."

The other problem is that subsidized buyers aren't as price-sensitive, which contributes to keeping prices high.

I also think the author should have gone a lot further. The effects he cited certainly contribute to the costliness of insurance due to required services, or things the insurance must cover; which really makes it more like pre-paid health care, thus wealth redistribution from those who don't use those extras to those who do.

The other factors making health insurance artificially more expensive are bureaucracy required by state intervention (e.g., SOX), and the fact that what health ins. provides -- the services / goods the ins. provides for -- are artificially expensive. This can be blamed on patents, the FDA, and the AMA.

Patents make drugs more expensive by providing artificial monopolies, and even preventing alternative discovery. There are also some perverse situations where a patent-owner can sue someone making use of what they patented before they had a patent on it (see the Univ. Rochester and the COX drugs). There are also the issues with the armies of patent lawyers, defensive patents, etc that increase costs.

The FDA of course makes drug creation much more expensive, adds development overhead and legal expenses.

Then there's the AMA, which sets "standards" for doctors. This is basically a guild restricting competition.

I also think there's the legal issue of liability for doctors, where they can be sued even if waivers are signed. Liability insurance adds to their expenses, which filters down to customers.

Furthermore, I think various state influences discourage doctors from recommending / reading about various alternative preventative measures (e.g., higher vitamin doses, red wine, resveratrol supplements, etc). The public campaign against the evil "cancer-producing" sun has resulted in less vitamin D deficiency. It's very difficult to get enough vitamin D from supplements, vs sun-exposure. (I admit to being deficient in my exposure to the sun). Google for "sunlight vitamin" (w.o quotes) for more info. Also see articles by Bill Sardi on it.

[Glen Whitman]

If he means forcing insurance companies to insure anyone from any state, then that's horrible.

To clarify, that's not what I meant! I meant only that there should not be regulatory barriers to buying insurance from out-of-state firms.

And I agree on most of your additional points (though on net I think pharmaceutical patents are a good thing). They were just beyond the scope of the article.

[Dyllis]

Keep up the good work.