I’m not writing about the debates over health insurance (as, indeed, I am not writing about most policy debates), because I simply don’t think I’m informed enough to say anything very useful about the pros and cons of the specific options under discussion. Still, this by Alex Tabarrok struck me as a bit odd.
In his recent post on health care and insurance Paul Krugman writes:[Insurance companies] try to avoid covering people who are actually likely to need care.
If insurance companies do avoid covering people who are “likely to need care,” this suggests that the uninsured are unhealthy. But 60% of the uninsured are in excellent health (Table 10) (In fact, overall the uninsured are only slightly less healthy than the insured).
To be sure, this doesn’t mean that being uninsured is not a problem but, contra Paul, it does mean that insurance companies would be willing to cover most of the uninsured at the same rates as the insured if the uninsured could or would pay those rates. In Paul’s story there is a market failure, in the latter story health insurance is expensive and some people don’t buy it. The difference matters because the wrong diagnosis will almost surely lead to the wrong treatment.
But the statement ‘[Insurance companies] try to avoid covering people who are actually likely to need care’ very obviously does not imply the statement ‘All uninsured people are being refused coverage because they have expensive conditions.’ The logical connection between the two implied by the ‘contra Paul’ bit is not, to put it mildly, clear to me. As a result, I am not sure what Alex’s actual point is. Is he suggesting that the incentive problems that Paul identifies are in some sense unimportant? This seems to be the most likely implication of his suggestions: if so, I would like rather more evidence than he is willing to provide, at least in this post. Or is it he believes that efforts to remedy these incentive problems would be counter-productive? Again, evidence (and indeed an actual argument to this effect) would be nice. Or is it that he believes that there is some way to realign the relevant incentives and solve the underlying commitment problems and information asymmetries via pure market mechanisms? I don’t think so – but I find it impossible to discern Alex’s underlying position on this, so I may be wrong. I wrote a couple of years ago about a debate between Alex and Dani Rodrik:
If your starting point is that markets are necessarily optimal, you never even get to the question that Cosma identifies of their relative efficiency for specific tasks, and thus can’t begin to participate in the debates that Dani would like to see happening. There’s no doubt in my mind that some libertarians (of the Economist leader writing variety) believe this most of the time, or purport to believe this in public. I don’t think that Alex is this unsophisticated – I imagine that he would agree in principle that markets are likely to be inefficient in the real world. However, I’m not sure what kinds of empirical evidence might lead him to concede that government may be better than the market at solving a particular problem in the real world, apart perhaps from the very minimal problems of protecting private property etc where most libertarians agree that the state can play an important role. This isn’t to say that there mightn’t be be such evidence; rather that after a few years of reading his blog posts, I’m not sure what it would be (I would be very interested in finding out if he’s willing to respond), and that I think that an explicit openness to having one’s mind changed, even on very important priors, by evidence, is an important pre-requisite to real debate.
The argument that Krugman makes here seems to me to be a useful opportunity for people like Alex to respond either by mounting an unqualified defense of markets for healthcare (suggesting that Krugman, Arrow etc are flat-out wrong and saying why), or a qualified one (talking to the strengths and weaknesses of market governance for specific aspects of healthcare). Either of those could potentially be a useful exercise if it provided some opportunity for pragmatic learning and all of that good stuff. This kind of game-playing; not so much.