Les Jones

Health Care > Arnold Kling on Health Insurance

In his latest TCS column, Arnold Kling argues two interesting points about healthcare and insurance. Hat tip to Instapundit.

First, he provides an effective counter-argument to the idea that healthcare spending under socialized medicine is lower because of lower administrative costs (the icing on the cake, in his analogy):

Or consider the "natural experiment" of Medicare and Medicaid, which is a much thinner layer of icing according to New York Times columnist Paul Krugman and other advocates of single-payer health care. If the icing really is thinner, and if the icing is a big factor in the total calories of the cake, then total health care spending under Medicare and Medicaid should be noticeably lower than spending under private insurance, after controlling for population characteristics. Instead, if one uses other OECD countries as a control group, our spending on the elderly is as excessive relative to other countries as is our spending on those without private insurance. In fact, Medicaid and Medicare, which together cover less than half the U.S. population, absorb a higher proportion of our GDP than many other countries' single-payer systems that cover their entire population.

Second, most people don't really want health insurance (or more accurately I think, don't want to pay for it with their own money unless required to).

I am willing to claim that no insurance market in history ever arose because of spontaneous demand on the part of consumers. Maritime insurance, which was one of the first forms of insurance, was demanded by creditors as a condition for lending money to shippers. Life insurance also initially arose to meet the needs of creditors who were lending money to pensioners.

Homeowners' insurance is standard because it protects mortgage lenders. Collision insurance for autos is optional if you own yours free and clear, but not if you still owe money to the finance company.

William Tucker is right. For the most part, people buy insurance because it is mandated by others. Insurance does not have a large natural market.

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Tucker argues that government should mandate a low-premium, high-deductible health care policy. (In the Romney plan for Massachusetts, the only way to avoid such a mandate is to post a $10,000 "bond" that guarantees that you will pay your medical bills.) Ironically, this is a relatively libertarian proposal. It is relatively libertarian because the only realistic alternative is for government to continue to provide and/or subsidize the comprehensive "insurance" that is prevalent today.