A Flawed Case for Centrally Planned Health Insurance

What’s an alternative way of ditching subsidized employer-purchased health insurance? (Why do we never hear how the current system is in effect a minimum wage for low-income workers with concomitant employment effects?) Finkelstein plus copays and supply side reforms? Universal ACA?

The people without insurance can only get emergency care. If they have a chronic illness that wont be covered. Elective care in general wont be covered which would include stuff like blood pressure medicine. However, when they show up in renal failure that will be covered.

2) There are some people who dont buy insurance even if they can afford it. Usually the younger people. However, last I looked most without insurance just cant afford it.

3) Its so engrained hat I think even if you took away the tax deduction employers would still offer it. Absent the ACA it’s the only realistic way many people with a chronic illness could afford insurance. That said, I think we would be better off if insurance was not tied to employment.

4) Its not clear increasing supply will lower total costs. Might increase them. (It might or might not decrease physician/provider pay, but the care that the providers order far outweighs their pay.) Decreasing supply likely decreases total spending. HSAs work well for people who are mostly healthy. Not so well for those who are not. I was a big believer so I made sure our corporation included it as an option from our founding. Over the years I see most people choose an HSA when they first start then change to conventional insurance when they start having kids or get older.

Steve

David, you place a lot of weight on health savings accounts, including in passages like the following:

For example, one increasingly popular innovation in health care purchase in the past few years is health savings accounts (HSAs). With HSAs, people save before-tax money the way they do with an Individual Retirement Account and can then spend it tax-free on health insurance, co-payments, and deductibles. Many people have used these to cover expenses that otherwise would have been difficult to cover. Would HSAs solve all of the problems that Einav and Finkelstein point to? Of course not. But they would help. It was disappointing, therefore, that the authors didn’t even mention HSAs.

I’d be curious to read more about why you’re positive about health savings accounts. My wife and I both have them, but I’m not a fan.

(1) They disproportionately help (and therefore incent) people with high marginal tax rates. It seems like those people are the least likely to be suffering a material lack of health services, and the most likely to be capable of planning for health emergencies,

(2) It seems like an unnecessarily complex process. If health expenses were tax-deductible from the first dollar, I wouldn’t need a whole separate savings and payment apparatus. Maybe it encourages some marginal savings, but see #1 – isn’t the population best able to take advantage of these things also the population who would be most likely to be able to save for these contingencies if they were simply tax deductible.

On top of that, I am generally opposed to crufting up the tax code in order to try to steer behavior, and would have thought you were too. The more complex the cruft, the less I like it.

(3) Doesn’t having a savings account that can only be used for health expenses (or just making health expenses tax deductible) reduce the behavioral gains from co-pays and co-insurance, which you also like?

TYLER COWEN: One of the key themes of your book is that the social returns to intelligence and groups are much higher than the private returns.

GARETT JONES: Yeah.

COWEN: If that’s the case, why don’t we see increasing returns in the economic data almost everywhere?

GARETT JONES: It’s because it works essentially like a level effect, not like some sort of increasing returns to scale. My rough estimate from my early work was that one IQ point raises your private marginal product about 1 percent, but it raises your society’s marginal product in the long run with about 6 percent, so that’s a level effect. I wouldn’t expect to see some sort of massive agglomeration showing up in the wealth-creation process.

Because of the social returns to education, one can make the case for government-funded education without resorting to the “right to education” argument. The same case can be made for government-funded healthcare without resorting to the “right to healthcare” argument.

In an economy with taxation, it makes good business sense to keep your citizens healthy, for the same reason that dairy farmers hire veterinarians to keep their cows healthy and not because cows have a right to healthcare.