Wednesday, November 20, 2013

Cochrane's alternative to Obamacare

Here's a couple of paragraphs from John's essay, to which he  links on his blog:
This line of analysis is obviously aimed at the long run. Thinking through how a freer and more
competitive health care and insurance market can work, and how most of the regulatory apparatus is doomed, won’t get anyone hired as a consultant, lobbyist or adviser. But it is important nonetheless. Opponents of the ACA who would see it repealed need a detailed, coherent alternative, and to understand and explain how it can realistically address the cost, “access,” and other evident pathologies of contemporary health-care and insurance markets. The status quo was a mess, and the concerns that motivated the ACA were real. If the ACA remains, as is likely, but stumbles from one crisis to another and eventually falls apart of its own weight in the next health insurance/health care/budget crisis, it will be equally important to have that detailed coherent alternative in our back pockets.  
I focus on the supply and demand for health care, which gives this essay a bit of novelty. Curiously, most of the current policy debate, and most of our regulation, focuses on health insurance, the question of who will pay the bill, as if the market for health care were functioning normally. The market for health care, which seems even more dysfunctional, is relatively neglected. 
Health care is singularly ill-suited to payment-plan provision, either by government directly or by heavily regulated insurance by a few large well-protected businesses. A functional cash market must exist in which patients can realistically feel the marginal dollar cost of their treatment, or (equivalently) enjoy the full financial benefits of any economies of treatment they are willing to accept, and are not patsies for huge cross-subsidization and rent-seeking by an obscure system negotiated behind the scenes between big insurance companies, hospitals, and government.  
Both supply and demand must be freed, along with insurance. Without supply competition, asking consumers to pay more will do little to spur efficiency. Without demand competition, new suppliers will not be able to succeed.  
So, the alternative to the current health care and health insurance mess (both pre and post-ACA) is clear. Getting there will be a long hard road. It’s not a simple matter of “deregulation,” given how deep and widespread the offending restrictions are, and the many legitimate purposes which they purport to serve, and sometimes do. We need to construct a different, but wiser, legal and regulatory regime. I know an interest group when I see one: Don’t worry, there will be lots of jobs for health economists, policy analysts, and lawyers.

John has written and talked about health care in many other occasions. Here's a recent podcast. Here's a 2012 podcast. Here's an op-ed on the Wall Street Journal.

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