Missing the Point

Matthew Yglesias on insurance markets:

If the insurance market becomes much more fragmented (i.e., competitive) then providers will gain bargaining power relative to insurers and costs will go up. In theory, patients will have more choice which could be good. But in practice choice rests with corporate HR departments so it’s not really clear to me what this accomplishes. Increased insurance competition could do good in the context of a well-functioning, well-regulated individual insurance market (an “exchange” in other words) but absent broader reform the main winner would seem to be hospital administrators.

I’m kind of in a hurry, so unfortunately I’ll have to be brief (later I’ll try an elaborate). In any case, Yglesias is missing the point that most reasonable advocates of competition in medicine are making. Notably, that insurance should be used sparingly. Sure, everyone that makes it to Dr. House is about to die of Lupus…but that isn’t the majority of medical transactions — not even close.

Allowing competition in insurance markets would push insurers into the market for treatment that has high marginal cost, thus removing them from routine care — which should be paid in cash on delivery anyway. Then, we would have an insurance market, not a pre-paid health care market, and we could have a more intelligent (and fruitful) debate about the levels of cash subsidy to the poor.


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