The ABC Dilemma of Health Reform

 

Today’s Wall Street Journal has two columns regarding the state of health care reform, here and here. The second link discusses health care ‘reforms’ in New York, and how the concepts of community rating and guaranteed issue, while noble in intent, distort the marketplace. Further distortions arise when states mandate fringe coverages that are neither necessary to a healthy life nor applicable to the majority of insureds. Add to the mix laws that prevent insurers from selling policies across state lines and it becomes clear that regulation stultifies the marketplace.

The first link is to an article so brief, and yet so profound, that one wonders why action has not been taken. That action has not been taken surely illustrates the yawning gap that separates those who wish to make their own decisions from those who wish to increase their reliance on the bounties of the government.

Since the WSJ now operates behind a pay wall, the first article is copied below. I hope Rupert doesn’t mind….

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The ABC Dilemma of Health Reform
 
By VERNON L. SMITH

There is widespread agreement with the principle that our health-care system needs to be reformed. But our representatives and our neighbors have much trouble in reaching agreement on the particulars. There have been many legislative bills offered and hundreds of amendments with no clear path to a resolution.

Health-care systems everywhere encounter cost overruns and rationing devices, like queues, in their diverse attempts to deliver products for which demand has long grown faster than other economic sectors. Why is it so difficult to find the private and public means, the combination of markets and government assistance, that enables a preferred outcome to emerge?

This question has a simple answer that plagues health care everywhere.

The health-care provider, A, is in the position of recommending to the patient, B, what B should buy from A. A third party—the insurance company or the government—is paying A for it.

This structure defines an incentive nightmare. You do not have to be an economist to realize that, when phrased in this way, nobody knows how to solve this problem. Hence the many experiments, all of which have been deemed less than satisfactory.

I don’t know whether this problem has a solution. If it does, I think it requires us to find mechanisms whereby third-party payment is made to the patient, B, who in turn pays A, supplemented with any co-payment from B for services. Hence, from the moment B seeks services from A both know who is going to be paying A for what is delivered. A and B each has need for what the other brings to the table, and this structure carries the potential for nurturing the relationship between A and B. B is empowered to become better informed about the services recommended by various A’s that he might choose among, and the A’s might find it particularly important to build good reputations with B’s.

—Mr. Smith, the 2002 Nobel Laureate in economics, is professor at Chapman University.

 

 

 

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2 thoughts on “The ABC Dilemma of Health Reform

  1. Pingback: Recommended Remedies for Doctors | CharlestonToday

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