Announcing The DeLong Club

My main contention about the healthcare system in the United States is that the main problem/opportunity is a lack of bottom-up, consumer-driven innovation.

Many economists, wonks and pundits have over the years advocated the idea that the way to have bottom-up innovation in healthcare while also achieving social justice goals is through the medium of health savings accounts (HSAs). A portion of your income every year would be put on such an account, which you would use to consume healthcare services.

HSAs aren’t perfect*, nor is any healthcare system, but many people who understood the trials of healthcare reform as encouraging both fairness and innovation thought that HSAs should be part of any healthcare reform.

This has become important now, of course, because of the healthcare reform act, which takes a centralizing approach to reform the healthcare sector, and basically sees no role for HSAs. I believe this is a grievous error.

The idea of HSAs is chiefly associated with the political Right in the US, but over the years countless economists, wonks and pundits associated with the political Left have advocated HSAs as a way to reform the US healthcare system. One of the most prominent is Berkeley economist and superblogger Brad DeLong.

As the ACA rollout moves from trouble to trouble and as the Right inchoately stumbles and gropes towards some sort of alternative proposal, I think it behooves people of good will on both sides of the political divide to think in good faith about positive reforms to the healthcare system.

THEREFORE, inspired by Greg Mankiw’s Pigou Club of “economists and pundits who have publicly advocated higher Pigovian taxes, such as gasoline taxes or carbon taxes” I am starting the DeLong Club, an elite group of Left-wing economists and pundits who have advocated health-savings accounts as a part of healthcare reform.

Here’s the list I’ll start with:
- Brad DeLong
- David Goldhill
- Dylan Matthews
- Matt Miller
- Jason Furman (Hat tip to Michael Hendrix )

I’m sure there’s more. Give me nominations (with sources, preferably).

We covered this here a couple years ago. (Ask John Schwenkler about it.) The empirical evidence is that consumers absolutely do not respond to “market incentives” for care, for two reasons:

1) lacking medical expertise, they’re unable to evaluate medical outcomes, tell the difference between critical and non-critical care, accurately estimate the effect of changes to quality of life, discern the difference between effective interventions and expensive scams (latrile, acupuncture) etc. and

2) there’s enormous social pressure against “bargain-seeking” in medical care (like there is in higher education.) Nobody says “hey, lemme tell you about the great deal I got on my wife’s bypass surgery.” When people view their lives as being at stake, money’s no object – even though doing less would be both cheaper and humane, in many cases. People need some kind of sensitive counseling before they’re even willing to countenance the idea that doing everything isn’t the same as doing what’s best for their sick loved ones. Of course, the provision of the ACA that would have offered that counseling was demagogued as a “death panel” by conservatives and taken out. Oops!

HSA’s have been tested, and they don’t result in effective reduction of medical expenses; for the most part, they result in people forgoing necessary care until the treatment is so expensive (because the condition has descended into such severity) that it triggers their catastrophic coverage.

— Chet · Oct 18, 06:19 PM · #

Chet,

Do you have any links to back up your ridiculous statements?

I doubt it, given that there is plenty of evidence that market incentives do work to bring down costs (while delivering excellent healthcare):

http://healthblog.ncpa.org/

— Fake Herzog · Oct 19, 06:42 PM · #

Like I said, this was all covered pretty extensively with John Schwenkler, but I think you knew that, since you were left with no choice but, hilariously, to describe the positions of “most people don’t have medical training” and “nobody thinks it’s a good idea to get cut-rate medical care, especially for other people” as “ridiculous.”

This absurd notion that you can subject health care – a good whose market-clearing price is only either zero or infinity, since it’s only either completely useless to you or absolutely priceless to you – to market forces emerges among conservatives every time health care is in the news, only to be dashed to pieces yet again by actual empirical investigation. Patients can’t be “consumers” because, not being doctors, they’re utterly unable to determine the actual worth of care. This is why patients who are doctors, for instance, incur a fraction of the end-of-life costs of the average patient.

Any study that purports to show a reduction in costs by incentivising patients (that is, by exposing them to ruinous medical costs) will tell you, often quite plainly, that the reduction in costs is solely a function of adverse selection.

Markets can’t work for health care, which is why health insurance exists in the first place. Given that reality, the best way to control costs is to use monopsony power to bid down providers – like every other country in the world does it. Costs are higher in the US precisely because we pit consumers against each other in the marketplace.

— Chet · Oct 19, 09:21 PM · #

So you choose to ignore all the empirical evidence provided by folks like John Goodman because you are wedded to some sort of bizarre ideology that tells you it is against liberal principles to let people make their own decisions when it comes to their healthcare choices. I always thought conservatives were against science (and reality) — the things you learn blogging!!!

— Fake Herzog · Oct 20, 09:03 PM · #

— PEG · Oct 21, 10:40 AM · #

Herzog,

To what evidence are you referring, exactly? Be specific. I can’t ignore what you have not yet presented. But I guess it’s easier to accuse others of your own sins than to actually do your homework.

— Chet · Oct 21, 10:08 PM · #

To begin with, there is the famous RAND study that showed spending on healthcare was correlated very weakly (at best) with health outcomes.

Here is Avik Roy discussing all the so-called theoretical problems with the healthcare market (including the one you mentioned, adverse selection):

http://www.nationalaffairs.com/publications/detail/health-care-and-the-profit-motive

And here is all the evidence that suggests market incentives actually do bring down costs:

1) http://object.cato.org/sites/cato.org/files/pubs/pdf/pa650.pdf

2) http://healthblog.ncpa.org/the-burden-of-high-deductibles/

3) http://danieljmitchell.wordpress.com/2012/11/17/must-watch-video-from-reason-tv-on-how-free-markets-not-obamacare-can-solve-the-healthcare-mess/

4) http://www.theconservativevoices.com/topic/53479-free-markets-and-competition-help-control-healthcare-costs/

5) http://online.wsj.com/news/articles/SB124476804026308603

6) http://blog.heritage.org/2012/09/13/medicare-reform-debate-what-really-works-in-health-care-competition/

That should keep you busy for awhile…

— Fake Herzog · Oct 22, 05:37 PM · #

I think maybe you have a problem with the concept of “evidence.” 1 is a Cato institute “executive summary” whose own bibliography cuts against it. 2-4 and 6 are blog posts. 5 is your best evidence, but it’s nothing but a WSJ article showing how Safeway was able to reduce costs exactly (and only) by adverse selection: sick people don’t work at grocery stores.

Sorry, not impressed. In the meantime, why don’t you try some actual research evidence:

JAMA: Cost-shifting does not reduce the cost of care

JAMA: Joint bidding by Armed Forces may reduce health care costs

Health Affairs: Are market forces strong enough to deliver efficient health care systems? Confidence is waning An empiric test of “market-driven” health care in 12 test counties utterly failed to control costs or improve outcomes – for exactly the reasons I said. Market participants can’t judge outcomes and don’t consider money more important than not gambling with your life.

Economic Review: Uncertainty and the welfare economics of health care

That’s what evidence looks like, Herzog. Give it a whirl for once.

— Chet · Oct 22, 09:27 PM · #

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