John Cochrane on Healthcare

It is a long essay, but worth the time. Really. It is very worth the time. Please go read it.

Just a snippet:

Well, my typical critic concludes, maybe you’re right about all this as a matter of economics, but it’s not politically feasible.

No, not now. But the alternative is not economically feasible, a sterner taskmaster. And what was not feasible today, can quickly become feasible tomorrow if it is correct, and once people understand it, and understand there is no option. Our job as economists is to figure out what works and explain it, not to bend reality to some notion of what today’s politicians are willing to say in public.

Our political conversation is truly lunatic. It is taken for granted in policy discussion that no American can be asked to “pay for” (directly, rather than through taxes)  one cent of health cost risk. While they routinely pay for broken and crashed cars, destroyed houses, suffer huge risks in the job market, and shoulder housing, transport and other expenses much greater than the cost of health care. Yet while pretending nobody should pay for things, unfortunates who fall through the cracks can be handed ridiculous $550,000 bills for cancer treatment.

We can start by saying, out loud, health care is a good like any other. It is ok to ask Americans to pay for it, and to allow American companies to competitively supply it, just like any other. It is ok for insurance to retreat to its proper role, of protecting people from large shocks to wealth, rather than being a hugely inefficient payment plan. As car insurance does not pay your oil changes – after you fax in the forms in quintuplicate, obtain permission from your mechanic, go to the in‐network mechanic, and wait 6 weeks, and answer a 20 page questionnaire about your repair history and driving habits.

There are many other quotable sections of the paper. I found the whole thing refreshing. Yes, it supports my priors. What I can’t understand is why so many people want to treat healthcare as something that is not to be left to the marketplace. There is nothing better at providing service and regulating the behavior of all the providers than a vigorously competitive marketplace.

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