Saturday, May 8, 2010

Weekend Links: Risk Pool Problems, How Obamacare Increases Costs

Must-read articles from the past week.

John Goodman had a strong week over at his National Center for Policy Analysis blog. On May 3, in a piece entitled "Why are Health Care Costs So Hard to Control?", he blows apart some of the myths around the Obamacare approach to regulating medicine, such as "more widespread insurance equals lower costs":

All insurance involves a pooling of risk. Since people are naturally risk averse, this pooling is potentially valuable. Once resources are pooled, however, people have incentives to change their behavior and do things they would not otherwise have done. People with life insurance may kill themselves, or allow themselves to be killed, in order to leave a substantial sum to a surviving wife or children. (Fans of “Damages” will know what I mean.) People with fire insurance may be less careful about avoiding fires — particularly if they would like to redo their home anyway.

In health care, people with insurance obtain tests and procedures and even undergo hospital surgeries they would not have opted for had they been spending their own money. Economists call this type of behavior “moral hazard,” although there should be some sort of penalty imposed on the person who came up with that term.

Read the whole thing.

On May 5, Goodman came out with another piece entitled "Rational Risk Pools". In it, he persuasively argues that it is not possible for politicians to run risk pools efficiently:

Here’s something you can take to the bank. Politicians are incapable of setting the right price for anything — whether it’s the price of wheat or corn or any other good or service. As Phil Porter and I have shown, there is no known political process (not democratic voting or any other mechanism) that even in theory can produce the right result.

Here’s something else you can take to the bank. Price setting errors that government makes in the market for risk will invariably be worse than in just about any other market.

Another article worth reading in full. If Goodman is right, he has shot down Republicans' most promising idea for addressing those with serious pre-existing conditions. Are risk pools worth pursuing, despite their imperfections, or should free-market advocates try to come up with another approach?

Finally, on May 4, Robert Bluey of the Washington Examiner published an outstanding report detailing how Obamacare's prohibition of physician-owned hospitals is consolidating the power of incumbent hospital monopolies, and how these hospital monopolies are the principal driver of health inflation:

Physicians at McBride Orthopedic Hospital had ambitious plans for their Oklahoma City hospital before Obamacare. Two new operating rooms and a four-bed intensive-care unit were part of a multimillion-dollar expansion project that promised to bring competition and more health care choices to the community.

But once President Obama's signature was dry on the 2,409-page Patient Protection and Affordable Care Act, so, too, was the McBride project. The recently enacted law imposed a series of new federal regulations on physician-owned hospitals, including an immediate ban on expansion...

Imagine if the government owned General Motors and the Congress passed a bill that barred Ford from producing "any new cars and couldn't expand on its existing cars," Galliart said. "What other industry would put up with this? If we were spending money recklessly and harming people, that's one thing. But physician-owned hospitals are doing it better and more efficiently."

Remember those words the next time you hear the White House try to blame insurance companies for higher premiums.

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