Who isn’t frustrated by their high health insurance deductible?
How often have we said it’s a barrier to seeking treatment? We all do, myself
included.
In this, we have failed to learn from Prof. Arrow, a Nobel Award
economist. He criticized the idea of Medicare when it was being considered for
legislation (it became law in 1966). He pioneered the application of moral hazard
to public policy—and here was his point: If the government insures everybody’s
health, everybody will be incentivized to become less healthy and more
dependent on health insurance. “Moral hazard” refers to situations where people
take on risky behaviors knowing that others will pay for their bad decisions.
Example: You build a $1 million beach house in a hurricane zone; but government
insurance (which underprices for the risk) shifts the cost of rebuilding your
home to taxpayers.
Obama economists took this idea from Prof. Arrow, even
though it is antithetical to Arrow’s policy preferences. What they did was build
in the idea of a high deductible (probably too high), the idea being that if we
don’t take care of ourselves, we should pay first before insurance does. That
way, we’ll be incentivized to take better care of ourselves.
I remember reading Arrow in the 1980s and thinking he was a
heartless and out-of-touch conservative economist. Thirty years later, I have
seen the light. Arrow said health insurance should be provided by the
government for things that are out of a person’s control—e.g., a genetic
illness. But treatments for condition caused by an unhealthy behavior? That should be on the person who made that decision.
He worried deeply that Medicare would do two things: (1) bankrupt
the country, and (2) lead to a mostly unhealthy population.
Prof. Ken Arrow (Stanford)— the son of Jewish immigrants
from eastern Europe who was educated in public schools, including college— passed
away last week at the age of 95. He worked until the last two weeks of his
life.
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