Markets in health

The fatal problem with AACA/Obamacare.

The US healthcare system does a lot of things well. Efficiency is not one of them. Many wonks praise Obamacare for improving access to affordable health insurance (faint praise considering the baseline), but rarely ask 'for whom?' The biggest beneficiaries are the underemployed & self-employed middle aged, financed at the expense of the underemployed & self-employed young.

Improving the overall outcomes of our healthcare system is not difficult, at least conceptually. Starting from first principles, you need to establish a market for health care and health insurance. What makes a functioning market? Choices and prices; the more you interfere with choices and/or prices, the further you will get from efficient outcomes.

 The employer-provided health insurance paradigm has dominated the US health market since WWII (when wage controls prompted a boom in employer-provided benefits). One of the primary failings of this system is the wedge it drives between the cost of service and the price paid by the consumer. Unless prices reflect the full cost of a service, consumers will consume more/less of the service than is optimal. This third-party-payer issuer is also reflected in the ask/bid prices behind the scenes. While you may pay a $20 copay for a service, the real negotiations happen between doctors offices' and insurance companies. This is a recursive process whereby doctors' inflate the true cost of service, in full knowledge that insurance companies' will refuse to pay the full amount. In addition to the obvious inefficiency of this process, there is an enormous waste of labor and capital resources to facilitate it. The end result of these problems is the 17%+ of NGDP spent on healthcare in the US, for the worst price-performance in the developed world.

I wrote a more in depth break down of the specific improvements that should have been implemented for healthcare reform several years ago.