David Cutler on mandates

Cutler is very smart, tenured at Harvard, arguably the leading health care economist, and yes he is an advisor to Barack Obama.  He says mandates are not the way to go, and no I do not think he is just "falling in line" here.  Read the whole thing.  Yes, the key is to make insurance cheaper, not more expensive.  Yes, mandates are a political loser.  Yes, ex post fiddling can make up for a lot of the problems in the "no mandate" approach and there is going to be lots of ex post fiddling anyway.

Of course Ezra is right that the non-mandate plans, such as Obama’s, don’t do much to lower the cost of insurance.  But I would like to make a more general point about the correct direction to move in.

The way most goods and services become excellent — I mean really excellent — is through competition.  Yes, right now health insurance has lots of screwy incentives, most of all cost shedding.  But if you stifle competition and write off hope of getting a better-functioning private insurance market…well…I believe you have not thought long and hard enough about just how much of the social value on Planet Earth has come, ultimately, from competition in the provision of goods and services.  How do you think we got from subsistence agriculture to super-cheap food?  By mandates?

Mandates, of course, tend to require minimum coverage and thus they limit competition in the content of policies and also the expense of policies.  It’s unclear if they are truly cheaper, all things considered.

I might that mandates make social cost less transparent and they encourage government to commit societal real resources outside of the usual budgetary process.  Those were two good general criticisms of the last eight years of the Bush administration; let’s not carry those principles of governance over into our health care policy.

If someone needs covering, for whatever reason, give them some stuff.  If need be give them some government stuff.  Some kind of plan.  Give them whatever.  But don’t overregulate private insurance companies and take them off the table as a source of future productivity improvements and super cheap coverage, however partial it may be. 

The pointer is from Brad DeLong.

By the way, if you’re looking for a ray of competitive good news on the health care front, start here.  We need something similar on the insurance front and yes I know that means not every illness will be covered.  Given the Grim Reaper, it’s all about marginal choices anyway.


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