Ramesh Ponnuru may or may not know more about health care economics than I, but my commenters certainly do

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The feedback I got on my critique of Ramesh Ponnuru’s inaugural Time column on health care was a good reminder both of why I hardly ever venture to write about about health care (it’s complicated) and why I should probably do it more often. Ponnuru made the case for a new, “radical” Republican approach that would move responsibility for health insurance out of the hands of employers and into the hands of individuals. I responded that there are lots of Democrats (one of whom, Ron Wyden, has an actual bill with an impressive bipartisan list of cosponsors) who want to end the employer/health-care link too. More important, I wrote, the particular solution Ponnuru advocates seemed to ignore (a) the information asymmetries that make health care markets so weird and (b) the fact that few Americans are pining for the health-care structure he advocates.

Ponnuru responded on The Corner, the National Review‘s blog. Here’s a sample:

I don’t find the lack of information argument terribly persuasive. Consumers typically have less information than producers and vendors, even in well-functioning markets. When markets are structured to respond to consumers, intermediary institutions often arise to provide them with better information. Fox thinks we can’t have free markets because we don’t have enough information, but it may be that we don’t have enough information because we don’t have free markets. I also think he has too much faith in government bureaucrats. (Note, for example, that “can make better decisions” does not mean “would make better decisions.”)

… Fox writes that “hardly anybody in the U.S. wants the kind of health care system that Ponnuru advocates.” He therefore assumes that Republicans will drop these health-care proposals once the primaries are over. I think he is underestimating the potential political appeal of free-market health care. Last week, the Wall Street Journal reported on a poll commissioned by it and NBC: “By 49%-40%, Americans back conservative health-care solutions of tax credits and health-savings accounts over government coverage mandate backed by subsidies for the poor.”

First, the poll: The next sentence in that WSJ summary of the poll that he cites was this:

But by 51%-42%, they back liberal idea of tax increases on the rich to expand coverage over continued tax cuts.

As always, a lot depends on how you ask the question. If the pollsters had said, “Do you want high-deductible health insurance in which you have to pay out of pocket for lots of day-to-day medical expenses?” most people would probably say no way. From the Federal Times:

When the Federal Employees Health Benefits Program (FEHBP) first introduced high-deductible plans in 2005, only 3,905 signed up — less than a sliver of the program’s 8 million members. The next year: 6,325. Today: about 9,000.

This is despite the fact that these plans offer sweeteners in the form of employer-funded health-savings accounts, and are actually a pretty good deal for most people (that is, people who don’t have chronic medical problems). I enrolled in the one offered by Time Warner after running through the costs and benefits, and I think I’ve come out ahead so far. I know for sure that the plan is extremely confusing and that it so far has had no impact on my family’s use of the health-care system. We make exactly the same choices we did before and have, if anything, slightly lower out-of-pocket costs thanks to the health savings account. I just have to spend more time after the fact figuring out how they get paid for.

As I understand it, though, the “Republican” plan that Ponnuru embraces involves wresting this whole enterprise out of the hands of employers and leaving people to fund their own health savings accounts, albeit with tax incentives for doing so. That may be a great deal for some people who don’t have insurance now, but it’s clearly going to be a tough sell for the rest of the populace.

It still might be a good idea, but I don’t see how it can ever work unless you have some sort of universal coverage mandate for individuals and community rating for insurers. Otherwise you’ll still get insurers refusing coverage to people with health risks and healthy people choosing not to pay for insurance. But I know (not from the Time column, but from other writings) that Ponnuru opposes coverage mandates.

Then again, as the poll cited above shows, mandates aren’t a big winner with voters either. Although I do think that, with the right wording, it’s possible to get a majority of poll respondents to oppose any change in the current health care system.

As for Ponnuru’s point that health care isn’t the only market in which customers suffer from information disadvantages relative to the vendors, he’s definitely right about that. Few people understand what their plumbers are really up to, but nobody (that I know of) advocates universal plumbing coverage.

That should be a hint, though, that there are lots of factors at work in health care that simply aren’t present in other markets–and to get a sense of what some of them might be, check out the erudite exchange in the comments to my post between DrSteve (an economist) and Corey (a psychologist).

This is why lots of countries, including the U.S., that are otherwise generally willing to let markets work their magic are unwilling to do so entirely in the case of medicine. And interestingly, lots of national health care systems that give even less play to market incentives than the current U.S. system score better on all sorts of cost/benefit measures.

So while the argument that Ponnuru makes, that what our health care system needs is more and better market incentives, is certainly not prima facie wrong, it’s probably not the first thing a reasonable person without an ideological agenda to peddle would come up with after surveying today’s global health care landscape.

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