Michael Pollan says health care reform will pit insurance companies against agribusiness (in a good way)

To budding agricultural economists looking for interesting questions to dig into, read Michael Pollan. This piece in the New York Times touches on some interesting economics:

No one disputes that the $2.3 trillion we devote to the health care industry is often spent unwisely, but the fact that the United States spends twice as much per person as most European countries on health care can be substantially explained, as a study released last month says, by our being fatter....

...One recent study estimated that 30 percent of the increase in health care spending over the past 20 years could be attributed to the soaring rate of obesity, a condition that now accounts for nearly a tenth of all spending on health care...

...As things stand, the health care industry finds it more profitable to treat chronic diseases than to prevent them. There’s more money in amputating the limbs of diabetics than in counseling them on diet and exercise...

...As for the insurers, you would think preventing chronic diseases would be good business, but, at least under the current rules, it’s much better business simply to keep patients at risk for chronic disease out of your pool of customers...

But these rules may well be about to change — and, when it comes to reforming the American diet and food system, that step alone could be a game changer. Even under the weaker versions of health care reform now on offer, health insurers would be required to take everyone at the same rates, provide a standard level of coverage and keep people on their rolls regardless of their health. Terms like “pre-existing conditions” and “underwriting” would vanish from the health insurance rulebook — and, when they do, the relationship between the health insurance industry and the food industry will undergo a sea change.

The moment these new rules take effect, health insurance companies will promptly discover they have a powerful interest in reducing rates of obesity and chronic diseases linked to diet....Insurers will quickly figure out that every case of Type 2 diabetes they can prevent adds $400,000 to their bottom line. Suddenly, every can of soda or Happy Meal or chicken nugget on a school lunch menu will look like a threat to future profits.

AGRIBUSINESS dominates the agriculture committees of Congress, and has swatted away most efforts at reform. But what happens when the health insurance industry realizes that our system of farm subsidies makes junk food cheap, and fresh produce dear, and thus contributes to obesity and Type 2 diabetes? It will promptly get involved in the fight over the farm bill — which is to say, the industry will begin buying seats on those agriculture committees and demanding that the next bill be written with the interests of the public health more firmly in mind...

Pollan has a really interesting point here. While I think Pollan may be overstating the influence of agribusiness and agricultural policy on the cheap prices of unhealthy foods (something I've mentioned before [1, 2, 3]), this really could be a game changer.

Here's how I see it:

Most of the health care bills primarily target the problem of adverse selection: keeping insurance companies from cherry picking the lowest health risks, leaving those with real problems uninsured.

Fixing the adverse selection problem might exacerbate the moral hazard problem: If everyone is insured for the same price no matter what, it provides less incentive for people to take care of themselves and prevent health problems from happening in the first place. This is (I think) what makes serious Republicans go a little crazy.

Now, here the issue is more complex than most moral hazard problems because we need to put aside the idea that everyone is perfectly rational. I rather imagine that, holding all else the same, insuring everyone isn't going to make people much fatter than they already are. People really don't enjoy being fat or sick. It's that people can't help themselves.

But with mandatory pooling insurance companies may have a stronger incentive to aid prevention. And this may really work given people probably want to lose weight and be healthier anyhow. Here I can imagine insurance companies teaming with behavioral economists and psychologists to devise ways to help people eat healthier, exercise, and lose weight.

An interesting feature of this perspective is that it provides a reasonable argument against a single payer system or a large public-sector option. Private insurance companies will surely have a stronger incentive to help people be healthier than the government will. To some extent USDA is captured by agribusiness interests and would have a much more difficult time than insurance companies in implementing creative mechanisms to help people live healthier lives. It's hard to imagine how much of this will actually take place, but it is a compelling argument.

One reason for skepticism: so far insurance companies seem to have been rather unsuccessful at policing doctors from administering unnecessary care (see this excellent article). If they can't control moral hazard by doctors how will they control it for individuals? The hope, I think, is that the problem with individuals is more behavioral. People want to lose weight and be healthy; doctors don't want less money.