A few thoughts and observations on the health bill

1. Jim Hamilton spells out some basic economics by comparing two extremes, one where health outcomes and thus demand for health care are purely random, and one wherein all health outcomes are known in advance.  If the first extreme were true insurance markets would work very nicely.  In the second extreme there would be no such thing as insurance in an unregulated market--some would be able to afford their care and some wouldn't.  In the vast majority of acute health events, the afflicted would simply be left to die.

Jim's point is that some of this is about wealth transfer from the healthy to the sick.   That's right. But the fact that the real world sits between these two extremes means that the bill is about efficiency too.  In the real world health outcomes are partially random and partially non-random, and individuals know a little more about the non-random part than insurers do.  These real-world facts can cause the insurance market to collapse, as it seems to be doing right now.  If the market collapses, people can't insure acute health events even at actuarily fair rates, putting us in a situation much like Jim's latter extreme, even though the real world isn't nearly that extreme.

2. I worry that the ban on excluding people [children] with pre-existing conditions kicks in right away while the insurance mandate doesn't kick in until 2014.  For the reasons described above, these really need to go hand-in-hand.  If there's something in the bill to deal with this mismatch I don't know what it is.  My worry is that between now and 2014 what's left of the insurance market could fall apart fast.

3.  Intrade.com puts passage at about 93% as I write this.  So, what's to prevent Bart Stupak & Co., or folks close to them, making heavy bets against passage, voting "No", and making a gazillion of dollars?

Update:  4.  Brad Delong nails it.  I too am utterly confounded by the exaggerated tenor of this debate.  Note that Delong doesn't mention the arguably more liberal plan of Nixon's, which Ted Kennedy later regretted not supporting.


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