Arnold Kling

Jason Furman's Health Care Plan

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Jason Furman writes,

What we need is a different approach to encourage cost consciousness in a progressive manner that links the level of cost sharing to income and attempts to use cost sharing to improve systemwide incentives for more effective care. This approach has the potential to be not just more equitable, but also more economically efficient than the HSA approach. Moreover, even those who would rather not see any more cost sharing should recognize that greater cost sharing is likely to be part of the health system in the future. That makes it all the more important to help ensure that this cost sharing is designed in an efficient and fair manner that reduces major risks, promotes better health, and makes health insurance more affordable.

...Assume, for example, that every family in the country was enrolled in a plan with a $4,000 deductible. Families could then receive matching funds or tax credits from the government to offset their payments against this deductible, and the contributions could be inversely proportional to income. Or, equivalently, lower-income households could receive a larger subsidy on their premium payments than higher-income households, as Medicare is now starting to do.


Furman is a fan of means-tested co-payments, and I stole that idea for Arlo's single-payer plan. Evidently, Furman buys into the idea of removing some of what I call the insulation from health care costs, and instead increasing the extent to which individuals share some of the cost of their own health care.

The idea of using individual decision-making and incentives to control health care costs makes sense to me. It will be interesting to see whether Furman has any street cred with the Democrats, or whether they will insist that only government bureaucrats know how to allocate health care resources wisely.


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COMMENTS (3 to date)
Mark writes:

The idea of using individual decision-making and incentives to control health care costs makes sense to me.

Arnold, if health costs are primarily driven by the demand side of the market, as you seem to believe, then your "put it all on the consumer" approach to health care may have some merit.

But if, as experts like Thomas Rice and Jack Wennberg argue, health costs are largely supply-driven, then reforms focusing on the demand side, as you favor, won't solve anything.

Harry writes:

Just out of curiosity, what does the demand curve for health services look like in terms of elasticity?

Mark writes:

Just out of curiosity, what does the demand curve for health services look like in terms of elasticity?

I found a recent review of the literature on this issue published by RAND; they found a variety of estimates of price elasticity of demand for health care, which were "centered on" 0.17, in the words of the report. In other words, highly inelastic.

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