Arnold Kling  

I Agree With

The Law of Inflated Expectatio... Exit, Voice, and Real Freedom,...

John Mackey on free-market health care reform; Alex Tabarrok on consumer-driven health plans; and Ken Rogoff that the financial crisis was more than just a loss of confidence.

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RL writes:

John Mackey lists some excellent ideas for free-market health care, but does THIS one make sense?:

• Enact tort reform to end the ruinous lawsuits that force doctors to pay insurance costs of hundreds of thousands of dollars per year. These costs are passed back to us through much higher prices for health care.

In COMPETITIVE markets, costs cannot be automatically "passed back" to consumers. In the REGULATED healthcare market, the CPT codes won't change just because tort reform is enacted.

The argument really isn't that the "hundreds of thousands of dollars per year" will be saved. That's a miniscule percentage of healthcare costs. The argument is that if there is tort reform, then doctors will stop playing defensive medicine, and this decrease in unnecessary tests and procedures will lower healthcare costs. That could, allegedly, save tens to hundreds of BILLIONS of dollars.

But does that make sense? Tort reform will not ELIMINATE medical malpractice law suits.If there is tort reform but no healthcare reform, a physician may face a lower probability of suit, but if he IS sued, won't he wish he had ordered the extra tests to protect himself? And if there is no healthcare reform, it will remain costless for him to order the tests, since third-parties will continue to pay for them.

Meanwhile, if there is healthcare reform but no tort reform, patients paying more out of pocket will be asking doctors more critically why tests are ordered, and likely refusing expensive exams that are justified on the grounds of "well, it's unlikely, but I want this test just to be sure..."

So, tort reform is neither necessary nor sufficient for healthcare reform, though it is, independently, worthwhile.

It's like those tests we took as students:

A. Healthcare reform is needed.
B. Tort reform is needed.

The answer is: True, true, unrelated.

Don the libertarian Democrat writes:

"The entire financial system was totally unprepared to deal with the inevitable collapse of the housing and credit bubbles. The system had reached a point where it had to be bailed out and restructured. And there is no realistic political or legal scenario where such a bailout could have been executed without some blood on the streets."

I agree with the first two points, but not the third, although it is plausible. I didn't think that you would agree with any of these points.

As for this quote:

"Unfortunately, the conventional post-mortem on Lehman is wishful thinking. It basically says that no matter how huge the housing bubble, how deep a credit hole the United States (and many other countries) had dug, and how convoluted the global financial system, we could have just grown our way out of trouble. Patch up Lehman, move on, keep drafting off of China’s energy, and nothing bad ever need have happened."

I never believed this, even though I believe that Lehman should have been saved. As I argued on John Carney's blog, things would have been bad no matter what happened with Lehman, but we didn't need to go to the brink of a Debt-Deflationary Spiral.

However, I think that I agree with you on this point:

"The market does not have a rapid solution to the Recalculation Problem. But the planner does not have a rapid solution, either."

If you are criticizing people like Krugman who pick a number we need to spend, in a mechanistic fashion, then I agree with you, and for a similar reason. It's always important what you spend the money on.

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