A Flawed Case for Centrally Planned Health Insurance

By David Henderson, Aug 25 2023

In their recent book, We’ve Got You Covered, two health economists make their case for ditching the current system of health insurance in favor of a government-financed, zero-premium insurance for basic coverage. They would allow people to buy supplementary insurance to expand their coverage. The two economists, Stanford’s Liran Einav and MIT’s Amy Finkelstein, are well-known contributors to the literature on health insurance.

With their breezy and humorous writing style, Einav and Finkelstein make what seems at first like a compelling case. They may sway many readers, especially those who don’t know the literature on health economics. But a careful look at their case for ditching our current health insurance and starting over with a centrally planned system uncovers serious omissions and some tensions between their own views. Two omissions are: any mention at all of health savings accounts, and any mention, with a one-sentence exception, of possible reforms of the supply side that would increase supply and reduce the price of health care. One major tension is on their view of the importance of co-payments and deductibles; moreover, they seem to misunderstand the way to measure the impact of co-payments.

These are the opening two paragraphs of David R. Henderson, “A Flawed Case for Centrally Planned Health Insurance,” Defining Ideas, August 24, 2023.

Another excerpt:

You might be surprised to learn that the authors’ fundamental argument for a government-financed basic coverage for all is not that in our current system some people go uninsured. They write, “One in ten Americans lack formal health insurance coverage. But they are not uninsured.” How can that be? People without health insurance, they note, “receive a substantial amount of medical care and don’t pay for most of it.” They buttress their claim with strong evidence taken from the Oregon health insurance experiment, which Finkelstein was deeply involved in studying. In 2008, the Oregon government, constrained by its revenue, had decided to run a lottery to choose who would be added to Medicaid rolls and who would not. This is the kind of experiment that causes economists to rub their hands in glee. The reason: we get a large random sample of people who get the coverage and people who don’t, and we can track both their use of the medical system and their health.

Read the whole thing.