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.
Review of We’ve Got You Covered, Liran Einav, Amy Finkelstein, (Portfolio/Penguin), 2023, 304 pages, ISBN 978059342239 (Hardcover), 9780593421246 (ebook)
The two economists, Stanford University’s Liran Einav, and Massachusetts Institute of Technology’s Amy Finkelstein, well-known contributors to the literature on health insurance, propose a plan to allow people to buy supplementary insurance to expand their coverage.
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—except for one sentence—of possible reforms on the supply side that would increase supply and reduce the price of health care.
One major tension is in their view of the importance of co-payments and deductibles; moreover, they seem to misunderstand the way to measure the impact of co-payments.
What About HSAs?
It’s slightly ironic that in a book titled We’ve Got You Covered, there are important issues in health economics the authors don’t cover at all. Issues that matter for an overall evaluation of the health care system.
For example, one increasingly popular innovation in health care purchase in the past few years is health savings accounts (HSAs). With HSAs, people save before-tax money the way they do with Individual Retirement Accounts and can then spend those dollars tax-free on health insurance, co-payments, and deductibles.
Many people have used HSAs to cover expenses that otherwise would have been difficult to cover. Would HSAs solve all the problems that Einav and Finkelstein point to? Of course not. But they would help. It was disappointing, therefore, that the authors didn’t even mention HSAs.
Opening the Market?
After reading every page, including every one of the authors’ extensive (and impressive) footnotes, I could find no mention, other than one sentence, of government restrictions that make the supply of health care less than otherwise and prices higher than otherwise.
Three such regulations are certificate of need (CON) laws at the state level, federal restrictions on the immigration of doctors, and constraints preventing non-doctors from doing things now done only by doctors. Restraining supply limits competition and raises prices.
CON laws require permission from a state government agency to build a hospital or a surgical facility, to name only two. Existing providers often show up to contest their application, and often succeed.
Similarly, immigration restrictions prevent tens of thousands of doctors from moving to the United States, making doctors’ fees higher than otherwise.
Also, pharmacists, who usually know much more about drugs than doctors do, are typically prevented from prescribing drugs. If they were able to do so legally, as they are in many countries, people could often skip an expensive trip to the doctor, saving time and money.
Co-pays and Deductibles
As recently as the 1970s, we didn’t have good empirical evidence showing that requiring patients to pay a co-pay would influence the amount of medical care people demanded.
But Einav and Finkelstein point out that we now have scads of such evidence. One might think, therefore, that they would advocate having at least modest co-pays as part of their basic coverage. That would cause people to spend less money, presumably cutting out the marginal uses. Surprisingly, though, the authors oppose co-pays.
The authors argue that in countries that have modest co-payments, the restraint on spending is modest. Yet in their later discussion of Medicare, they note that because Medicare will pay for whatever doctors and hospitals provide, “why not run a few extra tests and scans to be on the safe side, or send the patient to a specialist when in doubt?”
It seems to this health economist (for two years I was the senior economist for health policy with President Reagan’s Council of Economic Advisers) that co-pays could restrain Medicare spending a fair amount.
Basic Coverage, Global Budget
In a chapter titled “A Shack, Not a Chateau,” the authors advocate “very basic” coverage. That way, government spending wouldn’t be as large as otherwise. Later, they state basic coverage “should include primary and preventive care, specialist, outpatient, emergency room, and hospital care.”
The hard part, they write, is choosing what more to cover. To avoid tackling the issue directly, they advocate an overall health care budget to pay for basic coverage and call for making tradeoffs within that budget.
I wonder if the authors worry about whether the same kind of political forces that ended co-pays in other countries or added patchwork coverages in this country would lobby successfully to have various coverages included under “basic,” with the effect being higher spending, possibly even higher than it would have been under the current system.
What if we combined three things: (1) the reforms I suggest above that would reduce health care prices, (2) health savings accounts, and (3) an expanded role for private voluntary charity? It would be interesting to see how that would compare.
David R. Henderson (email@example.com) is a research fellow with the Hoover Institution and emeritus professor of economics at the Naval Postgraduate School in Monterey, CA. A version of this article was published at hoover.org on August 24, 2023. Reprinted with permission.