Theories of health insurance (why insurance-paid care is not inefficient)

Well, that was unsatisfactory.

First it gave an account of how it's possible that health insurance does not induce moral hazard (by giving the patient a lump-sum).

But then you realize that that's not how the world works.

What's the solution, just give patients a lump sum for each diagnosis for them to spend as they please?

The underlying assumption here is that patients are consumers (that they can effectively assess the value of some treatment option), which Paul Krugman directly refuted [1]. Therefore, it is up to the doctors to be honest with what treatments to offer the patient.

[1] http://www.nytimes.com/2011/04/22/opinion/22krugman.html

The title is somewhat misleading. It's a theoretical explanation of why moral hazard induced by insurance may not be inefficient.

A more interesting assumption made by this theoretical argument is that it measures efficiently a bit differently than most arguments on health care. Namely, it treats health care itself as a desirable consumer good - if a consumer would willingly spend $10k on a medical procedure with no health benefits, it would be efficient for insurance to pay for this.

This is probably why this analysis differs from other similar analyses of the efficiency of insurance - most other studies attempt to measure health outcomes rather than revealed consumer preferences.

Interesting article, regardless.

I am, or have been, eligible for membership in several Credit Unions, because of where I work, where I live, clubs I belong to. Each brought the advantage of the credit union getting a group, rather than seeking out individuals.

Once I'm a member, the credit union doesn't tell my employer what I do with my money, or anything about my fiscal health. If I quit my job, move, change social clubs, the credit union doesn't kick me out; they don't care.

Is it so hard for medical insurers to manage this?