Sunday, March 23, 2008

Arnold Kling vs Peter Orszag

Arnold Kling disagrees with Peter Orszag;

Orszag argues, as others do, that because health spending is highly concentrated, catastrophic health insurance will not reduce spending very much. The point is that for very sick people, catastrophic coverage is like comprehensive coverage. This in turn suggests that there is not much to be gained by trying to tinker with insurance incentives.

I tend to disagree. First, I think that having a multi-year term for catastrophic policies, as sketched out in my book (soon to be out in paperback, by the way), would mean that a much larger percentage of health care spending would be subject to incentives than the typical analysis would suggest. Second, it is possible to restructure insurance to use co-payments rather than deductibles as the main mechanism for cost sharing. Third, if we were to phase out Medicare and replace it with actuarially fair catastrophic insurance, the remaining lifetime deductible (again, this is discussed in my book) would be so high that even high-spending consumers would still be responsible for much of their spending.

On balance, however, I am in the same camp as Orszag. Our camp believes that the United States could reduce health care spending substantially without hurting health care outcomes. However, the path to getting there involves lots of research into the efficacy of various procedures as well as changes in behavior (Orszag refers to physician norms as an example).

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