Question about Supply Side Economics/Trickle Down Economics/Horse and Sparrow theory

[CoccoBill]

I'm still digesting your earlier posts but on the last one, hm I'm not sure I agree. Sure, someone being covered by universal healthcare probably has a nominally greater risk appetite than someone who isn't covered, but I have a hard time believing that's a large margin. Would be interesting to see a comparison between privatized/public healthcare countries and their normalized rates of admission per capita. Doesn't sound like something that's easy to reliably measure though.

What I've seen first hand though is that with privatized healthcare the hospitals have great incentives to perform every tests and operation imaginable to all patients, since they're all covered by the insurance. This probably is a big reason for the current high costs and premiums. With a public single-payer system this isn't an issue.

[wufwugy]

I'm still digesting your earlier posts but on the last one, hm I'm not sure I agree. Sure, someone being covered by universal healthcare probably has a nominally greater risk appetite than someone who isn't covered, but I have a hard time believing that's a large margin.

I agree. I think if we were to measure the effect over a short term it might appear non-existent. I think the effect would take a long period and would come in forms not necessarily predicted. Risk preferences and cultures don't change overnight, but they are more likely to change over long time periods.

What I've seen first hand though is that with privatized healthcare the hospitals have great incentives to perform every tests and operation imaginable to all patients, since they're all covered by the insurance.

Though I think this is in a large part a problem of regulation and where the funds come from, I will say that it is also an inherent problem to healthcare. There is so much unknown about the body and peoples' fear of health problems is so great that producers and consumers are overly cautious as well as some producers can act in underhanded ways. Nobody breaks the bank at Toys R Us but they will at the hospital. Granted, I don't think this is a system breaking problem. There are lots of ways to address it.

One way the problem you mention is nurtured is by the eradication of cheap catastrophic plans and health savings accounts, and subsidization of comprehensive employer plans. This is because employer based plans are usually pretty good and people who have them have incentive to use them since the benefits are not taxed. These have made the instantiation of payment differentiated from instantiation of consumption to a large degree. An example for how we could address this is stop giving tax breaks to employment insurance plans, deregulate plans such that it is legal to pay for the kind of coverage you want, and replace lots of transfer with health savings accounts. Then we would find a significant drop in the behavior you mention and a movement towards transparency in price tags, which would result in cost reductions across the board. Regardless it is true that healthcare has a unique problem since we know so little about what works and people are willing to still pay a lot.

[wufwugy]

I agree. I think if we were to measure the effect over a short term it might appear non-existent. I think the effect would take a long period and would come in forms not necessarily predicted. Risk preferences and cultures don't change overnight, but they are more likely to change over long time periods.

He's an illustration of the type of moral hazard I'm thinking of that I estimate can happen when healthcare is subsidized: a small percentage of parents will one day be in a situation in which they are considering the type of dietary choices to be made for their kids. The situation could be triggered by something like a visit to the doctor informing them that the child has early stages of diabetes and that if changes aren't made he will have to go on treatment. Some parents will have trouble paying for that treatment and a subset of those will consider the option of avoiding payment by way of fixing the child's lifestyle. However, if the same set of parents have expectation that the government will pay for the child's treatment regardless, then the consideration of lifestyle change in this small subset of scenarios would happen less often.

Fixing the moral hazard problem that arises from people having an entitlement to government healthcare may only solve some small problems or it may solve some really big ones. It's hard to tell. But the moral hazard problem is not one to take lightly. For example, the government guarantee of bank deposits instantiated by the FDIC is widely thought of as a good thing that improves the economy and improves peoples' lives and there is very little discussion about the bad it could do. Yet, I have seen some economists make the case that the FDIC is at the heart of the cause of the subprime housing crisis that eventually led to great calamity years ago. Policy often looks like it doesn't bring with it moral hazard up until a significant event few people predicted instantiates from a little-understood extra risk-taking incentivized by that policy.