Ramesh Ponnuru says that individuals shopping for their own insurance plans on the individual market isn’t as ridiculous as it sounds because “There would probably be various standard packages offered by insurers, resources such as Consumer Reports and word-of-mouth, etc.” Ezra Klein offers a good common sense reply to this, but I think the situation could stand to get a bit more theoretical, since I think what Ponnuru is doing is fundamentally missing what’s good about markets.
Markets produce great levels of consumer satisfaction. And when consumer satisfaction is all we can ask for, then markets are great. What should a necktie or an MP3 player do, other than make the consumer happy? The Soviet Union was a fashion disaster and horribly backwards in terms of entertainment. But with regard to some things, we can make objective measures. Soviet apartment buildings are incredibly ugly, but they stood up. Of course our apartment buildings stand up, too. But sometimes consumer satisfaction is significantly in tension with objective measures. As societies get rich, they seem to converge on a diet that’s incredibly unhealthy. And this is because we have first-order food desires that were highly functional under a radically different set of circumstances. Nowadays, sophisticated Americans spend a lot of time attempting to retrain our first-order desires so that we crave heirloom tomatoes and sensibly sized portions rather than a Monster Thickburger.
But of course when it comes to food, both the objective and the subjective are very important. It would suck to live in some public health dystopia where we have to eat lentils and quinoa every day and talk about how awesome it is.
And when it comes to health insurance, the subjective is really really really unimportant. Whether or not I “want” prostate cancer screening has just about nothing to do with anything. There are tables one could draw about age and other risk factors and the reasonableness of performing such-and-such a test. And this is integral to our understanding of what a medical interaction should be like. Visiting the doctor is not like visiting a car salesman, where he’s working on commission trying to upsell you and you’re trying to be on guard and strike a good bargain. That would be terrible. This is why we make doctors take oaths and so forth. And it’s true, of course, that the doctor-patient falls far short, in practice, of the ideal of a commerce-free trust between a healer and a patient. But this is a problem. As is the commercial nature of the interaction between a health insurance company and a person trying to get medical care. Someone really does need to tell you that certain procedures are unnecessary or unduly speculative. But should that person be a representative of the interests of a profit-maximizing firm? Not really. Which is why we wind up having all these regulations.
It’s true that deregulating the insurance market would make it more “efficient” according to one technical sense of efficiency. It’d be more like the market for cheeseburgers or sneakers. And everyone would, by definition, wind up with the insurance package they want. But it wouldn’t produce good health outcomes, or efficiently allocate dollars toward health-maximizing ends.