Despite having some good words to say about about the consumer-focused approach to health care policy, I do think the liberal conventional wisdom is basically correct to think that stingier insurance coverage isn’t some kind of miracle worker in this regard. One important factor here is the 5:50 rule whereby about half the costs in a health care system are driven by just five percent of the patients. In other words, a huge share of resources go to treating people who are very, very ill so even though at any given time a consumer model might apply to most people, it doesn’t apply to the majority of the spending.
The other reason is what Karl Smith is pointing to here, namely that there’s very little reason to think that when human beings act like health care consumers they behave like rational health-maximizing agents. People do not appear to be interested in pursuing cost-effective improvements in health outcomes, so there’s little reason to think that giving individuals more autonomous choices would result in that end. The most cost-effective systems out there appear to be highly statist systems that become stingy due to tax-aversion and then ration the provision of care.
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