August 31, 2006 12:59PM

Fear of Freedom in Health Care

Ezra Klein writes,

From there, we part. Kling's other solution relies on a massive increase in the amount of health costs that come out of pocket. The "very poor" would be subsidized, as would the "very sick" (neither term is defined in his book), but everyone else would be paying for their own care. This makes sense in a very specific sort of world -- one in which you believe consumers have the capacity to make rational health care decisions -- and to a very specific sort of person -- one who believes those who make mistakes with their health care should simply pay the costs, be they financial ruin or death.

I am not that sort of person, and I am highly dubious of that world. I see no evidence for the claim that a gas station manager in Bakersfield, California, will be able to second- or third-guess his cardiologist's recommendation of an angioplasty. Will he have the money to get a second opinion? A fourth? Or will Kling's system convince him to foolishly underestimate his risk? Economists, after all, have shown time and again that we overestimate the pain of financial loss -- that, when it comes to money, we are not nearly so rational as one might hope.

In the simulation of my proposals in the chapter on matching funding to needs, I define poor as below the poverty line and I define very sick as having annual expenses over $5000 for the non-elderly and over $20,000 for the elderly.  I think that one can, and should, come up with better definitions, but the terms are not left undefined.

How should consumers make decisions about their health care? Let me define a "good" decision as one that is optimal in terms of expected benefits relative to expected costs. A different decision is a "mistake."

I propose making more consumers more accountable for more of their own health care spending. Let me describe this as a system where consumers make their own mistakes.

What is the alternative to a system where consumers make their own mistakes? The opponents of consumer choice would have you believe that the alternative is a system where no mistakes are made, and instead we simply see good decisions. But that is not the alternative that we observe. In fact, no one would say that the medical decision-making process is mistake-free in America today.

The realistic alternative to having consumers make their own mistakes is to have mistakes made on their behalf by doctors, insurance companies, and government.

In my health care proposals, I envision doctors, insurance companies, and government still available to offer advice. In fact, I envision a much stronger advisory role in health care coming from a commission that studies costs and benefits of health care proposals.

What I propose is that consumers have the incentive to use information about costs and benefits. Any treatment that is proposed today, under the presumption that a third party will pay for it, would still be available under a system where consumers are allowed to make their own mistakes. It's just that under the latter system, consumers would take costs into account.

I get the sense that the rhetorical attack on consumer choice in medicine is based primarily on the implicit assumption that the alternative to consumers making their own mistakes is consumers making no mistakes. Once you strip away that rhetorical support, the case for paternalism in medicine seems difficult to make.