Health Care, Part One

To listen to the lecture, click here.

Four Scenarios for buying a coat. Match the scenario with the outcome.

You buy yourself a coatA) Right Coat, Wrong Price
Your parents give you a credit card and tell you to buy a coatB) Wrong Coat, Right Price
A friend buys you a coatC) Right Coat, Right Price
The government buys you a coatD) Wrong Coat, Wrong Price

When someone else pays for health care, then we will spend too much, and choices will not be optimal.

Three scenarios for paying for health care:

SelfPrivate InsuranceGovernment
ExamplesHSA'sindividual, corporateMedicare, Medicaid

Self is most efficient. However, it is risky and punishes the poor and the sick.

Government could reduce risk and inequality. But that gets the government involved in defining eligible illness and treatment. Erectile dysfunction? Facelifts? Obesity?

Using taxes rather than saving to pay for health care hurts the economy

Why not have government pay only for emergency care? Don't want people to skip on preventive care, or get emergency care for minor illnesses.

Why not require mandatory catastrophic health care coverage?

Ordinary coverage: $3000 annual premium, $3000 deductible

Catastrophic coverage: $1000 annual premium, $10,000 deductible

Perhaps insurance company will give you incentive for prevention

Once you are diagnosed with an expensive illness, catastrophic coverage becomes expensive

Government subsidies for catastrophic insurance--catastrophic "reinsurance"

Other problem with employer-provided insurance: harder to switch jobs