Austan Goolsbee is an American economist, currently Chairman of the Council of Economic Advisers and the youngest member of the cabinet of President Barack Obama. Goolsbee is on leave from the University of Chicago where he is Professor of Economics. He wrote this in 2007:
“/f you set up a market-based health system, allowing insurance companies to pick and choose who and what they will cover, you give them overwhelming incentives to dump, deny, avoid and neglect the sick people.
And when you operate the system mainly through employers (as we do), you impose intense costs on U.S. industry and you ensure that the pool of people without insurance tends to include the unhealthiest, costliest cases around.
Economists call this “adverse selection” and when there is too much adverse selection—when the health of the people in the uninsured pool is extremely different from the average person in the country—the market may fail completely. Insurance companies may just deny people coverage entirely.
Without any rules against cream-skimming, the insurance companies have every incentive to keep dumping the sick people—often retroactively, after they become sick.
[Michael] Moore [in the film Sicko] shows the insurance companies literally giving bonuses to the reviewing doctors who deny the most claims. If you can pay premiums to your insurance company for 30 years and then they can just drop you when you have a stroke, the system is seriously broken…
American economist Dean Baker is co-founder of the Center for Economic and Policy Research. He had been a senior economist at the Economic Policy Institute and an assistant professor of economics at Bucknell University. He has a Ph.D. in economics from the University of Michigan. Baker wrote this in October 2010:
In fact, Medicare as an insurance system is considerably more efficient than private insurers. In 2008, its administrative costs were 5.6 percent of the money paid out in benefits each year, compared to an average of 13.3 percent for private insurers.
The reasons for Medicare’s lower costs are straightforward. The system doesn’t have an expensive marketing apparatus, it doesn’t have executives drawing millions or tens of millions in compensation each year, and it doesn’t have to pay out dividends to shareholders.
For these reasons, Medicare is the most efficient part of the (inefficient) U.S. health-care system. Indeed, most of the proposals being put forward to reduce Medicare costs are not about eliminating waste; they are targeted at the meat of the program, undermining its ability to ensure decent care to retirees and the disabled.
Joseph Stiglitz is an American economist and a professor at Columbia University. He is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is also the former Senior Vice President and Chief Economist of the World Bank.
The US model of private health insurers has been proven inefficient and expensive. Rather than provide better healthcare at lower costs, insurance companies innovate at finding better ways of discrimination.
They are inefficient because they are trying to figure out how to insure people who don’t need the cover and keep out people who need it. With many companies, they also need to spend on marketing and advertising.
The incentives are all wrong and the transaction costs are very high and you have to give them a high profit. In health, social and private incentives are totally disparate. Competition does not work in healthcare especially in the health insurance market. Several countries like the UK, France and Sweden have a single payer system, differing only in the organisation of healthcare delivery.