Blue Eats Restaraunt Insurance

Arnold Kling has a great piece over at TCS called You Call This Health Insurance? It argues that what we call health insurance is rarely insurance at all, instead its a split-the-buck program:

What Blue Cross and Blue Shield pioneered was a "split-the-check" approach to health care. An equivalent plan for restaurant meals would be that instead of paying for your meal, you would pay an annual premium to "Blue Eats," which would in turn reimburse restaurants for their costs, plus a profit margin. Every individual member of "Blue Eats" would have an incentive to eat out a lot and order the most expensive items on the menu, because the cost is shared among all of the members of "Blue Eats."

"Blue Eats" would be a great marketing ploy by restaurants, because it would get people to eat out more and spend more at restaurants. Similarly, John C. Goodman argues that what we call "health insurance" originated as a marketing ploy by physicians and hospitals. It worked really well, too.

While he refers to incentives, there is little discussion of why this system is so terrible. The problem is that when you have a cost-sharing system, you lose the incentive to choose health care efficiently. In a Blue Eats world, restaraunt costs would go sky high, because no one would order sirloin when they can get filet mignon for the same co-payment. There isn't enough market feedback. It is crucial that individuals have a chance to weigh the costs and benefits and act accordingly.

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