Thursday, April 5, 2012

Wall Street Journal Opinion Piece by John Cochrane Exposes the Ignorance on Health Care Policy

Unfortunately What He Exposes is His Own Ignorance

In a free and open society anybody can opine on any subject that he or she chooses to do so.  But opining on a subject, even on the opinion pages of a newspaper with one of the largest circulations in the world does not confer credibility on a subject if it is obvious that the author has little or no knowledge of what they are talking about.  Such is the case with a column by John Cochrane in the Wall Street Journal recently on health care and health care insurance.

The self exposure of Mr. Cochrane’s ignorance on the subject is not because he lacks credentials. 

Mr. Cochrane is a professor of finance at the University of Chicago Booth School of Business and an adjunct scholar at the Cato Institute.   

It is because like almost all ideologues, he substitutes what he wants the world to look like for what the world actually looks like.  His position is that health care insurance is better served by the private market without group insurance, and while private markets are almost always superior to the alternatives, free and open competition will just not work in the health care/health care insurance industry.

For example here is a point being made by Mr. Cochrane.

Americans will know there's a healthy market when hospitals post prices on their websites, and when new hospital and health-care businesses routinely enter to challenge the old ones. Here too regulations keep competition at bay.

Uh, hospitals do not post prices on the websites in large part because the prices themselves vary with who is paying and it is the insurance companies, not government that prevents hospitals from disclosing pricing.  

But the main point here is that in the alternative universe that Mr. Cochran inhabits potential patients choose hospitals based on prices.  In his world a person with a dire medical emergency first inquires as to the various pricing before selecting a hospital.  The conversation in the ambulance might go something like this

            Attendant:  We are taking you to City General, they have the best equipment to handle a severe head trauma.

            Patient:  No, County Memorial’s rooms are $25.00 a night cheaper and they have HBO at no extra cost.  And if I stay four nights I get half off the first night of my next visit, which given the quality of their care is something that will come pretty soon.

And here is another supposedly intelligent argument being made by Mr. Cochrane.

In my home state of Illinois, every new hospital, expansion of an existing facility or major equipment purchase must obtain a "certificate of need" from the Illinois Health Facilities Planning Board. The board does a great job of insulating existing hospitals from competition if they are well connected politically. Imagine the joy United Airlines would feel if Southwest had to get a "certificate of need" before moving in to a new city—or the pleasure Sears would have if Wal-Mart had to do so—and all it took was a small contribution to a well-connected official.

See Mr. Cochrane does not know the difference between fixed and variable costs, and the concept of a natural monopoly that must be regulated is a foreign idea to him.  He must have skipped graduate school the day they covered that.

Hospital specializations are very expensive in terms of facilities and equipment.  When hospitals are permitted to add programs without recognizing that sufficient resources already exist, the result is that there are insufficient revenues to make any hospital profitable.  Demand does not increase with lower prices like air travel or soft goods at Walmart.  Demand is a function of health.  No one has a heart transplant because it is on sale, or the price is right.  Well maybe they do where Mr. Cochrane lives.

And then there is this.

the expenses of emergency room treatment for indigent uninsured people are not health-care's central cost problem. Costs are rising because people who do have insurance, and their doctors, overuse health services and don't shop on price, and because regulations have salted insurance with ever more coverage for them to overuse.

If we had a deregulated, competitive market in individual catastrophic insurance, that market would be so much cheaper than what's offered today that we would likely not even need the mandate.

which in the interest of charity towards fellow humans The Dismal Political Economist will refrain from comment.

We hope, of course, that mental health services are included in the University of Chicago health care coverage.  And that after several years of therapy Mr. Cochrane can rejoin reality.


  1. I was going to comment disdainfully on Mr. Cochran's piece, but why? It's the WSJ.

  2. When I initially commented I seem to have clicked on the -Notify me when new comments are added- checkbox and now every time a comment is added I recieve four emails with the exact same comment.
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  3. I am sure there is a way to stop that but I don't know exactly how.

    When you sign on to Google or this site there should be an option that allows you to fix this. If you cannot find it see if there is a help function.

    Sorry not to be more helpful, heck I can barely navigate this thing myself.