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Weighing In:

Tom Husted gives the fourth faculty interview in a series on health care reform.

Tom Husted is a professor in the Department of Economics and the College of Arts and Sciences' associate dean of academic affairs. His main area of research is public finance.

 

What do you see as the major economic dimensions to this issue?

One of the most important ideas in economics is that of competition. A competitive market provides more of the good or service at a lower price. So competition is a good thing.

Now, with the current healthcare situation, you've got two areas where there is a lack of competition. One is in the concentrated insurance market—meaning that, in a given geographic area, you're not going to have very many choices of health insurance carriers. The other source is the highly concentrated provider market. In most non-metropolitan areas, you rarely have a choice of more than one hospital or maybe at most two.

So, even if your insurance market was competitive, in order to keep their costs down, they would need to be working with a competitive provider market that offered lots of doctors and lots of hospitals. And, even if there are a wider variety of providers, those providers would need to be working with a variety of insurance companies.

How do we encourage competition in these two areas of the healthcare market?

One way to do it is to have government step in. In order for insurance to work, companies can't just insure sick people. They will go broke if they're only covering people who are going to use the benefits. The government needs to give healthy people incentives to sign up for insurance. This could take the form of a system of direct subsidies or tax breaks—either money to people as a subsidy or tax breaks to people on their tax form—to encourage them to purchase health insurance.

The government could also directly provide insurance and become a source of competition for the insurance companies. The government has been able to keep Medicare and Medicaid costs down by effectively bargaining with providers about what procedures cost, and it would be likely to operate similarly with a more universal health insurance option.  

What effect does the high percentage of uninsured have on the health care market?

No one's going to leave someone out to die because the person doesn't have insurance. People without insurance should and will receive treatments.  People with insurance then end up paying higher premiums to recover costs.

It works like car insurance. When someone that is not insured is in an accident, the insured will pick up that cost. So it benefits everyone who currently has insurance if more affordable health insurance options present themselves.