State insurance regulations are responsible for the fractured, single-state insurance markets that we currently have. An easy way to lower the market shares of the dominant insurance companies in each state would be to preempt state insurance regulation and replace it with uniform national rules. Insurers that look big relative to state markets do not look big in a single national market.

Similarly, in most states, entry in to the hospital services market requires a “certificate of need,” and they are rarely granted, no doubt because of regulatory capture. Rather than proposing a government-sponsored health plan, maybe we should try allowing entry first? Just as with insurers, it’s not as if the same hospitals are dominant everywhere, and successful ones could easily surmount the relatively modest market barriers to entry if government ones were removed.

Moreover, there is no reason to believe that the public plan would behave any differently than current private plans. You provide a nice sob story about fine print in a private plan. (Somehow assuming that “light regulation” cannot include regulations to curb false or misleading contracting practices…) But I see no explanation of why the public plan would have any different incentives. “Not for profit” universities should provide ample evidence that simply giving something a public mission does not magically create incentives for good behavior. With a limited budget and a fear of political criticism, the public plan would try to save money by reducing coverage in the least transparent way possible, to avoid politically unpopular cuts.

And finally, no analysis of the health care market is complete without acknowledging that Medicare regulations essentially drive the entire pricing model for hospitals. This blocks innovative pricing structures that could start to address moral hazard.

These regulations do a lot of harm to patients. How about we give the free market a chance?

Simply throwing around market failure words is not an argument. And spending time pointing out how “laissez faire” people are does not contribute much to the discussion. Have you even asked Mankiw what he envisions as “light regulation”?

Mankiw was addressing the President’s call for a public option that operates competitively without government subsidy. Such a proposal doesn’t address adverse selection, moral hazard, or any of the other numerous possible causes of market failure present in the health insurance market.

Frank, you have previously clarified that you support a subsidized public option. Mankiw argues that a subsidized public option only makes sense if it is really just a step toward single-payer health insurance. (BTW, I am interested in your perspective on this claim.) He then goes on to make the standard arguments against single-payer.

Krugman hasn’t clarified anything. It is quite possible that he supports either a subsidized or unsubsidized public option simply as a stalking horse for single payer, which he has advocated before. Krugman’s criticism of Mankiw is simply a non sequitur.

http://www.qando.net/details.aspx?Entry=5176

http://www.concurringopinions.com/archives/category/health-law

I doubt that regulation without a public option can work.

Even if Krugman is wrong about Arrow, the following two pieces describe several shortcomings of neo-classical approaches to health care, including modish CDHC programs:

http://www.milbank.org/quarterly/8503feat.html

http://ideas.repec.org/a/cup/hecopl/v4y2009i01p99-114_00.html

Finally, I think we should reflect on how the situation described by Joseph White in the Milbank piece came about. Thomas Greaney of SLU has convincingly argued that failures of antitrust enforcement have contributed a great deal to larger failures of the health insurance market:

http://www.concurringopinions.com/archives/2009/05/an-antitrust-angle-on-the-public-plan.html

So the ultimate result of laissez-faire, anti-antitrust rhetoric here is to necessitate greater public involvement in a failed health insurance market. . . . just as free market fundamentalism may well have been behind the banking collapse that’s spurred the greatest increase in financial regulation since the 1930s. Ah, the cunning of history.