EclectEcon

A few days ago, I wrote that to deal with the excess quantity demanded for health services at low or zero prices, we should,

... make it illegal for companies of any sort to provide health insurance without at least a 10% co-payment for the first $1000 of services. My suspicion is that many of the demands on physicians' time would fall dramatically if people had to make even a 10% co-payment. I have no studies to cite here, but I guess I'm saying the price elasticity of demand is pretty high for many of the services sought by many patients in this zero-price and near-zero-price portion of the demand curve.

Let me begin by correcting what I wrote. What I meant to say was "a 10% co-payment for the first $10,000 of services (i.e., the insured would pay up to a maximum of $1000) per year. I would also expect this co-pay limit would roughly be indexed to the rate of inflation.

It looks as if the evidence from Singapore's health care system is consistent with this recommendation. From Bryan Caplan at Econolog,

I've heard a lot of smart people warn that co-payments are penny-wise but pound-foolish, because people cut back on high-benefit preventive care. Unless someone is willing to dispute Singapore's budgetary and health data, it looks like we've got strong counter-evidence to this view: Either Singaporeans don't skimp on preventive care when you raise the price, or preventive care isn't all it's cracked up to be.

More details on how Singapore's system works:

• There are mandatory health savings accounts: "Individuals pre-save for medical expenses through mandatory deductions from their paychecks and employer contributions... Only approved categories of medical treatment can be paid for by deducting one's Medisave account, for oneself, grandparents, parents, spouse or children: consultations with private practitioners for minor ailments must be paid from out-of-pocket cash..."
• "The private healthcare system competes with the public healthcare, which helps contain prices in both directions. Private medical insurance is also available."
• Private healthcare providers are required to publish price lists to encourage comparison shopping.
• The government pays for "basic healthcare services... subject to tight expenditure control." Bottom line: The government pays 80% of "basic public healthcare services."
• Government plays a big role with contagious disease, and adds some paternalism on top: "Preventing diseases such as HIV/AIDS, malaria, and tobacco-related illnesses by ensuring good health conditions takes a high priority."
• The government provides optional low-cost catatrophic health insurance, plus a safety net "subject to stringent means-testing."

These sound like worthwhile steps toward improving the healthcare systems in North America. Remember, too, though, as I argued in my previous posting: working on the demand side will almost surely not be enough. We must also implement plans to increase the supply of physicians and medical capital. Two good ways to do so would be to increase enrolments in medskools, and privatize the provision of many lab services such as MRIs, etc.