Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Tuesday, December 19, 2006

Unclear on the Concept of a "Free Market"

John Derbyshire encounters the free market in health care, and recoils in horror. Via Kevin Drum:

The Washington Monthly: BEST IN THE WORLD, BABY, BEST IN THE WORLD.... From John Derbyshire over at The Corner:

CHRISTMAS PRESENT [John Derbyshire] My health insurer has just notified me, in a brief form letter, that my monthly premiums are to rise from $472.33 to $857.00 on January 1st. That's an increase of 81 percent. EIGHTY-ONE* PERCENT Can they do that? I called them. They sound pretty confident they can. Ye gods!

A conservative reader emailed this item to me with the following comment: "I've heard people say a conservative is just a liberal who's been mugged. Then maybe a liberal is just a conservative who suddenly got this in the mail."

You see, John, there is this thing called the "market." People who want to buy health insurance--that's you, John--look for people who want to sell health insurance, and when you find one and agree on a price you make a "transaction." This is a voluntary exchange. Both sides to do it. The health insurer has just told a customer that they want to charge you not $5,668 for next year but rather $10,284. If the customer doesn't like that price, the customer should look for another health insurer.

Now we liberals have lots of reasons and arguments for why we would not expect free markets in health insurance to work very well, and Derbyshire has just encountered one of them: it looks as if his particular health plan is entering an adverse-selection death spiral.

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