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Medical Spending: Good For The Insured, Not For the Uninsured?

Last year, the Atlantic Monthly's Megan McArdle explained that she opposed comprehensive health care reform because the push to reduce the cost of health care spending would inevitably constrain medical innovation:

Why don't you tell some person who has a terminal condition that sorry, we can't afford to find a cure for their disease?  There are no particularly happy choices here.  The way I look at it, one hundred percent of the population is going to die of something that we can't currently cure, but might in the future . . . plus the population of the rest of the world, plus every future generation.  If you worry about global warming, you should worry at least as hard about medical innovation.

More recently, she's been arguing that it's not worth spending money to cover the uninsured because access to health care doesn't necessarily make you healthier. ("Quite possibly, lack of health insurance has no more impact on your health than lack of flood insurance.")

Ezra Klein points out what you might call the tension between these two arguments:

What health-care coverage does, in its simplest form, is secure access to medical innovations. To express skepticism about the value of health-care coverage while opposing anything that might reduce the treatments health-care coverage can buy is strange indeed. If the product's value is so unclear even given how much we spend on it, that would strengthen the case for harsh cost controls considerably. Instead, the argument is both that health-care insurance isn't obviously worth it, but that we should also aggressively resist any efforts to cut back on it. There's a lot more respect for the speculative further benefits that insurance can offer the insured than the more measurable benefits insurance can offer the uninsured.

The deeper problem here is that McArdle obviously has a strong ideological predilection against government intervention into the market. This leads her to find data that bolsters her skepticism. But, as Klein points out, the data weigh heavily against both her contentions. The evidence that higher spending improves health for people who already have health insurance is weak. The evidence that higher spending improves health for people who lack insurance is strong. That's as you might expect: Most goods provide the greatest benefit at the lowest levels. A starving or homeless person gains more from getting some regular meals or a one-bedroom apartment than Bill Gates would by adding a wing to his house or upgrading the quality of his personal chef.

One of the functions of health care reform is to shift around the resources a bit to maximize the total utility -- less health care spending where it does little good, more where it can do a lot of good. So McArdle has to argue that the (largely theoretical) dangers of slowing medical innovation for people who currently have insurance are vast, but the benefits of providing basic coverage to people who lack it are small or possibly nonexistent. Each of those arguments requires a strained reading of the evidence, but taken together, they're nonsense.