Insurance and cost containment

I've been making the case on this blog that the real driver of health costs costs in this country is the reliance on the insurance model. When someone else pays for the cost of health care -- in this case an insurance company -- there is no incentive for consumers to seek the best deal or health care professionals to provide it.

Apparently I'm not alone in this belief as this interview with John Bates Clark medal-winning economist Kevin Murphy reveals:

Recent research by Daron Acemoglu, Amy Finkelstein and Matthew Notowidigdo suggests that increased income per capita isn’t the primary driver of the tripling in health care expenditure-to-GDP ratio since 1960. They’re not sure what the explanation is, but they suggest it may be institutionalized health insurance. What are your thoughts about the causes of rising health care spending?

Murphy: I think there’s a good chance they’re right. I think those kinds of explanations are looking at the right suspects.

It is therefore somewhat ironic that current government efforts to reform health care have the goal of extending insurance coverage to as many people as possible -- in effect spreading the very thing that has produced the cost explosion.