Arrow's antique critique

From today's perspective, Arrow's commentary comes across as a bit antique. Let's go through his objections.

Unpredictability is hardly unique to health care. Indeed, in the five decades since 1963, an entire industry has emerged to address the problem of unpredictability. Think of the extended warranties you're offered when you buy a new television, in case the product stops working. If you worry about being suddenly short of money, or accidentally making a mistake with your checking account, you can buy overdraft protection. If you're afraid of flying, you can buy traveler's insurance. And I haven't even brought up the classical forms of insurance, such as homeowner's insurance, auto insurance, and life insurance.

It's true that we have instituted barriers to entry in the delivery of medical care. It's a problem that Paul Starr documents well in his definitive history of the subject, The Social Transformation of American Medicine. But again, this is hardly a problem that is unique to health care. It's a lot easier to get a medical degree than it is to start an airline or a bank from scratch. We require licensure of lawyers, but Ken Arrow never managed to write a paper advocating for the nationalization of the legal industry. And it's not just doctors and lawyers: in many parts of America, you need a license to become a cat groomer, tattoo artist, or a tree trimmer.

Trust is certainly important in medicine. But trust is also important in many, if not most, commercial transactions. We trust that the manufacturers of car brakes have thoroughly vetted their products. We trust that cruise ship captains are sober when they're on duty. And if we feel our trust has been violated, we trust properly licensed lawyers to sue on our behalf.

As any Megan McArdle fan knows, asymmetries of information are everywhere. The ancient Latin aphorism caveat emptor ("let the buyer beware") has been enshrined in property law for centuries. The idea is that sellers know more about the defects of what they are selling than do buyers. Hence, traditionally, we hold buyers responsible for understanding what they are buying, so long as the sellers haven't engaged in fraudulent misrepresentation. We accept that auto mechanics know more about our car's problems than we do, and we take our business elsewhere if we feel like they've been ripping us off.

When it comes to medicine, the internet has made great strides in reducing asymmetries of information. A parent of a child with a genetic disorder, or Lyme disease, is likely to know as much, if not more, about available treatments than will your garden-variety family practitioner. Patient forums and websites like WebMD give people access to medical knowledge in a way that they didn't have it before.

The last of Arrow's concerns is the most important: that we pay for medical services in a non-standard way, especially through third parties. Free-marketeers have long sought to remedy this problem. On the other hand, Arrow's proposed solution to third-party payment--government-sponsored insurance--makes the problem worse, by further removing patients from the price and value of the care they receive.