Comments on Liebman and Zeckhauser, Simple Humans, Complex Insurance, Subtle Subsidies

14 Pages Posted: 30 Jul 2008

Date Written: July, 29 2008


These are brief comments on an excellent paper by Jeffrey Liebman and Richard Zeckhauser, prepared for a conference sponsored by the Urban Institute and Brookings on tax and health care policy. Liebman and Zeckhauser summarize the complexities involved in making optimal health insurance decisions, and offer generally cautionary notes about conflating these with tax law (a theme of the conference). Most importantly, Liebman and Zeckhauser suggest a positive role for employers in health care and insurance decisions, as better setters or framers of choice sets - witness 401(k) plans.

In this Commentary, I applaud Leibman and Zeckhauser's general work and particular observation, generalizing that behavioralist approaches might often lead to a search for the "best decider," akin to the search for the "least cost avoider" or "best cost spreader" in law and economics and tort law (e.g., the work of Guido Calabresi). I caution against an approach to behavioralism that simply lists "one damned bias after another," and suggest that the case against simply turning health insurance choices over to consumers is overdetermined by behavioral economics, bounded rationality, common sense and experience (cf. experience with Medicare prescription drug plan, subprime mortgage crisis, etc., etc.). I nonetheless suggest that the insights of behavioralism can be used to better guide policy-makers today. For example, lawmakers should consider the complexities of choices that their policies ask individuals to make, and take a Hippocratic Oath to "do no more complexity" (which argues strongly against the continued conflation of tax and health care policy). Competition should focus on meaningful real variables, such as the quality, range, and location of care providers, and less on financial variables, such as the levels of deductibles and co-pays, which can helpfully be standardized to prevent distracting competition along these lines.

Suggested Citation

McCaffery, Edward J., Comments on Liebman and Zeckhauser, Simple Humans, Complex Insurance, Subtle Subsidies (July, 29 2008). USC CLEO Research Paper No. C08-14; USC Law Legal Studies Paper No. 08-18. Available at SSRN: or

Edward J. McCaffery (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-2567 (Phone)
213-740-5502 (Fax)

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