“Medical Insurance” Insurance?

A few weeks ago, I had an interesting discussion with two coworkers (both of the more left-wing persuasion) about what would happen in a free-market system to people who can’t get medical insurance due to expensive preëxisting conditions.It certainly is a difficult problem, and not simply because the healthcare system has been skewed by gov’t involvement for so long. It’s critical for free-market advocates to admit that much.

If the ACA were repealed, the short-term solution for people who already have such conditions will probably need to be some combination of Medicaid and private charity.

But there is a way to ensure that people who do not now have expensive medical conditions can get affordable medical insurance should they develop those conditions. The answer is something called “health status insurance,” and it was something that already existed before the ACA essentially made it illegal by requiring everyone to have expensive medical insurance (read about it here and here).

The idea is that you go without medical care insurance (or pay small premiums for a high-deductible insurance plan, sometimes called a HDHP/CDHP), but pay a small premium to reserve the right to purchase medical care insurance at a reasonable premium should you get a chronic condition. The insurance companies would issue this insurance based on many factors, including present health, family history, lifestyle, etc., just as they assess risk when issuing life insurance.

Hopefully, this will allow healthy people to share some of the cost burden and keep insurance companies afloat while paying for patients with high-cost care, while not requiring healthy people to shoulder an onerous burden. It also gives consumers incentive to use insurance properly: to manage risk. Insurance companies have very smart people who assess risk and will insure just about anything. The companies have to make money, but they also have to keep their prices low. When gov’t puts its foot on one side of the scale by requiring people to have the highest-priced insurance, insurance isn’t allowed to work as it should: to manage risk. It becomes an inefficient payment management scheme.

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Ultimately, what we all want is for as many people as possible to get the medical care that they need without going broke. The big questions are: who is going to pay for it all, and who should decide who gets what?

I think it’s utterly demonstrable that the market has a much better track record in providing other goods and services—a spectrum of quality for different needs, the right quantities of those different levels of quality, and improving quality overall while lowering prices—than does government control. We don’t have a federal Department of Shirts that regulates the quantity, quality and prices of shirts—and yet we can all purchase every sort of shirt from a dress shirt down to a cheap white undershirt, there are never shortages, and the quality keeps going up while the prices go down (relative to income, and probably in absolute terms as well). In order to argue that the government would do better than the market at delivering medical care, you’d have to demonstrate that medical services are qualitatively different from shirts, cars, car repair, vegetables, and other goods and services we buy, such that it would constitute a “market failure.” I think it is possible to make a plausible case that medical services are different (due to asymmetrical information and causal complexity), but I am not convinced—nor do I think that government planning could do better than an admittedly imperfect market system.

For the sake of argument, let’s consider the extreme other position: that medical care should be a right that a government guarantees to all its citizens. This would be one way of controlling costs. Doctors and nurses would be government employees, and pharmaceutical research would be conducted by universities and foundations with gov’t funding. But if consumers are not paying for medical services, what incentive is there to provide services or improve them? Everyone will get the same level of care, but what if that isn’t very good? How much care does the “right” extend to—basic care, or even expensive conditions like diabetes and MS? It’s estimated that half of all lifetime spending on medical care occurs in the last six months of life. What if there is an expensive procedure that may extend a patient’s life by six months? Who decides whether the gov’t will pay for that procedure? A panel? A judge?

Moreover, when you make medical care a right, you have the same problem you have with all “positive rights”: you have to take from someone else to provide the guarantee. Imagine if there aren’t enough smart people attending medical school because they will have to work for the gov’t and can only make a certain amount. What will the gov’t healthcare system do about doctor (or researcher) shortages? They could raise the payscale, but that would involve higher taxes, which are never popular. Would you have to compel smart people to become doctors and accept lower salaries than they could make in the private sector (making smartphones or whatever)? I don’t want a doctor who is forced to care for me!

It sounds a bit absurd, but the point is that the money to pay for expensive medical care has to come from somewhere—there isn’t a free lunch. Private and public systems will both have rationing, profits, and costs. But a private system is much more nimble and can respond more quickly to patient demand, without the political process. Private systems also produce innovations that drive down costs—initially benefiting the rich, but then benefiting the poor soon after. When I was kid, only rich people could afford car phones. Now, many of the poorest people in the world (certainly the poorest in our country) have smart phones (mine was $80). If only we could unleash that sort of innovation in healthcare…

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About Benj

I’m a native North Jerseyan, exiled to the land of Phillies fans…an Old Testament professor and former liturgist…husband to Corrie…father to Daniel and Elizabeth…eldest sibling to three, brother-in-law to Josh and Hannah…uncle to Marshall.
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