Call it a health care gamble: the decision by some people to opt out of health insurance, paying cash for routine care while playing the odds that an accident or catastrophic illness won’t plunge them into financial ruin…Many pay far less for health care than they would on premiums, and doubt that insurance would even cover them if they needed it.
“Call it a gamble,” they say. Well, that’s the whole point of health insurance.
Consider “insurance.” Insurance was invented to help people pay for large, catastrophic losses for which they can neither foresee nor afford. For example, most people cannot afford to simply buy a new car or pay off $50,000 in medical bills if they are suddenly in an automobile accident. Further, people do not plan for an accident, and therefore do not actively save for one (most people could not afford to do so, anyway). So, insurance was invented. You pay a little bit into a pool each month and the pool grows. If you have a catastrophic event, the pool pays out and covers your losses. Of course, your small contribution each month never adds up to the amount you may need, so the system requires a large pool of people pitching in small amounts to make sure the pool grows sufficiently large enough. Since most people never have a catastrophic event, a relatively small premium paid each by a large number of people adds up to enough to cover the few who actually need it. For everyone else, your premiums are never returned to you – your investment turns out to be an unnecessary one when you never have an accident. But, because you cannot foresee or afford the consequences, you buy insurance “just in case.” You “insure” against the risk of loss. If you do not wish to pay for insurance, you “take a gamble” that you will never have an accident. But, as far as insurance goes, as long as many people are paying in to the pool and relatively few people are ever taking out of the pool, premiums can remain low. Lots of small payments in; very few big payments out. It stays balanced that way. Naturally, the more people take out of the pool, the higher the payments in must necessarily go. Thus, the more that is covered by insurance – i.e. the more that is paid out – the higher premiums will be.
Take car insurance. Again, a large group of people pay in to the pool, a relatively small number of people have catastrophic car accidents. In most places, car insurance is affordable. But, imagine how much automobile insurance would cost if it paid for all expenses associated with owning an automobile – oil changes, engine failures, worn-out tires, brakes, rust, and so on. Suddenly, the number of people taking out of the pool equals the number of people paying in! The entire concept of insurance is destroyed – it is no longer to “insure” against catastrophic loss; it is no longer a large group of people paying in small amounts to create a large pool to cover the few who will actually suffer a loss. Now, everyone is paying in to the pool and taking out of the pool – so for the pool of money to be large enough to cover the payouts, premiums end up mirroring the cost of all of the procedures being paid for. Premiums skyrocket. If this were the case, the number of people who couldn’t afford car insurance would rise dramatically, and we would have a car insurance crisis in America.
This is the situation with healthcare in America today. As health plans increasingly pay for almost every service or procedure, however big or small, the price of insurance continues to rise. Health insurance covers every visit, every expense, every pill, etc. Health insurance is no longer a pooling of people’s money to pay for large, unexpected expenses. Everyone pays in, and everyone takes out. And since health care is ridiculously expensive (also as a result of insurance, see below), premiums continue to balloon. And, since you cannot refuse people treatment at ERs, etc., premiums are even higher since (unlike car insurance) people not paying in are also taking out. This is not a market problem, either. Health insurance law is completely regulated by the government, and policies are required by law to cover all of these things. A true “market” in health care would favor policies with lower premiums. Lower premiums would only be possible as “covered” items get dropped from plans.
But also, consider how health care works. When you go to your doctor, do you haggle about the price? Do you compare the cost of going to different doctors? No one does. Despite the fact that we keep the cost of everything from automobiles to milk at a minimum by utilizing competition, no one compares doctors’ prices thereby forcing them to compete against each other. Why? Because people don’t pay doctors’ bills. You pay your insurance premium and the amount that is uncovered. So doctors have no incentive to lower costs to increase business. They submit their bill to an insurance company. The insurance company has a small incentive to keep doctors’ bills low, and they do, but for the most part the insurance company just passes on the cost to the consumer in premiums. The doctors overcharge, the insurance company makes up the difference in premiums. The party without the ability to simply pass on the cost is the consumer – the poorest of the three interested parties. (Update: Reason has a similar article up.)
Thus, our system of third-party payer insurance combined with the “cover everything” mandate simply prices health care and insurance out of the hands of most people. (A related problem is tying health care to employment. When insurance policies are designed for large companies with cash, affordable programs for individuals cease to exist. It further lacks mobility, so people lose their insurance every time they switch jobs.)
The prevailing government “solution” – to socialize the cost – does not fix the problem. No part of paying for health care out of tax revenue actually addresses the problem – the cost. Costs continue to rise, and more and more tax revenue is needed. Because tax revenue cannot rise indefinitely, at some point costs are rising without the corresponding ability to pay for them. So, to bring costs down, you begin to cut services. Note: cutting services doesn’t mean reducing covered items. Cutting services means reducing the quality of the care to make it cost less.Therefore, when we fashion solutions that do not address the cost, we guarantee a “long run” of higher prices and lower quality.
The thing is: we do not have bad health care in America. We have the doctors and nurses, the technology, and everything else required for a top-notch health care system. Health care is just unaffordable. Socializing the cost will not fix that.
So, what is the solution? First and foremost, the government mandate that everything should be covered by insurance needs to be abolished. The idea of forcing coverage seems nice. It would appear to insure that the less well-off are not just able to afford catastrophic loss coverage, but also the “day-to-day” stuff, so to speak. This, certainly, is a noble goal. Unfortunately, a government mandate isn’t solving the problem. The “little stuff” – the stuff for which you can budget – should not be covered. This alone would solve the major cost problem. If insurance did not cover the day-to-day, premiums would drop precipitously. But what about the “little” stuff? If the little stuff were not covered, doctors would be forced to compete for business. If people had to pay for the services themselves at the time of service, like when you buy a TV or a sandwich, people absolutely would refuse to accept a service knowing the outrageous cost upfront. The cost of the day-to-day stuff (the proverbial oil change, gas fill up, etc.) would eventually be affordable – unless it was not necessary that it be day-to-day. The services that are currently overused by people simply because they have insurance would simply be used less, or would slowly transition to the “covered” side of the medical expense equation, but at a frequency that makes them affordable.
Second of all, the health insurance market itself needs to become more competitive. Health insurance is currently unable to be sold across state lines. This creates a monopoly for the few (or one) insurance companies already in a given market. The transactional costs of entering the market become too high, leaving one company with a government-created monopoly without any market forces pushing prices down (or quality up, for that matter).
Not directly related to insurance, but affecting the cost, the ability to enter the market as a doctor or nurse needs to be made easier. The simplest way to do this is to simply afford reciprocity / Full Faith and Credit to the medical doctors and nurses of other states. Here in the Quad Cities, hospitals and clinics are minutes apart, but because they are in separate states, the employees are not as mobile as they could be.
From a liberty stand point, if people do not want to get insurance, why should they be forced to?
Or, instead of mandating that people pay for insurance – making those than can afford it but don’t want it pay for it, and making the rest of us subsidize those who can’t afford it – why don’t we recognize that the federal government should be doing nothing about it. The states have already regulated the insurance market 100%. If a state wants to mandate coverage, a state can require that only the necessary things be covered, and require that only those basic minimums are carried by the individual. Then costs will be much lower, just like auto insurance. For most routine and fundamental procedures, you pay for them and budget for them just like anything else.
Although I oppose a government solution, at least if the “government” were local it would be better than the current federal solution. If the states were responsible for the insurance needs of their residents, the solutions would be much more responsive than any federally-mandated cookie-cutter response the feds could drop on 300 million people over 10,000,000 sq km in 50 state governments representing any unending number of cultural and socio-economic factors. The concept of federally-mandated insurance is absurd. This is pretty much why every government program is mired in bureaucracy, buried in debt, inefficiently run, and 3 times as expensive as it should be.
From the AP:
What could play a central role reforming the nation’s health care system happens in a small conference room of the Aesculapius Medical Center — two patients learning the basics of managing their diabetes.
The pilot program begun in 2003 aims to reach patients with chronic conditions, keep them healthier and, ultimately, save money by heading off expensive hospitalizations and procedures. Already, emergency room visits are down.
It’s health care at its most basic, but in some ways it’s revolutionary. In a system where private insurers and the government reimburse providers for treating sick patients, the physicians who treat the two diabetes patients will get more if they stay healthy.
Setting aside the debate over whether the program actually works or not (which is a separate post), let’s assume for the sake of argument that it does.
If the State of Vermont has a successful program for improving health care, or lower health care costs, why would that be a model for the federal government? It seems to me that Vermont’s success would be a model for other states.