Ken Arrow may have made an important contribution to understanding health care markets fifty years ago, but I see Arik Roy’s critique of his ideas to be wholly irrelevant. When I talk about the free market not being a good fit for health insurance, I am not talking about how expensive it is to get a medical degree, the importance of trust in the doctor/patient relationship, or any differences in the relative medical knowledge of a doctor and their patient. It’s not about the patient as consumer. It’s about the nature of insurance.
You insure your house against fire, your car against collision, your family-supporting income against death. You do these things, not because your house will definitely burn down or because you will definitely be in a car accident or because you are certain to die before you retire. Health care is different. Except for a tiny subsection of people who die suddenly while in good health, everybody is going to get sick and die and use a ton of health care in the process. When you buy health insurance, you aren’t buying coverage for something you hope won’t happen but coverage for something you know almost certainly will. You’re not really insuring against anything. What you’re doing is spreading out the cost of end-of-life healthcare by making many small payments during your working years.
This is no different from how Medicare works, and that’s why Medicare does work. There is no reason why there should be one system for people over 65 and another for people under 65. There is nothing about private health insurance that makes health care more rational or cheaper. All we want to do is help people pay for their health care needs by collecting a percentage of their earnings in each paycheck (while they are earning paychecks) so that the money will be there when they need it. Whether that money goes to Aetna, Blue Cross, or the Treasury Department is not particularly important, but it costs more if we have to add corporate profits to the price tag.
There are ways to discourage people from over-utilizing the health care system. That’s why we have deductibles and co-pays. The government can apply those concepts just as well as the insurance companies, and without spending a ton of time trying to deny people the coverage they’ve paid for.
Here’s the deal. When it comes to the provision of health care, it’s not about free markets. It’s about an entirely unnecessary market. There isn’t one coherent reason why people should buy health care insurance when they know for a fact that they are going to need health care. This becomes even more obvious when you turn it around. Would you insure someone’s house against fire if it was already on fire? Would you insure a car against theft if it had already been stolen? Of course not. Likewise, you wouldn’t agree to pay for a sick person’s health care.
All I want is to pay a relatively small fee each month for the rest of my working life so that I will be taken care of when I get sick. I may get sick tomorrow. I may get sick when I’m 101, like my grandmother. I have zero interest in paying ANY of that money to a for-profit health insurance corporation that wants to find any loophole to screw me out of what I’m entitled to. I cannot imagine ANY WAY that that insurance corporation is superior to just paying the money in taxes. None. I can’t even imagine a possible way that they’re better. They’re certainly not cheaper. They definitely are more intrusive about what treatments I can get. They not only don’t care about me, the moment i get sick they consider me their adversary. Why would I pay for representation like that?
It’s insane that a large enough segment of our population has been brain-washed to the point that they think private health insurance isn’t the worst scam since Enron. Free markets? What does that even mean in this context?
Even if I wanted to think about health care exclusively as a transaction where I weigh my perception of the doctor’s expertise against the price he’s demanding, how do health insurance companies help this process?
They don’t.
But Arik Roy will continue to spout the insurance industry’s b.s.
Avik Roy is a Senior Fellow at the Manhattan Institute for Policy Research, and author of The Apothecary, a Forbes blog on health-care and entitlement reform.
That tells me all I need to know. Add the fact that he’s guesting at McMegan’s place, and I know he’s not a serious thinker
Good stuff, Booman. Something of a tangent here, but I sure hope the White House—and most especially its political operation—has a “Plan B” for what to do if the Supreme Court rules against the Affordable Care Act.
Given the ongoing collapse of the employer-based health care system, and the need for a bumper sticker to explain what Democrats would do next, the best I’ve come up with is: Medicare For All.
Keep whatever’s left from the wreckage, and allow anyone to buy into Medicare. Anyone have better thoughts?
No, but given our corrupt political system, that isn’t happening. In fact, I don’t understand why most business don’t get behind it. It gets them out of the health care business. Then again, look at asshat Cameron in the U.K. The Tories just passed a bill that’s going to destroy the NHS.
There is no reason why insurance coverage should be tied to employment. None.
As for health insurance companies, their executives are guilty of premeditated mass murder. All of them. For-profit health insurance, and its obsession with denying treatment to sick people and live-giving treatment to seriously sick people, is responsible for the unnecessary deaths of an enormous number of Americans each year. I really don’t understand why, as a society, we tolerate it.
It’s especially bad to make me pay for health insurance for five or ten years and then not honor any of that money I paid when I lose my job. I know we have Cobra and all that, but it’s not bloody insurance. It’s an installment plan. Or, it should be.
COBRA is an installment plan, just with a price that was set by your previous employer’s negotiating ability.
not the point though.
Say I told you that on January 16th, 2020 that your house was going to burn down. Wherever you are living on that day, your house will burn down. And let’s say that the insurance industry had that information, too.
So, you can’t insure your house. What do you do?
(And, no, you can’t rent).
You start saving a little bit each pay period so that you’ll be able to rebuild your house. You create an installment plan for yourself.
That’s essentially what we’re doing when he we buy health insurance. We don’t know the exact day, but we know that sometime in the future we will almost definitely be facing staggering medical costs.
It makes sense to pay into an installment program. It doesn’t make sense to pay for insurance that can be canceled. In that case, we have to start all over. Why would we choose that?
Total up the compensation of just a handful of top health insurance executives and ask yourself how much care could have been provided to the general public for the same money.
I’m good with Medicare for all, as is my family doc, BTW.
The concept of “overutilizing the healthcare system” is economist malarkey unless you are talking about some specific procedures like elective plastic surgery under some circumstances. This is a canard by free market advocates to prevent government-provided healthcare.
Most healthcare encounters are of the type that people want to avoid. Deductibles and co-pays cause people to underutilize the healthcare system.
You go to any free healthcare clinic or county health department and you see overutilization of resources. But its because the maldistribution of resources between high-priced healthcare for those with the ability to pay and more limited healthcare for who don’t have the ability to pay.
We’ve talked about this…different doctors from different background have vastly different approaches to health care…different consumers have vastly different ideas about medicine…only the market can decide which approach is best…doctors should have to compete against one another to convince insurance companies to cover their procesures…insurance companies should have to compete against each other for consumers…only this way will the most efficient approach to health care (i.e. the approach that yields the best results for the lowest cost) emerge…you mention deductibles and co-pays…which approach is best? High deductibles with little or no coverage for preventative procesures, or vice-versa? If only the Government dictates, then we will never know-monopolies are not very good at judging the market.
Most places in the US don’t have independent doctors anymore, they have private for-profit, university, or religious healthcare systems that include hospitals, specialist practices, and primary care practices. In some places, there is only one of these behemoths. The difference between it and a government system is that in a government system you can complain to politicians, which at least gives you the illusion of control.
Markets are not appropriate for goods and services that you want to ensure that everyone has regardless of ability to pay. Especially if the basic level of services is priced higher than a larger number of people can afford.
The Affordable Health Care Act is set up for exchanges to be a marketplace in which consumers can make apples-to-apples comparisons of health care insurance plans. That presence of a single market in each state should be just what you are advocating.
It is all too easy to reduce costs by providing inadequate care. And it is not easy for patients to determine when they are receiving inadequate care.
Markets don’t decide anything. People do.
Baruch atah ha Shuk, ha dayan emet.
Indeed.
The provider “market” will still have plenty of incentives to innovate in a single payer system and what is effectively a fixed price for a procedure. If they can do it better, faster, cheaper, with shorter recovery, they absolutely will get financially rewarded.
Second, what insurance companies primarily want to compete for are healthy customers with zero or very low predicted costs that year or in the near future. Where healthcare “markets” fail is that if you’re sick or expected to be sick, no market mechanism exists to convince a profit seeking insurer to assume your risk. I see no way to overcome this flaw. It would be like expecting an auto insurer taking on a six-time convicted drunk driver.
And what insurers are good at, and will get better at, is predicting who will cost them more than premiums received, and simply price them out of the market, to be absorbed by some kind of government plan. It’s a way to guarantee profits for the private carriers, with losses offloaded to taxpayers. I don’t see the gain in that kind of “market.”
Okay.
Let’s pretend that this is no health insurance industry and our government has nothing to do with health care at all.
I’m presently healthy but I know I could get sick at any moment. I also know that I will eventually get very sick and die.
How do I respond?
Since no one will insure me, I create a nest egg. Every pay period, I add a certain percentage to the nest egg. I will use that money when I get sick.
Now someone comes along and offers to take care of that money for me. They won’t invest it for me. They’ll just take it from me and use it however they see fit. If I get sick, I will call them and they’ll think about maybe giving me some of that money. They’ll try to find any excuse not to give it to me, and they’ll try to tell me what medicines I can take and that certain procedures aren’t covered. Would I want that arrangement?
On the other hand, imagine that the government said to me that I can give them the money instead. I won’t have to worry about it getting stolen out of my mattress or burning up in a fire. I won’t have to discipline myself to contribute to my nest egg each and every pay period. And when I get sick, they won’t try to screw me out of my money. They’ll approve my procedures and my medications.
Now, which arrangement seems better to you?
And even if the government places a few restrictions on me, won’t I still prefer their offer to the guy that is mainly concerned with screwing me?
That’s a good point, except that it doesn’t really describe how the government plan, such as Medicare or Tricare, would work. Just like an insurance company, the government plans also deny coverage and payments. The only benefit from the point of view of patients is that the payment denials are to hospitals and doctors more or as often as to patients — single payer works because it limits health care providers’ incomes. But the government plans are also in the business of denial of care just as much as insurance companies are.
Well, not really. Canadian medical care covers all primary care, most specialists, and all hospital costs. Period. Our doctors earn as much as yours do, without having to employ a bunch of people just to keep track of the billings. Our specialists may not make as much as yours, but it’s close or otherwise we couldn’t keep them.
I would estimate that approximately $1,000 of my monthly provincial and federal income taxes goes toward our health care system — so, in that sense, I am paying just as much for “health insurance” as you folks are. The difference is this: if I lose my job, or need repeated heart surgeries, I am still covered.
Now, it took us years and years to get to this point — we had lots of arguments along the way about what should and shouldn’t be covered, some provinces had fees, some did not, some covered chiropractic, some not, etc etc.
But its not fair to say that government plans are also “in the business of denial of care” — the government does what the people want it to do, and if we want something covered then we elect a government that will cover it. Because our health care is a huge portion of our government budgets, it is something that all Canadians are vitally interested in.
No, your doctors, while still well paid, actually earn substantially less than American doctors, not just a little bit, and that actually explains a large part of the difference between total health care expenditures per capita in the two countries. Specialists especially, but also throughout the system, American health care providers earn more than merely their salaries due to ownership in fee for service facilities such as MRI units, labs, etc. Health insurance adds about 8% to the cost of care in the US, compared to maybe 5% or 6% if it was managed by the government. The real savings comes from eliminating or reducing the fee for service model, particularly hospitals and for services provided on a per item basis by partnerships owned by doctors.
But in both countries, Arik’s larger argument (I don’t think he stated it well) about increasing the number of doctors by reducing the ability of medical professions to control licensing, and thus supply, of doctors, is a valid one. The high salaries and income generating opportunities of doctors and providers (hospitals, etc.) really is the center of the cost part of the problem.
Whopping big assumption that you have the ability to set aside a nest egg to cover medical care.
Have you ever not had the ability to pay medical bills and had to deal with collection agencies because you either didn’t have that nest egg or your bill was larger than that nest egg?
This is not an effing theoretical issue we are discussing here. It affects people’s lives and sometimes dramatically.
Here’s some numbers for you. Emergency cardio-cath plus insert stent $40,000. Intensive care, $10,000 a day.
How many people can set aside the nest eggs to cover those?
Here’s an observation from personal experience. In 2003, my spouse and I both had surgeries. We were covered by so-called “good” insurance from my employer. Our out-of-pocket wound up being about $20,000 and it took 6 months of wrangling to get the insurance to pay the hospital the rest of their portion. The hospital had us in collections 4 months after the surgery, despite the fact that we were in constant communications with their accounts payable department. I have very little, if any good will left for the private insurance market and my story is not nearly the worst by any estimation.
Personally, I have no patience for people arguing for a market-driven health care system. They’re basically telling me that it’s OK if people die due to lack of insurance. Since I’m without insurance right now, that also means me.
Bringing it down from wonky abstractions into the realm of actual human suffering is the only way to discuss this.
As for nest eggs, the last time I saw one I was babysitting chickens.
More Freedom<sup>TM</sup>, that’s how.
(Freedom<sup>TM</sup> is a registered trademark of the Republican National Committee. All rights reserved. Used with permission.)
Hmn… looked ok.
You don’t know a lot about insurance, Boo.
Insurance does pool our resources. It does cover end-of-life and catastrophic care.
But you ignore the most obvious thing, the most important thing. Health insurance is a group purchasing cooperative. When an insurance plan contracts with a hospital, it and the hospital engage in a bargaining process, which ensures that members get a favorable deal. This is part of the group purchasing thing. But when someone NOT in the group goes to the medical system, they find out how expensive things are.
The group purchase and collective access aspects of medical insurance are some of the most important components. You should include that in your discussion.
you’re talking about pooling risk and using bulk purchasing for negotiating power. That’s fine. A single-payer system has more pooling and more bulk than any conceivable alternative. Right?
I wish you’d repackage this post as “Why Health Insurance Makes No Sense” or something like that, because this is a really good explanation of why the American system of private health insurance really isn’t feasible. I’d love to send this to my American friends and family who undoubtedly haven’t thought of it this way, but the Ken Arrow/Arik Roy comments are distractions. I didn’t even read the links, because I don’t care what they say.
Does this mean you want a totally public option for for Healthcare or are you saying the Health insurance reform act is a good start?
both.