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insurance rant
Picking up on this post, as well as Sen. Clinton's announcement of her so-called health-care plan...
People have several objections to single-payer health insurance plans:
Answer 1: It'll cost more government money, but less money in total, which is what counts. Who wouldn't happily pay $7000 a year more in taxes in exchange for paying $12000 less a year in insurance premiums? Every country on earth with a universal, single-payer health care system spends considerably less money per capita on health care than the U.S. does... and for less money, they get much better health care for most of their people. In some of those countries, even the high end is comparable to the high end in the U.S.
Answer 2: Americans want freedom to choose a doctor, freedom to choose a hospital, freedom to choose procedures... exactly the freedoms that HMO's don't give them. As for freedom to choose an insurance plan, that's a bad thing; see answer 3.
Answer 3: The free market runs on knowledge of individual differences. If you value something at $10, and I value it at $20, and we both know that, we can work out a mutually beneficial arrangement in which you sell it to me for $15, and we both feel like we've come out $5 ahead. If different people have different preferences in bread, or movies, or computers, each one can buy his/her own preference, and the market will steer the most business to whichever supplier has correctly predicted the preferences of the most consumers.
But insurance isn't like that: it depends on ignorance of individual differences. If one in a thousand houses burns down, and we have no idea which one it'll be, everyone can chip in a thousandth of the cost of a house (plus a little profit for the insurer), and whichever house actually burns down will be covered. If, on the other extreme, we know exactly which house it'll be, none of the other 999 people has any incentive to pay any premiums at all, and the one person whose house will burn down has premiums greater than the price of a house, so that person won't buy insurance either. To take an intermediate position, if 80% of the houses are brick, and the other 20% are straw, the brick home owners will only be willing to pay a small premium, and the straw home owners will have to pay a larger premium, which some of them will be unable or unwilling to pay, so the rest will have to pay even more, which some will be unable or unwilling to pay, so the rest.... In brief, the more is known about who's going to need insurance, the less well insurance works.
As long as we don't have universal coverage, it's in every insurance company's best interest to figure out who is actually going to need insurance, so as to not sell it to them (or price it accordingly, which amounts to the same thing). So we have thousands of highly trained actuaries working to distinguish high-risk from low-risk people. And it's in each individual consumer's best interest to figure out his/her own level of risk, so as not to buy too much or too little insurance, so we have millions of consumers working to figure out their own level of risk. And the better these people do their job, the worse the insurance system works.
To avoid these problems, a workable health coverage system doesn't necessarily have to be "single-payer", but it has to have two properties:
Now, I won't deny the danger of runaway costs due to (as![[livejournal.com profile]](https://www.dreamwidth.org/img/external/lj-userinfo.gif)
jducoeur pointed out) a "tragedy of the commons": if the person deciding what resources to use isn't paying the full incremental cost of using those resources, the resources will be overused. This needs to be addressed, e.g. with deductibles, copays, etc. But remember also that most (sane) people don't actually enjoy medical treatment; any kind of medical treatment carries a cost in time and discomfort to the patient, and this should act as a partial counterweight to the "tragedy of the commons" phenomenon.
People have several objections to single-payer health insurance plans:
- it'll cost too much money;
- it robs Americans of their freedom of choice; and
- it's not free-market; Communism collapsed because the free market works better and produces more efficient allocation of resources.
Answer 1: It'll cost more government money, but less money in total, which is what counts. Who wouldn't happily pay $7000 a year more in taxes in exchange for paying $12000 less a year in insurance premiums? Every country on earth with a universal, single-payer health care system spends considerably less money per capita on health care than the U.S. does... and for less money, they get much better health care for most of their people. In some of those countries, even the high end is comparable to the high end in the U.S.
Answer 2: Americans want freedom to choose a doctor, freedom to choose a hospital, freedom to choose procedures... exactly the freedoms that HMO's don't give them. As for freedom to choose an insurance plan, that's a bad thing; see answer 3.
Answer 3: The free market runs on knowledge of individual differences. If you value something at $10, and I value it at $20, and we both know that, we can work out a mutually beneficial arrangement in which you sell it to me for $15, and we both feel like we've come out $5 ahead. If different people have different preferences in bread, or movies, or computers, each one can buy his/her own preference, and the market will steer the most business to whichever supplier has correctly predicted the preferences of the most consumers.
But insurance isn't like that: it depends on ignorance of individual differences. If one in a thousand houses burns down, and we have no idea which one it'll be, everyone can chip in a thousandth of the cost of a house (plus a little profit for the insurer), and whichever house actually burns down will be covered. If, on the other extreme, we know exactly which house it'll be, none of the other 999 people has any incentive to pay any premiums at all, and the one person whose house will burn down has premiums greater than the price of a house, so that person won't buy insurance either. To take an intermediate position, if 80% of the houses are brick, and the other 20% are straw, the brick home owners will only be willing to pay a small premium, and the straw home owners will have to pay a larger premium, which some of them will be unable or unwilling to pay, so the rest will have to pay even more, which some will be unable or unwilling to pay, so the rest.... In brief, the more is known about who's going to need insurance, the less well insurance works.
As long as we don't have universal coverage, it's in every insurance company's best interest to figure out who is actually going to need insurance, so as to not sell it to them (or price it accordingly, which amounts to the same thing). So we have thousands of highly trained actuaries working to distinguish high-risk from low-risk people. And it's in each individual consumer's best interest to figure out his/her own level of risk, so as not to buy too much or too little insurance, so we have millions of consumers working to figure out their own level of risk. And the better these people do their job, the worse the insurance system works.
To avoid these problems, a workable health coverage system doesn't necessarily have to be "single-payer", but it has to have two properties:
- universal: everybody whom we wouldn't turn away from an emergency room is also covered for non-emergency care, checkups, etc, and
- single-premium: how much each person pays into the program is not determined by that person's health risk (although it could scale up with income).
Now, I won't deny the danger of runaway costs due to (as
jducoeur pointed out) a "tragedy of the commons": if the person deciding what resources to use isn't paying the full incremental cost of using those resources, the resources will be overused. This needs to be addressed, e.g. with deductibles, copays, etc. But remember also that most (sane) people don't actually enjoy medical treatment; any kind of medical treatment carries a cost in time and discomfort to the patient, and this should act as a partial counterweight to the "tragedy of the commons" phenomenon.