The Health Care market is complex, and to understand it one
must drop back and ask two questions. First, just what are we trying to
accomplish with Health Care. Second, are there other examples of “insurance”
that people buy which seems to work?
Let us answer these two questions quickly. First we want Health
Care so that people who are sick can be treated in the best reasonable manner.
Note I did not say best possible manner. It should be reasonable based on
resources available. However if someone can afford more than they can
personally buy more. Second, we have many examples of such an approach apart
from Health Care. Namely home, auto, liability insurance.
What makes the other insurance factors work? Simple:
1. They are bought as an individual not through companies as
a benefit. Every buyer gets to make their own choice.
2. Minimum levels are coverage are mandated but they really
are minimal to protect third parties such as liability limits.
3. Added coverage is optional and can be purchased.
4. It is not tax deductible.
5. There is an un-insured motorist pool which can be made
akin to the high risk medical pool.
6. Insurance companies are many and compete aggressively for
customers.
Thus we have thousands of examples of such coverage. Then
why is Health Care so crazy. Well there are many people who think they know.
In a recent NY
Time article by an often self-proclaimed top economist the author states:
In Econ 101, students learn that market economies allocate
scarce resources based on the forces of supply and demand. In most markets,
producers decide how much to offer for sale as they try to maximize profit, and
consumers decide how much to buy as they try to achieve the best standard of
living they can. Prices adjust to bring supply and demand into balance. Things
often work out well, with little role left for government. Hence, Adam Smith’s
vaunted “invisible hand.” Yet the magic of the free market sometimes fails us
when it comes to health care. There are several reasons.
Namely he contends:
1. Externalities abound. In most markets, the main interested
parties are the buyers and sellers. But in health care markets, decisions often
affect unwitting bystanders, a phenomenon that economists call an externality.
Now the externalities are also the unintended consequences.
All too often whenever Government gets into the fray we see unintended
consequences. Why? Simply because almost all legislation is written by lobbyists
who serve the interest of their employers. The more legislation the more
externalities. Externalities rare a result of the way legislation is created
not inherent in Health Care.
2. Consumers often don’t know what they need. In most
markets, consumers can judge whether they are happy with the products they buy.
But when people get sick, they often do not know what they need and sometimes
are not in a position to make good decisions. They rely on a physician’s
advice, which even with hindsight is hard to evaluate.
Well consumers do not know what fender will get crushed by
some moron trying to squeeze between you and an eighteen wheeler. You need
coverage not specificity. That is the nature of insurance. When my car gets hit
I do not know how to repair the fender or how to price it out. Same for dozens
of other insurance markets. I am buying a policy to cover the unknown. Thus
this reason is without merit.
3. Health care spending can be unexpected and expensive.
Same as the above. I cannot tell you when that moron in the
black pickup tries to squeeze between me and the 18 wheeler. I was stopped to
allow the 18 wheeler to safely turn. The moron in the pickup is just that, a
moron! So his policy pays but mine increases my fee, perhaps because I did not
have wings on my care to fly away. Why says insurance is logical.
4. Insured consumers tend to overconsume. When insurance is
picking up the tab, people have less incentive to be cost-conscious.
Auto insurance customers do not, frequently. This is
insurance fraud. They have adjustors for that. Now there is a corollary. Namely
many people abuse themselves via obesity, alcohol, tobacco, and what we get is self-induced
disease. That is the equivalent of a person having a multiplicity of moving
violations. We have seen and addressed this element.
5. Insurance markets suffer from adverse selection. Another
problem that arises is called adverse selection: If customers differ in
relevant ways (such as when they have a chronic disease) and those differences
are known to them but not to insurers, the mix of people who buy insurance may
be especially expensive.
If everyone who drives must have insurance, actually it is
the vehicle, then why not the same with Health Care. No exceptions. You may
just have the minimum liability policy or you can get the top of the line. But
you have it. Perhaps the bottom minimum is covered by a tax deductible. If
people do not have the funds they great a tax credit to pay for it. But no free
riders.
We had developed
the details of such a plan some eight years ago. It is not hard and not
overly costly. It gores a lot of oxen. From fat people charged a surcharge to
companies getting rid of the benefit. It also get the Government out of telling
me when to get a colonoscopy.
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