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October 16, 2006
Insurance, Schminsurance
Arnold Kling spends a lot of time explaining that what we think of isn't health insurance. "[W]hat we call health insurance covers things like new eyeglasses, which is not a rare, catastrophic event." Alright. So call it health coverage. He argues that what we really need to do is move towards "something that looks like insurance, not like a scheme to insulate individual consumers from all health expenses." But why? Which is to say, if consumers, as they've repeatedly proven, don't want insurance, but instead want insulation, why shouldn't we seek to make that work (as it does in a variety of other countries and systems). Eyeglasses may be predictable, but they're still expensive, and folks seem to like the fact that they don't have to pay the costs all at once, and the genetically lucky have to give a bit to the genetically unlucky. Just because we call it insurance, doesn't mean we want what we buy to protect our house from fire.
October 16, 2006 in Consumer-Directed Health Care, Insurance | Permalink
Comments
Remember, when consumers want something that can be provided by the markets, that's good. When consumers want something that is not able to be effectively provided by markets, that's bad. Obviously they want the wrong thing and must be educated as pretentiously as possible about what they really want.
Posted by: Stephen | Oct 16, 2006 2:42:14 PM
I think the idea is to eliminate the tax-favored status for things that are part of health insurance that aren't actually insurance, and give workers a raise with the money. Maybe that idea's workable; maybe it isn't.
Posted by: Nicholas Beaudrot | Oct 16, 2006 2:57:38 PM
Quite obviously, health insurance in 1955 and 1975 was not everything that everybody wanted in health coverage, because Medicare and Medicaid exist.
Also (and quite obviously), there were massive problems with health coverage offered by, for example, Ford and GM in 1955 and 1975. Its just that the problems were the problems of funding future health coverage needs that were promised those workers in 1955 and 1975, and today is the time that those problems created in 1955 and 1975 are raising their heads.
Also (and quite obviously), as in any commercial landscape, health care good and service producers are encouraged to seek out low elasticity market segments and milk them for as much income as possible. And one of the problems with the piecemeal health coverage system is that there is a disconnect between elasticity of demand and the health benefit received for the money. That normal feature of the commercial landscape only serves to meet medical needs in a cost-effective manner if there are mechanisms in place to channel funds to goods and services that provide a medical benefit conmensurate with the cost.
So that makes three independent reasons off the top of my head why the argument does not hold up. Its likely that there are more ... as a development economist, I am supposed to be a consumer of arguments from health economics, but not necessarily a producer.
Posted by: BruceMcF | Oct 16, 2006 3:04:18 PM
Oops, and also entirely overlooked the semantic game being played ... of acting like fire or theft insurance are the only kinds of insurance. There's also life insurance, which is called insurance even though everyone dies, and the only question is when.
Posted by: BruceMcF | Oct 16, 2006 3:07:15 PM
Life insurance is actually more like fire insurance than it is like medical insurance, although it is true that everyone dies, what you are really insuring against is an unexpectantly short life. If you live to be 95, while you will still get a payout (under some policies), it will certainly be of less value than what you paid to get it.
Posted by: Dave Justus | Oct 16, 2006 3:22:20 PM
Well, two reasons occur to me off the top of my head:
One,insurance has administrative costs. If you pay a predictable $500 a year for contacts, there's no benefit to having that sum plus administrative costs be paid to an insurer, then paid back.
Also, direct purchase tends to hold costs down; look at the relative trends in price for elective surgery (cosmetic plastic, vision correction, sterilization reversal) and medically necessary surgery.
Posted by: SamChevre | Oct 16, 2006 3:25:24 PM
Whose health insurance covers eyeglasses? Through my employer I receive top shelf coverage and my eyeglasses aren't covered. In fact, I've never held a job where eyeglasses were covered by my health insurance. My wife, when she worked as a teacher, had excellent benefits through her union, but it never covered eyeglasses. Arguments like this just seem disingenuous from the get go to me.
Posted by: willsix | Oct 16, 2006 3:27:57 PM
Dave, you are close.
Most people that purchase life insurance today are looking to insure their earning years to help keep the family together financially. That is why term insurance has boomed. After the term expires, it is gone and you are uninsured but your heavy earning years were covered while the policy was in effect.
Posted by: Fred Jones | Oct 16, 2006 3:28:23 PM
Why should those who behave morally and properly subsidize the heathens. It is well-known that onamism causes poor eyesight. By insuring glasses, you are rewarding those with poor self-control. Or something.
Posted by: space | Oct 16, 2006 3:38:20 PM
Kling? What are you doing slumming with the Klings and Galts of this world? The guys who took over the US starting in 1980 and accelerating in 1994 never wrote about the Weather Underground or the SLA as if they had something thoughtful to say, even in the rare cases they did. What are you doing treating these folks as anything that in thirty years won't be equally marginalized?
Posted by: wcw | Oct 16, 2006 3:44:52 PM
willsix: Many if not most Blue Cross/Blue Shield policies cover at least a significant portion of the cost of one pair of eyeglasses per year.
Posted by: James Joyner | Oct 16, 2006 4:00:51 PM
The bulk of health costs are incurred by people who are
unhealthy. Some very small percentage of people start out
with expensive-to-treat congenital problems; but most of the
problems are diseases or injuries which arise, or are detected,
after birth. So what we're buying is precisely "insurance"
against the large financial cost associated with becoming
sick or injured. A large part of that risk - too much - is
unavoidable: you can eat healthily and exercise, and still find
yourself hit by a bus, or suffering skin cancer or a stroke.
And the costs, if you're one of the unlucky ones, go way beyond
what someone with median savings can afford - especially since
many of the risks involve large lump sum payments *and* an
impact on future earnings. So some form of risk-pooling is
essential and unavoidable.
Now if we don't manage that risk-pooling with insurance
or government programs (which have the widest pool and no
need to provide a profit margin), then the alternative is
that sick or injured people will rely mostly on their families
for support. Do you want to find yourself paying for your
mother-in-law's hip replacement out of pocket ?
Posted by: Richard Cownie | Oct 16, 2006 4:49:12 PM
I'd like to know where willsix has been working. I've never NOT had glasses covered, and I've worked for three companies, none of them huge, in two states over the last 22 years.
Posted by: Rick | Oct 16, 2006 4:50:17 PM
"...what we really need to do is move towards "something that looks like insurance, not like a scheme to insulate individual consumers from all health expenses.""
It seems to me that what current health "insurance" policies are right now is group buying power.
Insuree's aggregate their purchases to get negotiating power with health care providers. Perhaps the market is broken because insuree's can't choose what purchasing group to join, they have to take what their employer offers...
Posted by: Chuck | Oct 16, 2006 5:02:14 PM
wcw is right. Solidarity on the left is a good thing, and is achieved by talking with others on the left in an attempt to reach consensus and compromise. By engaging Kling, you give a little credence to his foundational premise, which is that money works better in the private sector. Do it again, and you will be kicked out of the International.
Having said, here are a couple pieces from Mark Thoma, one his own on health insurance, and one saying the the high tax high service Nordic nations perform better economically the Anglo tradition ones...
Health Insurance Markets ...Moral Hazard and Adverse Selection, problems and solutions
Hayek was Wrong ...Sweden and Finland are just way better than us
Posted by: bob mcmanus | Oct 16, 2006 5:38:16 PM
Moral hazard! People wouldn't have bad eyesight if their lifestyle choices weren't subsidized by so-called health "insurance"! The magic of the free amrket would take care of bad eyesight if the colectivists among us weren't so insistant on rewarding failure and punishing success!
And Richard Cownie, what you overlook is that far, far fewer people were hit by buses back before motor vehicle and health insurance covered such "accidents."
;)
Posted by: rea | Oct 16, 2006 7:27:50 PM
That's fine if individual consumers want it. All I ask is the courtesy of you not forcing your preference on me. I want an HSA; it makes the most sense for me. I'll buy my own damn glasses.
Posted by: American Hawk | Oct 16, 2006 7:28:50 PM
There are career opportunities in Niger herding goats, if you don't want to share risks with the rest of us, "American" Hawk.
Posted by: rea | Oct 16, 2006 8:54:03 PM
I'd like to know where willsix has been working. I've never NOT had glasses covered, and I've worked for three companies, none of them huge, in two states over the last 22 years.
I'd like to know where you work. In my two and a half decades of glasses wearing, and being on different insurances, whether my mom's, mine, or a stepfather's, I've had lenses\frames covered with exactly one employer. Which was an HMO that had eye care facilities, and we got a fixed dollar amount benefit there. But only me. Not my wife, who was on my policy, and whos exams were covered.
It's always irked me that exams were covered, but I was on my own for the hardware, without which I can't function.
I don't have too much time to search, but this paper shows that, at least in King County, lack of eyeglasses insurance was much higher than lack of medical insurance. It doesn;t say if this is due to it not being available or if it wasn't opted, unfortunately, but, like I said, my experience is that it isn't available.
Posted by: Oneiros Dreaming | Oct 17, 2006 1:49:28 AM
Coverage for eyeglasses/contacts is usually just a rider on a regular health policy... IME they typically paid for glasses every other year, but since I've mostly worked for small organizations, our coverage has changed more frequently than that, which sometimes meant new glasses annually instead due to the clock being reset. It's my fault that we don't have optical coverage now, actually; I begged for dental instead, since we couldn't really afford both and my dental costs were higher & less predictable than optical ones, and my boss went along. It worked out well for her, actually, since she's had two root canals this year.
Posted by: latts | Oct 17, 2006 2:00:17 AM
Medical insurance, to the extent that it is paid for by an employer--or by a self-employed person--is a "tax advantaged" benefit--they are deductable to the corporation and not included as income on the employees' W2 forms. If recurring expenses, such as eyeglasses, yearly medical exams, and so forth, are covered by medical insurance, basically what that means is that the actual cost is reduced by the amount of the tax benefit.
Employees' out-of-pocket medical expenses are not similarly tax advantaged, except to the extent that it exceeds some fairly high percentage of the employees' incomes, which tends to skew the incentive towards employer-paid medical insurance.
Posted by: raj | Oct 17, 2006 5:59:57 AM
"Employees' out-of-pocket medical expenses are not similarly tax advantaged"
They are if the employer offers a health reimbursement or flexible spending account, and the employee signs up for it. As much as $5,000 per year of pretax income can be withheld from one's pay to cover the cost of insurance deductibles, co-pays and medical costs not covered by insurance. The downside: it's use it or lose it. Any money left over at the end of the year is forfeited.
Posted by: Barry Carol | Oct 17, 2006 1:50:36 PM
Why should health "insurance" cover ordinary recurring expenses? Why should we have mandatory social security when everyone knows they'll have to save for retirement? Perhaps because the costs of doing it some other way, both individually and socially, are a real mess.
Fully-funded HSAs (giving the employee the money that would otherwise have been spent on insurance to pay for medical care) could be a good idea, but the employee would lose the group-buying power and might end up spending more than they would with a conventional insurance policy. (And of course unfunded HSAs are the devil.)
Posted by: paul | Oct 18, 2006 10:14:41 AM
