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September 07, 2007
I'll Take Medicare, Thanks
Libertarian health wonk Michael Cannon writes that "it should come as no surprise that health insurance premiums have risen 87% since 2000. Doctors and insurance companies can get away with charging high prices because their customers don't bear the costs directly...This isn't some inevitable result of market forces, but of government programs and tax preferences for employer-controlled insurance."
But then you'd assumedly expect the individual insurance market -- where employers have no role, government programs aren't involved, and thus both distortions are minimized -- to exhibit much healthier characteristics. Instead, it's far more perverse.
Between 8 and 18 percent of applicants are denied health coverage outright due to preexisting conditions. Additionally, the pool of individuals seeking coverage is quite healthy -- the opposite of what you'd expect, given that the sick are disproportionately likely to be unemployed, and are more acutely in need of care. They're simply being priced out. Meanwhile, individual coverage is becoming less and less popular -- and that's across-the-board, the rich and the poor, the old and the young, the sick and the healthy. Why? Well, it turns out their premiums are going up too -- even without the distortions of employers or governments.
My guess is Cannon will say that this proves consumers still don't have enough power, and they should just be paying for their care directly. But the world of individual insurance is still much closer to his perfect world than, say, Medicare, is, and yet it's a comparative dystopia, in which substantial fractions of the population simply can't get insurance, costs continue going up, and more and more individuals are giving up on coverage altogether.
September 7, 2007 in Health Care | Permalink
Comments
I hate to side with a libertarian on any economic issue, but Cannon has a point: insurance is problematic. But individual insurance coverage (which has grody adverse selection problems) is not the place to find it.
Instead, look to the few uninsured fee-for-service health markets: most plastic surgery, vet care, and possibly dentistry. I think that they are a lot less crazy than the insured medical markets.
Cannon and Ezra are both right: all market insurance is screwed up. But true fee-for-service is insane, outside of a few contexts like cosmetic plastic surgery. The market may work just fine under unlimited fee-for-service. In a technical sense. However, such market outcomes are intolerable from either a humanitarian or a public health perspective.
The answer, of course, is some species of social insurance.
Posted by: Joe S. | Sep 7, 2007 11:04:42 AM
Joe: Good post.
Posted by: Ezra | Sep 7, 2007 11:20:27 AM
FWIW, I have individual high-deductible "don't-bankrupt-me" health insurance of the sort that Republican legislators approve of other people having. In the roughly 4 years since I purchased it, I have not once gone over the deductible (I've barely used the insurance at all), and have only benefited slightly from their ability to force down the positional-bargaining pricing on a couple of minor health care items. In other words, because I'm (relatively) young and (relatively) healthy, I am a fairly good risk, and I haven't cost my insurer much of anything over the last 4 years.
It took me 3 months to wade through the bureaucratic obstacles to getting the health care (and I'm a well-educated, persistent and healthy individual), and although I haven't changed age brackets (quite yet), my premiums have more than doubled in 4 years, though I've not once asked them to do anything except process (and not pay) one routine checkup and a few lab tests. (And until I had insurance, I didn't want to go to the doctor for a checkup, because of the whole "pre-existing condition" adverse selection trainwreck.)
I don't want to go looking for another carrier, because the transactions costs are ridiculously high and arbitrary rejection is both possible and goes down on ones permanent record, and I don't want to go without coverage, because of the whole "what if you get hit by a bus" problem. And the insurer knows that. Anecdote is not data, but I doubt my experience is different from most, and it tends to indicate that individual health insurance is an absolute racket, even (especially) the kind that essentially passes on most of the "moral hazard" costs to the individual.
Posted by: paperwight | Sep 7, 2007 11:46:37 AM
The only real "solution" to the problem Cannon raises is to make health insurance illegal.
Of course, even then health care won't be a classic free market, because of grossly asymetric information: the sellers, not the buyers, know what the buyers need.
Meanwhile, my dentist wants me to make three office visits for a simple check-up and cleaning, just so he can bill my (private sector) insurance company three times. Efficient, you say?
Posted by: Bob Narus | Sep 7, 2007 11:58:05 AM
"Insurance" isn't particularly germane to the issue of public health because there are plenty of people with pre-existing conditions. How do you help these people?
- Price-controlled insurance is no good because it causes insurers to try as hard as they can to drop the patient.
- Uncontrolled insurance is no good because it causes insurers to charge prohibitively high premiums.
- Government-guaranteed health care would help these people, but it is not insurance.
The government under the last scheme would have to ration or disallow some care (otherwise doctors would have incentives to do all sorts of unnecessary things because they'd always get paid). Some people feel queasy about that.
Another option is to have a completely unregulated health insurance market (at least in terms of price controls) and then set a fairly high minimum standard of living with redistributive taxation. I might favor something like this. In other words, give people money, don't give them health care. Is this what Joe means by social insurance?
I dunno. Difficult issue.
Posted by: mk | Sep 7, 2007 12:26:38 PM
I think one relevant question is:
Is it just to allow people to completely opt out of ever receiving government-paid care, no matter what happens to them?
If you say "yes" to this question then taxation, combined with guaranteed coverage, is wrong because it deprives people of a legitimate choice (to reduce their taxes at the cost of never having government foot the bill for them).
If you say "no" then everyone should be taxed and we should never refuse anyone care they badly need.
Posted by: mk | Sep 7, 2007 12:38:11 PM
If you say "yes" to this question then taxation, combined with guaranteed coverage, is wrong because it deprives people of a legitimate choice (to reduce their taxes at the cost of never having government foot the bill for them).
So the question is "who are these people"? If they are people who can adequately self-insure for their entire lives, and can provide evidence thereof (auto self-insurance on steroids, essentially), that's one thing. If, on the other hand, they can't adequately self-insure for their entire lives, well, are we going to turn them away from an emergency room and let them die, which means that their family is deprived of their income, which in turn has social welfare costs? What if they get contagiously sick?
Posted by: paperwight | Sep 7, 2007 12:43:27 PM
Is it just to allow people to completely opt out of ever receiving government-paid care, no matter what happens to them?
If you say "yes" to this question then taxation, combined with guaranteed coverage, is wrong because it deprives people of a legitimate choice (to reduce their taxes at the cost of never having government foot the bill for them).
It's not that simple, though, because even the totally DIY-health-care guy benefits from other people having universal health care.
Posted by: Aaron | Sep 7, 2007 12:59:10 PM
"Doctors and insurance companies can get away with charging high prices,,,"
Doctors would be surprised to hear that. Doctors' incomes dropped 7% between 1995 and 2003 (while average income went up 12%). Primary care providers' incomes went down 10%.
Posted by: Denis Drew | Sep 7, 2007 1:01:32 PM
If, on the other hand, they can't adequately self-insure for their entire lives, well, are we going to turn them away from an emergency room and let them die, which means that their family is deprived of their income, which in turn has social welfare costs? What if they get contagiously sick?
Interesting question. I think the consideration of externalities makes things incredibly complicated, although I tend to see issues through that lens too.
For example:
- What is the externality-value of a human life?
- Ideally, one would like an accurate probability model of the expected efficacy of providing such-and-such care. The goal is then to maximize the expected future social benefit.
- If humans existing and living their lives are veritable fountains of positive externalities, should we be directly subsidizing having children (we do this in some ways with tax credits, etc.)? Would this be more cost-effective than subsidizing emergency health care? Is cost-effectiveness the relevant metric? Or does the suckiness of losing someone outweigh the awesomeness of a new child?
- Following the direction of your questions, if the externalities of getting sick or dying are really high, is it legitimate to take the power to refuse government-provided care away from the person?
- What about a celebrity whose death will cause significant shocks (e.g. keep 1000 people at home crying for 3 days instead of working)? Is it legitimate to keep such a person alive against his will in the name of economic efficiency? (Perhaps not, since he/she has to die someday...)
There's a bunch of murky questions in here. I tend to favor the utilitarian-style cost-benefit approach, at least as an idealized exercise, but it gets quite complicated.
Posted by: mk | Sep 7, 2007 1:18:56 PM
It's not that simple, though, because even the totally DIY-health-care guy benefits from other people having universal health care.
That's true, but perhaps we can suppose that the DIY guy (along with everyone else) will still be charged some baseline rate of taxes repaying the government for granting him all the positive externalities of being surrounded by healthy people. The lack of airborne pathogens can be considered a "public good", maybe.
Posted by: mk | Sep 7, 2007 1:29:38 PM
Just because doctor's incomes decreased ~10%, does not mean that doctor's don't get high salaries. Those are two separate issues. Further you would need to normalize to per patient or hour because income can go down due to getting more money but workng fewer hours.
Posted by: BillCross | Sep 7, 2007 2:44:59 PM
How interesting to blame doctors, when the starting wage for a family practice doctor has not budged in the last 5 years. In the meantime, average student loan debt for a doctor has been steadily rising; it's now 6 figures. If you want to complain that doctors make too much money, you'd better figure out a better way to pay for medical school.
Posted by: ShortWoman | Sep 7, 2007 6:20:11 PM
If you want to complain that doctors make too much money, you'd better figure out a better way to pay for medical school.
That's why loan forgiveness is an obvious carrot to get buy-in to healthcare reform. I'd like to see the candidates (and Ezra) address this issue.
Posted by: pseudonymous in nc | Sep 7, 2007 6:29:22 PM
Bill,
I think the issue is framed in terms of Doctors incomes gradually shrinking while the incomes of linebackers (modern humans possessing the physical skills of our distant ancestors in spite of having a modern brain to take care of themselves with), CEOs (who run companies instead of countries and municipalities and who haven't proved themselves are smarter than those who do), and TV personalities rapidly expand.
Posted by: Denis Drew | Sep 7, 2007 6:44:01 PM
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