I've been seeing a view crop up on the blogosphere that insurance is the problem with health care, rather than the solution. The sentiment comes from the idea that if individuals were made more sensitive to the costs of care, they'd shop around and use less of it. So the theory is that insured people are insulated from market signals, like a $50K price tag for an operation, so they can't make their preferences known.
This view is that medicine worked great 19th century before health care was an insurance product, so it's insurance that's causing all this trouble. But back then, choices were largely limited to heartwarming housecalls, or a room in the sanitarium. Medicine was cheap then because they couldn't do much for your tuberculosis or syphilis.
Today, that $50K operation saves lives in ways unimaginable to the country doctor of yesteryear. At the same time, people don't usually have that kind of cash lying around, and even if they did, when a heart attack strikes, you're not going to turn to Consumer Reports for the best hospital for the money. You're going to call 911.
Luckily, most people aren't having coronaries or getting cancer, at least this year. Insurance can help spread risk for when it happens to you or your loved ones. You pay the fixed cost of an insurance premium to eliminate the uncertainty that if and when you're in need, you'll be covered. That's the idea, anyway.
OK, the health care individualist might say. So why not just cover the big stuff that no one can afford with a catastrophic policy, and let people sort out the pediatrician visits and lipitor on their own, or with a tax-free health savings account. Wouldn't ensuring that people have some skin in the game make them the savvy shoppers they are at the grocery store? Putting aside the callous morality of having people fend for themselves when there are sensible alternatives like insurance, there's another good reason why not.
Multiple studies of health care usage find that as copays and out of pocket costs go up, people use less care, and may even shop around, but they also use less care that they might need. People forgo prevention, or even treatment of chronic conditions when they have to shell out their own cash at every visit. Limiting the individual's access to care by keeping it expensive to them can be bad for their health. Additionally, it's not the cholesterol meds or primary care visits that are costing us billions a year. It's the big, expensive miracle stuff.
So the argument comes full circle, what can you do to control health care costs? There are a bunch of possibilities, each of which can be used in combination.
1. You could go with the Government as 800 lb Gorilla approach, where providers, pharmaceutical companies and insurance companies (if they're still around), either come to the table and negotiate rates, or are just told what to charge. In the 'private' systems found in much of Europe, everyone comes to the table, and rates are settled on that allow everyone to make a living (even a profit), while keeping premiums down for the little guy, and ensuring that everyone's covered. A "single payer" or heavily regulated pricing model is probably the simplest way to rein in costs, and it would work, but there's nothing about the 800 lb Gorilla approach that improves quality or makes the system more efficient, or ensures that the care delivered at the end of the chain is the best around. It'll only be the cheapest.
2. You could go with the Government as Brain Surgeon route, where expert panels determine what's most cost effective, and clever payment structures are implemented. For example, you can mandate coverage of generic drugs, or for something brand name that really works. You can establish a rate for a class of drugs, and let people pay anything above that rate. You can mandate that hospitals and doctors are paid flat rates, or on salary. You can use scholarships and loan forgiveness to try and pump out primary care docs that might help keep people healthy and out of the cardiologist's office. Nearly everyone takes some aspect of the Brain Surgeon approach. The shortcoming of this strategy is that central planners don't get timely information, have trouble monitoring whether something's working or not.
3. You could try the Government as Master of All Capitalists system, where the power of competition is employed to produce innovation and lower the costs of care. If insurance companies actually had to compete for your business in a state-run marketplace, they'd all try to undercut each other. They'd see wisdom in integrating themselves with systems of care so they can actually manage what they're insuring. They'd demand a number of approaches to increase the efficiency of medicine, like using electronic records to make sure that you don't get three MRIs for three different doc's. Imagine a world where you'd go online and have a choice of 20 insurance policies from 10 companies, where you could compare them side-by-side, and you'd be guaranteed coverage you can afford, even if you're sick. There are limitations to this approach. For one thing, cost and quality are driven by consumer choice. You don't know if people will make the best choice for their money. Insurance is complicated, no matter how you slice it.
In the long run, there are two simple ways we can control health care costs. The reason why we're in so much trouble now with costs is that it's all a patchwork with weak information for consumers, weak incentives for providers, and weak regulation for insurance. Fixing the cost dilemma is sort of an all-or-nothing proposition.
Nothing: We can let people fend for themselves, cut federal programs as they grow full of old, sick and poor people, promote high-deductible plans out of unregulated states. To be sure, the market will sort out costs. Rich people will be able to get anything they want. Poor people will choose what they value most. Everyone else will make do with whatever coverage they can afford.
All: We can mandate that everyone jump into one big risk pool that doesn't see individual people as individual risks. So young people pay for old people, rich for poor, men for women (who incidentally cost more) . The market will function with the incentives needed to offer a high-quality product to consumers. It'll put us on the path of affordable, quality health care. It'll make Americans more secure, able to take risks as entrepreneurs, and it'll reduce needless suffering.
In the end, there are tradeoffs. Insurance means that you pay to protect yourself from the chance of something bad. It works best when everyone at risk pays into it. Since we're all mortals, we're all at risk of health problems. Some of us are lucky, some less so. And some people don't like being told what to do. They want choices. They'll take their own chances. All I can say is they'll probably like it even less when all the choices available to them are mediocre, expensive and uncertain.
When you trade a little freedom for a little security, you also trade a little savagery for a little civilization. That has been the case since kings raised taxes to defend their kingdoms and build roads. You may like savagery, but I like civilization, and I think I'm not alone.
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