A Radically Different Approach to Health Insurance
Middle-class families need health insurance to protect themselves from the financial devastation of a catastrophic illness. But many (arguably, almost all) of the most serious defects of the health care system are created by third-party payment of medical bills.
So a natural question is: Can we get the benefits of insurance without the harmful effects of third-party payment? The other day at this blog, reader complaints about third-party payment prompted Uwe Reinhardt to proffer a full-throated defense of health insurance to which I replied, why must the two be linked?
There is a huge difference between insurance and third party payment of medical expenses. I have life insurance. But when I die, the insurer is not going to pay for my autopsy, my cremation, the urn that will hold my ashes, or the cost of the plane need to sprinkle my ashes over the Princeton University football field (or some other suitable place). Instead, my wife will get a check.
Interestingly, before the current era, the most common form of health insurance — other than Blue Cross plans — was indemnity insurance with a fee schedule. A typical benefit consisted of so many dollars a day for each day in the hospital. Since the benefit was independent of what hospitals actually charged, this type of health insurance did not interfere with the ordinary workings of the hospital marketplace.
Can we replicate that idea in a way that meets the financial and health needs in the modern era? I think we can.
In thinking about how to design a radically different type of insurance we have to come to grips with two principles that seem to invariably clash:
Principle One: Efficient, high quality health care requires that providers compete for patients on the basis of price and quality and that will not happen unless patients can unilaterally decide how their health dollars are spent.
Principle Two: Since all third-party insurance involves a pooling of resources, the more discretion individuals have to unilaterally draw from the pool, the more wasteful and costly the insurance will be.
Let’s briefly review why these principles are so important.
Evidence for Principle One. As we have consistently pointed out at this blog, wherever third-party payers are not, medical markets work reasonably well. For example:
- In the market for cosmetic surgery providers compete for patients based on price; the result: transparent, package prices that have actually come down by 44% over the past decade.
- In the market for LASIK surgery, price and quality competition are the norm, package prices and transparency are routine and real prices have barely changed over the past decade, despite considerable innovation in corrective eye surgery techniques.
- Walk-in clinics, originally designed for patients paying out of pocket, post their prices, deliver high quality care, maintain records electronically and can prescribe electronically.
- Concierge doctors typically communicate with their patients by telephone and e-mail, maintain electronic medical records; prescribe electronically and help their patients negotiate for specialist care and expensive tests.
- In the international medical tourism market, which was initially all based on out-of-pocket payment, there is price and quality competition with package prices and quality data often made available online.
The evidence is so overwhelming that competitive markets in health care in the absence of third-party payment work and work well that one wonders why it is that virtually the entire health policy community is so oblivious to that fact.
Evidence for Principle Two. The evidence for the second proposition is the current state of the health care system. To keep costs from exploding, insurers impose a list of services they will pay for (CPT codes) and negotiate with providers over the fee for each of them. Yet, any system that pays by task (1) will always leave important items off the list (e.g., telephone, e-mail, patient education, etc.) and prevent doctors from repackaging and repricing their services to meet patient needs; (2) will give incentives to providers to maximize against reimbursement formulas rather than maximize the wellbeing of patients and (3) because medicine is so complex, will still leave doctors and patients with enormous discretion over resources leading to wide variations in spending as is revealed, for example, in the Dartmouth Atlas studies.
So how do we get around these seemingly irreconcilable principles?
Solution One: Use Self Insurance Wherever Possible. Self insurance, say, through a health savings account (HSA) is always preferable to third-party insurance wherever (1) the medical event is non-risky or (2) the price of third-party insurance is high and (3) the exercise of individual choice creates no serious externalities for the others in the insurance pool. As I argued in “Designing Ideal Health Insurance,” people should self insure for almost all primary care, almost all diagnostic tests and even most emergency room care.
Solution Two: Adopt the Casualty Model for Most Expensive Medical Care. For bypass surgery, a hip or knee replacement and many other routine, but expensive, procedures, health insurance could emulate the kind of insurance most people have for their homes and automobiles. As I explained in “Designing Ideal Health Insurance,” the insurance plan might commit a sum of money (say the expected cost at an efficient center-of-excellence facility) and let the patient have the choice of providers and facilities — paying additional sums from an HSA.
Solution Three: Combine Self-Insurance, Casualty Insurance and Supplemental Insurance for End-of-Life Care. Many of the headline-grabbing examples of denial of care in Britain concern expensive drugs that promise only months of additional life. Yet even in the United States, two people with the same cancer conditions might end up spending vastly different sums.
Why not have a basic insurance plan which pays for a very conservative approach to end-of-life care? People who want more aggressive care could buy supplemental insurance. Self insurance could also play a role — providing extra funding, for example, for the very different approach offered by Cancer Treatment Centers of America.
Notice that in this brief outline, we have had no need to introduce deductibles or copayments or CPT codes or many other dubious features of the current health insurance system.
Very good post. I liked you original piece on “Ideal Health Insurance” as well.
Problem is, this proposal would require the insurance companies to change their model and do something radically different from what they are now doing. Won’t they resist?
Public health advocates think it unethical that people should be required (i.e. allowed) to make trade-offs between health care and other uses for their money. They also think it bad if employees are required to contribute too heavily towards the cost of an employer plan or face cost-sharing. Yet the dreamland where medical care does not cost anything (because someone else is supposedly paying for it) does not exist. Resources are finite and people need to ability to decide which care has value and which does not.
Why Princeton? What’s wrong with the University of Texas football field?
I favor payment via HSAs knowing that my dollars will be spent in a more frugal manner. Problems involved with individual payment program that would have to be solved would include knowledge of billing of items and procedures as compared to average patient, difficulty of “shopping” said items and procedures as they pertain to the “open market”, and ability to negotiate a better price as an individual vs. the group discount reflected in the current system. I would still vote for HSAs. What we have is definitely not working and the market is the best tool that we have to correct many of the underlying problems.
Does anybody else advocate the casualty model? This blog and the NCPA web site are the only places that ever seem to discuss it?
John –
I love a great debate between two great conservative intellectuals. But both you and Uwe are right in many respects.
You are right that the third party payment system has been abused and has caused the cost of healthcare to soar. It is the problem.
Uwe Reinhardt is right in that often the purchase of health care is not a rational process that lends itself to a two-party system. When you are in the ER because your wife or child has become seriously ill, you are not a rational consumer making efficient economic decisions, nor are you working in an efficient market. There is only one provider of services at that moment. While the ER setting is an obvious example of the failure of an efficient market in healthcare, there are many other health care specialties, even in cities as large as Dallas, where there are few specialists and a complete lack of transparency in pricing and provider qualifications.
I tell our clients that the main benefit of health insurance is not what it pays for but the pre-negotiated fees for services rendered by hospitals and doctors, who like all of us are looking out for their best economic interests and will set fees as high as the market will allow. By the way, most of our clients are doctors, and they appreciate the pre-negotiated fees as much as anybody. Just because you delivery babies for a living doesn’t mean you know anything about the requisite qualifications and fair market value of a coronary bypass.
We need to mind meld you and Uwe. Oh wait, that would be called a Blake Woodard.
-Blake
Dr. Goodman asks (rhetorically) why the entire health-policy community remains willfully oblivious to the fact that markets work in health care when the patient pays. I think the answer must be that it does not serve the interests of that community to recognize it.
Suppose that we received housing “benefits” like we receive health “benefits”, so that there was no price-discovery for houses (or furniture, or consumer electronics, or any other durable item within a home).
There would then be a huge industry of people making very good livings telling the government and the rest of us what the parts of houses and the things within them were worth.
The government and the building industry would actually have a committee of experts decide the value of something as humble as a 2″X4″ piece of finished lumber! The experts would fiercely defend the status quo, becaues their incomes depend on in.
I think this also explains Prof. Reinhardt’s devotion to the idea that people should not be allowed to make decisions “under uncertainty”. Can you imagine if we ran the rest of our lives like that! You would not be able to make decisions as simple as what meal to order at a restaurant, because you would be uncertain about whether you’d enjoy it or not. Once again, committees of experts would control these decisions for you.
What is remarkable about this is that people who study social sciences other than classical economics are quite aware that committees of experts and government agencies are very prone to bad decision-making, even panic (as most recently demonstrated by the response to the 2008 financial crisis).
John, I hope you are prepareed to spend even more time in WDC when the keys to management are handed over next week.
There is so much damage that needs to be replaced and/or repaired.
I know Republicans don’t like to be segmented into groups, but maybe we can have a Tea Party Caucus, a Black Republican Caucus, and a Health Reform Replacement Caucus. I nominate you for at least 2 of the three.
Two comments.
1. The late Dr. Jim Pendleton wrote a wonderful paper for Consumers for Health Care Choices that laid out what a modern indemnity program might look like. It featured averaging hospital charges per service, making that average the basic payment, and supplementing that basic payment on a sliding scale basis according to the actual charge. Higher charges would result in graduated co-pays by the patient, and lower charges would results in graduated rebates paid into the patient’s HSA.
2. I have always found it curious that the social planners find direct payments for health care to be a “burden” on the consumer, but they never seem to think that avoiding those direct payments through higher taxes, higher premiums, or lower wages is a burden at all.
John:
Great post. Of course, what you outline is what our company is built to do, so I’m a bit biased.
We don’t believe that Big Insurers can/will do what you outline. A transition to a new, more efficient approach will require disruptive innovators with different economic incentives. Few integrated steel manufacturers invested in mini-mills; we’re the health payment version of the mini-mill.
The big transition will be on the bundling of care side. Providers, by and large, are not prepared today to do so. They don’t know their economics well enough to price and don’t know how to package like the Lasik providers do. Consumers are also not used to considering healthcare consumption in such a fashion either. The early HealthMarket (since sold to the company now know as HealthMarkets)tried a version of this but never convinced consumers effectively.
Many great ideas don’t get realized because people can’t build a bridge from today to the new tomorrow. We believe a transition will require the following:
1) Ebay/PayPal approach. Set up a health marketplace, if you will. Clear pricing and stats on the merchant side, and then efficiently facilitate payment (which is totally different from today’s Big Insurer model)
2) Use incentives to help consumers understand their own true economics. Behavioral economics has just started in healthcare.
3) Work with hospitals and physician organizations as they bundle services and bear risk. This is a process, not the flick of a switch. But it is critical and has begun
At the end of the day, providers should be held accountable for the scary expensive things that happen under their control. Consumers should be held accountable for those elements — over half of all spending — that they control. The result is better outcomes at lower cost.
Private sector healthcare reform. Perhaps a bit more radical an idea than we intended when we started, but it’s not that complicated. It just means acknowledging the reality of arithmetic and some basic economics.
Tom
John have we not had coverage to age 26 in Texas for awhile.Or has it been changed to a different way that it is applied example you have a child that is married and still stay on your health plan.
There are a lot of pieces that appear to be missing, including the entire issue over whether there would be an insurance market for the products (the true catastrophic risk transfer products) that are tossed around – it would of course depend entirely on what kind of regulations regarding underwriting, timing of when policies are (or have to be) purchased, and what does society do with people who don’t have money for the “self funded” portion, and don’t purchase the insurance. I am not “worrying” about them, I just want to know what YOU think should be done with them.
Rational provider pricing is certainly possible, and would allow for innovation in all forms of package pricing, global pricing, both pre and post claim capitation concepts, etc. – all of which are actuarially compatible with a FFS “schedule” of procedure prices, by the way – but will only work to bring a proper market equilibrium to the health care arena if there are certain boundary conditions and, yes, certain requirements of consistency along with the transparency and freedom to set prices.
The primary principle that should apply is that once a provider sets the price for a given procedure, package, bundle, whatever, they must be required to charge it, and expect payment for it in full, from every patient who walks in the door without regard to third party health plan/payer/insurer affiliation of that patient – including government plans. The difference between what that third-party contract (scheduled benefit is one option) will pay the “insured/patient,” and the actual charge for the service/procedure by the provider should be, must be (at least ostensibly), balance billed by the provider. (Providers would be allowed to negotiate on a resulting net amount due with any individual patient on a one by one basis – just not on a prearranged basis with any third party payer/insurer.) The key is that the provider should not get into favored nation pricing arrangements, because that is the primary reason that the system is in the mess it is today – price fixing by a third party payer too big to refuse, namely Medicare and Medicaid. The consumer should be the point of contact with the provider, and no one else. A supply and demand (including quality as an aspect of purchase) principle could then apply to this marketplace. (A possible exception to the general rule could be universally defined emergency care where providers and third party payers both have an established schedule agreed or, perhaps, forced upon them on a periodic basis, that applies for all such care – yes, it will require some careful wording as to when care stops being considered “emergency” in nature, and the patient is stable enough to be moved, etc.)
Dr. Goodman,
I just read your post, “A Radically Different Approach to Health Insurance.” I agree with your “Principle One” and “Principle Two,” but I’m not sure how your solutions deal with two important cases.
First, how does the casualty approach work for cases where the diagnosis is expensive but the treatment is cheap? This isn’t uncommon these days. For examples, if a patient has digestive system problems, the diagnosis might entail a colonoscopy, and upper GI endoscopy, and if those don’t find the problem, a capsule endoscopy of the small intestine, and perhaps imaging tests as well. In the end, depending on what those diagnostic procedures find, the treatment might be extremely expensive (a full round of colon cancer treatment), or relatively cheap (a few pills a day). In a case like that, how are the diagnostic procedures paid for? It doesn’t really make sense for the insurance company to write a check to every patient who says they have abdominal pain, but it seems the need for expensive diagnostic procedures based on symptoms (as opposed to routine based on age and the like) ought to be an insurable event. In many cases it’s the diagnosis, not the treatment, that is the expensive part. And of course, often the skill of the provider is much more important for the diagnosis than for the treatment. It doesn’t take an M.D. to hand pills over a pharmacy counter, but sometimes not even every M.D. can tell which pills you need.
Second, how does the casualty approach work for someone who gets a bad draw from the “health status lottery”? Imagine, for example, a Type I diabetic. This is a diseases that is, as far we know, not genetic or environmental or behavioral, and it typically manifests at an age before someone can make any health insurance decisions by him/herself. It allows for a normal, nondisabled lifespan – if costly treatment is maintained daily for life. A person who could buy insurance before being born would like to insure against ending up with Type I diabetes – but a person in the real world gets to make that decision only after the age at which the disease usually shows up. A simple casualty policy for such a person would be very expensive and require an immediate payout. The current system protects such people if they get insurance through an employer – but obviously this system has all sorts of other problems.
Thanks for taking the time consider these issues,
Robert Book
Robert,
1. If the diagnostic procedures are expensive enough, then they will probably have to revert to some third-party payment- the casualty approach, of course.
2. The ideal is personal and portable insurance – from birth to old age. You don’t have to stay with the same insurer, but you avoid periods of
un-insurance – where the pre-existing condition problem kicks in.
John
John:
I agree with your arguments as far as they go, but in this case getting the causation arrows right is not enough.
Years ago health care was much, much simpler, so a predetermined daily hospital reimbursement rate was not a big deal. More to the point, the third-party payment problem is mostly a problem because of a lack of competition due to insurance being tied to employment. You have to fire your employer to fire your insurance company, so when insurance companies act in ways that are inimical to your interests there is not much you can do about it.
Moreover, the third-party payment problem is made considerably worse by first-dollar coverage policies. This is because first-dollar coverage invites over consumption and inattention to costs which, in turn, invites heavy monitoring by insurance companies.
When most policies were fee-for-service type policies with an 80-20 coinsurance split, I submit that the third-party payer problem was minimal. In effect, insurance companies used contracts to effectuate sufficient incentive compatibility and did this so well that heavy oversight and second-guessing was not worth the expense. People just don’t over consume very much when they have 100% skin the game (before the deductible is met) or 20% of skin in the game (after it is).
The indemnity model has a serious problem. A colleague of mine, Susan Feigenbaum, wrote an article years ago arguing that health insurance should be sold like auto insurance, so one gets a check for chicken pox just as one gets a check for hail damage. Here’s the problem. With cars the problem is self-evident and objective. A third party can confirm that there was indeed hail damage. But with health care the truth of the matter is that diagnosis and treatment is also art in addition to science. Moreover, the treatment protocol often proceeds without certain diagnosis, and subsequent treatment can be made necessary by a wrong diagnosis. You are correct that years ago such policies existed, but I submit that years ago medicine was not nearly so complicated so these issues weren’t nearly so relevant. Perhaps that model died for a reason.
The indemnity model has yet another problem, which is inviting fraud. Patient to doctor: if you’ll say I have X then I’ll write you a check for $100. Since the patient doesn’t really have X the doctor doesn’t have to waste much time for his $100. Note that the doctor need not even be aware of the scam. Patients could simply get the diagnosis, get the payment, but don’t bother with further treatment.
Finally, most people are acutely aware of how little they know about physiology or the practice of medicine. From their perspective, this model for insurance looks like the shifting a great deal of uncertainty from insurance companies (who are experts at dealing with it) to patients (who aren’t).
In short, I think such a model amounts to too much pain for too little gain in light of the following alternative: delink health insurance from employment by taxing employer provided insurance. This lets people fire the insurance company without firing their employer which will perk up how people answer the phone, and it will remove the incentives that produced first-dollar coverage policies in the first place, thereby leading to a return of fee-for-service type insurance to the marketplace. The result will be that contracts will passively do at almost no cost what insurance companies now do at great cost to themselves and with great ill will to patients.
-Dave
John
Couldn’t agree with you more. I recently completed (with a coauthor) a history of how we came to have too many third-party payments (about six-sevenths of total consumption), as shown on our website. I agree with you that HSAs are the way out of this sordid health care mess we’re in.
Al
October 21, 2010|By Duke Helfand, Los Angeles Times
Health insurer HealthMarkets sued by L.A. city attorney over ‘junk insurance’
A national health insurer and its majority owners, Wall Street powerhouses Goldman Sachs Group Inc. and Blackstone Group, were accused in a lawsuit Wednesday of defrauding their California customers with “junk insurance” that provided little or no protection.
The suit filed by the Los Angeles city attorney’s office alleges that HealthMarkets Inc. and its affiliates trained sales agents to deceive customers — mostly self-employed individuals and small businesses — into buying confusing policies riddled with exclusions and limitations.
It also contended that Goldman Sachs and Blackstone knew about the alleged insurance scams in California when they bought a majority stake in HealthMarkets in 2006.
The lawsuit is the latest trouble for the Texas company, which conducts business in 41 states. In the last two years, regulators from California and more than 30 other states have fined HealthMarkets or its affiliates nearly $40 million over alleged deceptive business practices.
http://articles.latimes.com/2010/oct/21/business/la-fi-healthmarkets-20101021
This is why interstate insurance and for profit health care is a bad idea.
John,
1. Your evidence for P2 hit the nail on the head (” pays by task”). Docs don’t get paid unless they see the patient (FEE FOR SERVICE).
It encourages inconvenience for Docs and patients and over-utilization of tests (necessary or unnecessary) thus increasing costs.
2. Every patient I see has different needs/coverage. (uninsured, employed, self-employed)
Self-funded employers have a different challenge:
20% of their employees consume 80% of the costs. Most costs occur in the hospital setting.
THE AUDIT PROBLEM:
As we know, the big insurers negotiate huge discounts.
However, they may not be able to audit the hospital bill to see if actual services were provided.
Their are new TPA products that allow for auditing the bill. TPA lawyers are advocates for the employee and the self-funded employer. Costs are decreased dramatically.
(a recent example: after auditing bills for ~ 150 hospitalized employees, a TPA saved the company over $350,000.)
3. Patients do need some kind of accident policy in the right setting (eg – self insured with a HDHP and HSA).
A recent example in my office – 15 yo with mild abdominal trauma (ran into a pole)…splenic rupture couldn’t be excluded…Er visit total cost was $6,000 (CT/labs/ER Doc/Hospital bill)…The accident policy ($60.00/month) paid the entire bill.
I’m glad I had it with my $10,000 HDHP.
“The evidence is so overwhelming that competitive markets in health care in the absence of third-party payment work and work well that one wonders why it is that virtually the entire health policy community is so oblivious to that fact.”
With Lasik and cosmetic surgery, both parties can walk away from the deal at any point. No harm ensues. The deal is made during the daytime under no significant stress. This does not describe most expensive medical decisions. There is no working model anymore that meets the criteria you suggest when applied to anything other than cosmetics and primary care. You still need some way to pay for the expensive items.
Steve
Principle One: Efficient, high quality health care requires that providers compete for patients on the basis of price and quality and that will not happen unless patients can unilaterally decide how their health dollars are spent.
Mr. Goodman,
Despite your ‘overwhelming evidence’ the first portion of your first principle is incorrect. It reflects a widely held misunderstanding of what motivates physicians to do the things that they do. An understanding of the fundamental issue in health care today begins with : Cost is not the problem . Cost is a symptom.
Principle one: All medical activity, and therefore cost, begins and ends with a physician’s pen.
Therefore any attempt at health care reform is an attempt to modify physician behavior. To do this it is necessary to understand what it is that motivates physicians. While money may be a secondary factor, it is absolutely not the primary motivator behind physician decisions. Like moving from an earth centered to a sun centered concept of the solar system, understanding of this primary motivating factor allows a paradigm shift away from what medicine is today to what it actually should be.
My first question to any and all that read this is: What do you want from health care? The correct answer does not mention any of today’s talking points such as cost and quality.
G Taylor MD
Dr. Taylor,
well-said…
The question should include..
What would you want for your family and loved ones from health care?
Steve,
You begin to uncover an important issue with the concept of competitive markets in health care. None of the patients that I see are in a position to examine the cost benefit ratio of a procedure or test I recommend. When the question is cancer or not, to breath or not to breath, pain or no pain, internal injury or intact organs, hemorrhage or normal brain, to live or die, any comparison with cosmetic surgery or lasik exposes a profound misunderstanding.
Mr. Goodman, I was an HSA advocate almost to my detriment beginning in the mid 90’s. But I began to realize that the critical issue was not how much medicine cost. In fact, it would be a greater tragedy if the cost were to begin to go down and public attention was directed elsewhere.
What is it that everyone wants from health care regardless of social or economic status? What is the fundamental definition of “Quality ” care?
John, you assume everyone can afford a HSA or pay a high co-pay. I started selling life and health insurance in 1970 and was delighted to sell my first “medical” policy the first month. Six months later a child on the policy needed an operation and the SCHEDULE OF BENEFITS approved $75.00 for that type procedure. {CASH POLICY–no 3rd party} The expenses were around $2,000. This family was ruined. I never sold another individual medical policy and changed my practice to group insurance until it was clear to me that ALL rates would continue to go up until we introduced real competition into the marketplace.
I do not want the cheapest parachute, surgon or wife.
I appreciate you offering suggestions and presenting a forum for discussion, but you must remember that a large per cent of Americans and illegals will not even try to protect themselves because they know “the government” will take care of them. In truth, “the government” will take some type of care for them because we just can’t step over dying citizens in the street.In order for any system to work, I believe that we must all re-adjust our thinking [are you saying-at end of life “if you have money-you live a little longer and have a better quality of life].
Doctors have enjoyed a steady increase in payment every year for Medicare since 1966. They must share in responsibility of downsizing as millions of unemployed citizens are doing in our ecomomy today. Richard Green Senior Security
Richard:
You are misinformed that doctors have “enjoyed a steady increase in payment every year for Medicare since 1966.” While i agree that doctors need to share in the responsibility of downsizing, the truth of the matter is that my payments from medicare have been downsizing since 1999. Apparently since medicare is budget neutral, despite the fact that more citizens become eligible for medicare each year and despite the increasingly expensive technology available to save lives, the amount of dollars available to pay doctors must remain constant which translates into less and less pay. Hospitals are under no such constraints. Congress makes a big show of “holding the cuts” necessary under such a program each year but in actuality at least in my specialty it amounts to a 1-2% cut per year and since my costs of running the practice haven’t dropped(until last year with the recession), it means in reality i take a bigger cut each year for the “privilege” of serving medicare patients, many of whom come to my offices in luxury cars wearing designer clothes. Don’t get me wrong, but understand this: when i encounter a young single mother earning minimum wage who needs an operation and has no insurance, because of the rules of accepting medicare patients, i cannot charge her a discount because it would be “unfair” to medicare patients. She must be given the procedure for free or charged at least the medicare allowable rate. How fair is that? That’s what happens when you get government run entitlement programs.
I enjoyed reading John’s post and the commentaries it triggered. Indeed, I shall share it with students in a course on the political economy health systems.
It so happens that on the very day John’s blog post appeared we had discussed the economics of health insurance in the course, starting with the definition of (1) insurable event and (2) an insurance amount of money linked to that event.
The central idea is that the insured should not have any control over the probability that the event occurs or on the amount of the monetary benefit the insurer is contracted to pay the insured if the event occurs.
Practically, it leads one to classic indemnity insurance for catastrophic illness events only. In a nutshell, this is what John asks for: health insurance for truly insurable events and amounts of money. If done perfectly, it does away with moral hazard. How cool!
I also like the word “self insured.” It has a lovely ring to it. It connotes self-reliance, self-control, individual autonomy, individual responsibility, rugged individualism and stuff like that and is — je ne sais quoi – so quintessentially American. It evokes images of tough, rugged Tea Party revelers with white hair on Medicare and Social Security.
Which brings me to an intriguing question: Why is the seemingly rational approach to health insurance proposed by John is so rarely found in practice?
People the world over seem to prefer health insurance that involves considerable moral hazard and redistributes income ex ante from the chronically healthy to the chronically ill. Can you imagine making an American corporate executive accept the kind of health insurance policy – ion a Congressman or Senator?
Thus we have here two possibilities. Either (1) economists (well, at least some economists) are perfectly rational and most of the rest of the world is meshugge or (2) it is the other way around? John might enlighten us on this point.
John’s rational approach highlights what we see as physicians on a daily basis. I agree with John.
Health insurance (accident/sickness) should cover catastrophic, insurable events that are agreed upon b/n the insurer and the insured.
But, in my opinion, the problem began when “insurance” started covering primary care. It should cover truly catastrophic events…and be covered by private insurance, Medicaid, Medicare..etc.
It highlights that all patients have different needs, hc problems/challenges, and circumstances (financial, location, access to Docs/hospitals etc) in their own community.
Yiddersher Kops have a greater ability to understand this b/c of their education. That said, hc policy wonks/professors/Docs/HR and insurance specialists/politicians continue to have different solutions b/c their is no one right answer. It sometimes makes us look like schmendriks, when all of us mean-well and are truly interested in making the hc system better…..
The kvetshing will never end….
What is clear to many of us….
The present hc bill poses many tsuris…and many, like illegals (IMO), are shleping the system.
Fortunately, most of the physicians I know are mentshs. They have a true passion for helping others…However, the perfect storm arrived a long time ago and it’s hard to replace experienced physicians that are leaving our honorable profession.
One answer is clear to me. Patients need to pay for their own primary care (whether fee for service or Concierge)…
Thus, it’s up to the Docs to change their practices in their own communities by dropping third party payments.
John’s rational approach highlights what we see as physicians on a daily basis. I agree with John.
Health insurance (accident/sickness) should cover catastrophic, insurable events that are agreed upon b/n the insurer and the insured.
But, in my opinion, the problem began when “insurance” started covering primary care. It should cover truly catastrophic events…and be covered by private insurance, Medicaid, Medicare..etc.
It highlights that all patients have different needs, hc problems/challenges, and circumstances (financial, location, access to Docs/hospitals etc) in their own community.
Yiddersher Kops have a greater ability to understand this b/c of their education. That said, hc policy wonks/professors/Docs/HR and insurance specialists/politicians continue to have different solutions b/c their is no one right answer. It sometimes makes us look like schmendriks, when all of us mean-well and are truly interested in making the hc system better…..
The kvetshing will never end….
What is clear to many of us….
The present hc bill poses many tsuris…and many, like illegals (IMO), are shleping the system.
Fortunately, most of the physicians I know are mentshs. They have a true passion for helping others…However, the perfect storm arrived a long time ago and it’s hard to replace experienced physicians that are leaving our honorable profession.
One answer is clear to me. Patients need to pay for their own primary care (whether fee for service or Concierge)…
Thus, it’s up to the Docs to change their practices in their own communities by dropping third party payments.
Robert Book and David C. Rose have introduced two very good points, but I fear they are thinking statically instead of dynamically. The reason many diagnostic procedures are expensive is because they are covered by 3rd parties. If patients paid directly, competition and innovation would reduce the prices.
However, I agree that pure indemnity (for catastrophic costs) has a challenge: The price of a car (and, by derivation, everything in the car) is determined in a normal market. That is: The car was originally bought by the consumer for a price. Therefore, the auto insurer knows what its maximum liability is: To buy you a new car.
Not the same in health care because prices of goods and services will not likely be formed outside insured transactions. So, it’ll be hard to figure out the right schedule of indemnities – but not impossible. And I highly doubt these economic costs are higher than the costs of 3rd party payment and price-setting.
The only way to find out who’s right is to give individuals control of their health dollars and let them buy the policies they prefer – without intermediation by their employers’ HR departments.
Prof. Reihnardt notes that type of health insurance proposed here is seldom found in practice. True, democracies always drag government into health care. But they drag government into education, too. And invite it to artificially stimulate home ownership. Those are pathologies of democracy, not necessarily good ideas.
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