How often have you heard a politician say that millions of Americans “have no health care,” when he or she meant they have no health insurance? How has a method of financing health care become synonymous with care itself?
The reason for financing at least some of our health care with an insurance system is obvious. We all worry that a serious illness or an accident might one day require urgent, extensive care, imposing an extreme financial burden on us. In this sense, health-care insurance is just like all other forms of insurance—life, property, liability—where the many who face a risk share the cost incurred by the few who actually suffer a loss.
But health insurance is different from every other type of insurance. Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. We’ve become so used to health insurance that we don’t realize how absurd that is. We can’t imagine paying for gas with our auto-insurance policy, or for our electric bills with our homeowners insurance, but we all assume that our regular checkups and dental cleanings will be covered at least partially by insurance. Most pregnancies are planned, and deliveries are predictable many months in advance, yet they’re financed the same way we finance fixing a car after a wreck—through an insurance claim.
[...] Insurance is probably the most complex, costly, and distortional method of financing any activity; that’s why it is otherwise used to fund only rare, unexpected, and large costs. Imagine sending your weekly grocery bill to an insurance clerk for review, and having the grocer reimbursed by the insurer to whom you’ve paid your share. An expensive and wasteful absurdity, no?
Is this really a big problem for our health-care system? Well, for every two doctors in the U.S., there is now one health-insurance employee—more than 470,000 in total. In 2006, it cost almost $500 per person just to administer health insurance. Much of this enormous cost would simply disappear if we paid routine and predictable health-care expenditures the way we pay for everything else—by ourselves.[...] Moral hazard has fostered an accidental collusion between providers benefiting from higher costs and patients who don’t fully bear them. In this environment, trying to control costs is awfully tough. When Medicare cut reimbursement rates in 2005 on chemotherapy and anemia drugs, for instance, it saved almost 20 percent of the previously billed costs. But Medicare’s total cancer-treatment costs actually rose almost immediately. As The New York Times reported, some physicians believed their colleagues simply performed more treatments, particularly higher-profit ones.
Want further evidence of moral hazard? The average insured American and the average uninsured American spend very similar amounts of their own money on health care each year—$654 and $583, respectively. But they spend wildly different amounts of other people’s money—$3,809 and $1,103, respectively. Sometimes the uninsured do not get highly beneficial treatments because they cannot afford them at today’s prices—something any reform must address. But likewise, insured patients often get only marginally beneficial (or even outright unnecessary) care at mind-boggling cost. If it’s true that the insurance system leads us to focus on only our direct share of costs—rather than the total cost to society—it’s not surprising that insured families and uninsured ones would make similar decisions as to how much of their own money to spend on care, but very different decisions on the total amount to consume.[...] The most important single step we can take toward truly reforming our system is to move away from comprehensive health insurance as the single model for financing care. And a guiding principle of any reform should be to put the consumer, not the insurer or the government, at the center of the system. I believe if the government took on the goal of better supporting consumers—by bringing greater transparency and competition to the health-care industry, and by directly subsidizing those who can’t afford care—we’d find that consumers could buy much more of their care directly than we might initially think, and that over time we’d see better care and better service, at lower cost, as a result.
I'm fairly liberal - I definitely support a public option, among other things - but I think the author makes some good points. Restructuring incentives around consumers' preferences, rather than those of the insurance companies, would go a long way toward reducing costs and raising quality. What does everyone else think?