Archive for April, 2012

Let’s Make a Deal!

A few more snide remarks and hairy eyeballs under my belt, I’m going to take one more shot at this healthcare thing, after which I plan to go back to whining about air travel.

If you are healthy today, there are precisely three things that can happen to you over, let’s say, the next 12 months that would cause you to spend more on healthcare than you can afford on your own:

  • Behind Door #1 are things that are bad but have no lasting consequences.  These acute events are predictable in the aggregate but not in the individual.  You have essentially no control over whether they will happen to you.  And when they’re over, they’re over.   These characteristics make them insurable.  That is, a private market could pool and underwrite these risks.
  • Behind Door #2 are things that are bad and that DO have lasting consequences.  Unless an insurance company is willing to take you on for life, these risks are not insurable.  Yes, you have SOME control over the odds that SOME of them will happen to you.  You can eat better, lose some weight, get more exercise, stop smoking and – ahem – drinking.  We should all be held accountable for those choices.  But that wouldn’t make these risks insurable.
  • And behind Door #3 is you getting older.  This is not an insurable risk either, but it is one over which you have complete control.  Not only can you reduce it, you can eliminate it entirely.  Of course, that involves what most major religions consider to be a mortal sin, but that’s between you and your parish priest.

Daniel Patrick Moynihan once said, “Everyone is entitled to their own opinion, but no one is entitled to their own facts.”  As a matter of moral philosophy, it is impossible to disagree with the notion that people should be accountable for their lifestyle choices.  But Doors #1 and #3, which are not affected by lifestyle choices, have the most prize money behind them, while Door #2, on which those choices have some impact, has the least.  The only way to pay for people who find themselves behind Doors #2 and #3 is to confiscate money from everyone else.  Call that what you will, it is not insurance.

There is an excess of emotion and an absence of fact in this whole debate.  The best idea I’ve heard yet comes from my friend Jack Carroll, who says that we should treat healthcare as a pension – you pay in early in order to be covered late – and supplement that ‘pension’ with private insurance to cover Door #1.

There are only two circumstances under which this would work.  One is that we require everyone to participate – a confiscation of wealth, and therefore a tax.  The other is that we allow people to opt out and agree to let those who do so go without medical care.

That, Monty, is the choice we ultimately have to make.


Gravity – Addendum

In the few days since I published my post about the inevitability of a single-payer healthcare system, I’ve gotten a few caustic comments from some of my more conservative friends, and the hairy eyeball from some others, all of whom seem to think that I’ve fallen off the liberal deep end.  I haven’t, at least I don’t think so.

I love free markets.  I think that much of what the government gets involved in is none of the government’s business.  I think that despite good intentions, regulations often do more harm than good.  And I think government debt is the biggest drag on the economy.

The issue here is different.  Neither healthcare nor health insurance is actually a market.  So expecting them to act like markets is fool’s errand.

A true market for health care would exist only if we left everyone to to pay for it on their own, allowing each of us to buy as much healthcare and insurance as we want and can afford.  That would result in a large number of people going untreated, which is an outcome that we are highly unlikely to accept.  As soon as we decide to subsidize care for anyone, we’re on the steep, slippery slope of taxation and redistribution, regardless of what we choose to call it.  Fully in the grip of gravity, we will wind up at the bottom of that slope.

I’m not saying I like this, just that I think it’s the reality.  If that’s where we’re going to end up, we should, as my friend Steve Smolinsky says, “Get on with it.”

Just how “non-market” is healthcare?  Here’s another example.  My insurance company denied the claim for my appendectomy, ostensibly because they didn’t know if I had any other insurance (I don’t).  With a single check box, they could have obtained that information during enrollment.  Failing that, they could have called me.  Instead, they pushed the problem back on the hospital, which tracked me down, got me to call the insurance company and verify that I don’t have any other insurance, so that the hospital could resubmit the claim, which the insurance company says it will take another 3-4 weeks to pay.

The sole benefit of this exercise is to generate a month or more of float.  That may be a nominal savings for the insurance company, but it is a net cost to the system.  This is a routine practice (shades of “The Rainmaker”).  A little quick math suggests that it adds perhaps $1 billion in cost system-wide.  This cost is borne by doctors and hospitals, who build it into prices, which ultimately results in larger bills being submitted to. . .insurance companies.

Over the past 20 years or so, every industry has driven time and unproductive cost out of its processes.  This is the only case I can think of where an industry has actually added time and cost, and has been able to get away with it.

In true markets, buyers and sellers get to decide who they want to do business with.  This drives them to efficiency and equilibrium.  In this case, the hospital had no choice.  I showed up on their doorstep, the little guy had to come out, they had to do it, and they had to accept my insurance.

If you are a seller of services and you do not have the ability to say no, precisely what kind of market are you in?

That Gravity, She’s a Mean Little B%&*#!

A month or so ago, I had my appendix taken out.  It’s impossible for me to know how much the hospital and assorted doctors will actually be paid for this, but the face value of the bills for that little adventure came to $25,000.  That seems like a lot for what I actually experienced.  On the other hand, if I hadn’t had it done, I’d be dead now.  In that light, it seems like a pretty good deal.

This is one of the fundamental problems with healthcare.  It isn’t a market because the fundamental condition that define markets – multiple two-party transactions between buyers and sellers who can place an economic value on the good or service to be exchanged – doesn’t exist.  (For more on this, scroll back to “A Plague on Both Our Houses” from November 2009.   I thought I was clever and original in making this argument, but the same case was made by Nobel Prize-winning economist Kenneth Arrow.  In 1963.  I’m often late, but rarely by 49 years.  And rarely in such good company.)

The Supreme Court’s current consideration of the Obamacare individual mandate reveals another fundamental problem:  health insurance isn’t really insurance.

To be fair, part of it is.  When you write a check for health insurance, part of the money goes to protect you against the possibility that something both unexpected and bad (like having your appendix flare up while you’re in Arizona visiting Dad) will happen to you in the next 12 months.

The rest of the money, however, pays for the care of people who are older, and therefore predictably less healthy, than you are.  You are also paying for people to whom something bad, that turned out to have ongoing consequences, has already happened.  The younger and healthier you are, the higher a percentage of your premium is used to subsidize the care of people who are either already ill or are far more likely than you are to become ill in the next year.

The individual mandate is a means of forcing these young, healthy people into the system because without them, the system would collapse under its own weight.  But confiscating money from some people in order to pay for something that benefits other people isn’t insurance.  It’s taxation.

In that context, the individual mandate amounts to an outsourcing of taxation.  It also provides a thin veneer of private sector involvement that lets us pretend we’re free marketers when we really aren’t.  (On this, see the comments of conservative and former Bush aide David Frum.)

So what we’re talking about here is insurance that’s not actually insurance, which we use to fund a market that’s not actually a market.

I wish it weren’t so.  I believe in markets and spend my days helping people figure out how to prosper in them.

But I also believe in calling a spade a spade.  The system will function only if we force people to participate, which is a steep and slippery slope.  We are going to wind up with a single-payer, government run healthcare funding system.  Not because we should, or because it’s better or worse, but because it’s inevitable.

That is the irresistible force of gravity.  The sooner we acknowledge it and act on it, the less it’s going to hurt.

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April 2012
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