Mandatory Health Insurance?

If people are going to be forced to buy health insurance, shouldn’t there be price controls on health insurance costs?

It is also in society’s best interests to do some kinds of preventive medicine. You can’t allow tuberculosis, smallpox or leprosy to come back because some people were too poor to afford vaccinations. You may want to have the government cover flu shots to mitigate potentially disastrous epidemics.

I think discussing comprehensive health insurance versus catastrophic health insurance is giving up half the battle. It is the same as discussing capitalism instead of the market economy.

What we have now, for most of the insured, is subsidized comprehensive third party payment. What we need is catastrophic health insurance. Until the primary debate is about comprehensive versus catastrophic, all extensions of third party payment will lead to a mushrooming of health costs.

If health costs get much higher, as a percentage of income, we are going to see a majority in favor of price controls.

There’s another problem that mandatory isurance addresses: When members of group 1 are unable to pay for care, they automatically become members of group 2. Unless, that is, they’re willing to decline needed care in order to uphold their libertarian principles.

Jim

dcpi makes a trivial observation. 90% or more of people without a car do not “choose” to be that way. Mandatory health insurance is not all that different from mandatory car insurance, and could be favored for the same reasons.

I used to live in Washington (state, for you East Coasters). There, you could avoid mandatory car insurance if you posted a CD or other liquid equivalent for something in the neighborhood of $60,000 to cover your potential liabilities. Hardly anyone did of course! But it was there if you REALLY objected to mandatory insurance.

If the State of Florida (my nominal residence) enacted mandatory health insurance, I’d want to be sure that there was some loophole or coverage for people like me who spend 80% of their time outside the US. But I’m way way in the minority, I doubt my case would get much attention.

I am, BTW, car-free by choice.

The votes in California overwhelmingly against socialized pharmaceuticals and re-regulation of electric utilities ought to give you some hope that a majority would not be in favor of socialized medicine.

Arnold, what is the externality caused by a young, healthy uninsured person, especially if s/he has a ton of equity in his/her home that can be accessed quickly through refi or sale to pay for the most astronomical medical bills?

And what happens when I get into some financial difficulty and let the premiums slide for a few months? – Do I lose my license?

We already have catastophic health care coverage for all – its called bankruptcy.

Health Economics 101

By PAUL KRUGMAN

Several readers have asked me a good question: we rely on free markets to deliver most goods and services, so why shouldn’t we do the same thing for health care? Some correspondents were belligerent, others honestly curious. Either way, they deserve an answer.

It comes down to three things: risk, selection and social justice.

First, about risk: in any given year, a small fraction of the population accounts for the bulk of medical expenses. In 2002 a mere 5 percent of Americans incurred almost half of U.S. medical costs. If you find yourself one of the unlucky 5 percent, your medical expenses will be crushing, unless you’re very wealthy – or you have good insurance.

But good insurance is hard to come by, because private markets for health insurance suffer from a severe case of the economic problem known as “adverse selection,” in which bad risks drive out good.

To understand adverse selection, imagine what would happen if there were only one health insurance company, and everyone was required to buy the same insurance policy. In that case, the insurance company could charge a price reflecting the medical costs of the average American, plus a small extra charge for administrative expenses.

But in the real insurance market, a company that offered such a policy to anyone who wanted it would lose money hand over fist. Healthy people, who don’t expect to face high medical bills, would go elsewhere, or go without insurance. Meanwhile, those who bought the policy would be a self-selected group of people likely to have high medical costs. And if the company responded to this selection bias by charging a higher price for insurance, it would drive away even more healthy people.

That’s why insurance companies don’t offer a standard health insurance policy, available to anyone willing to buy it. Instead, they devote a lot of effort and money to screening applicants, selling insurance only to those considered unlikely to have high costs, while rejecting those with pre-existing conditions or other indicators of high future expenses.

This screening process is the main reason private health insurers spend a much higher share of their revenue on administrative costs than do government insurance programs like Medicare, which doesn’t try to screen anyone out. That is, private insurance companies spend large sums not on providing medical care, but on denying insurance to those who need it most.

What happens to those denied coverage? Citizens of advanced countries – the United States included – don’t believe that their fellow citizens should be denied essential health care because they can’t afford it. And this belief in social justice gets translated into action, however imperfectly. Some of those unable to get private health insurance are covered by Medicaid. Others receive “uncompensated” treatment, which ends up being paid for either by the government or by higher medical bills for the insured. So we have a huge private health care bureaucracy whose main purpose is, in effect, to pass the buck to taxpayers.

At this point some readers may object that I’m painting too dark a picture. After all, most Americans too young to receive Medicare do have private health insurance. So does the free market work better than I’ve suggested? No: to the extent that we do have a working system of private health insurance, it’s the result of huge though hidden subsidies.

Private health insurance in America comes almost entirely in the form of employment-based coverage: insurance provided by corporations as part of their pay packages. The key to this coverage is the fact that compensation in the form of health benefits, as opposed to wages, isn’t taxed. One recent study suggests that this tax subsidy may be as large as $190 billion per year. And even with this subsidy, employment-based coverage is in rapid decline.

I’m not an opponent of markets. On the contrary, I’ve spent a lot of my career defending their virtues. But the fact is that the free market doesn’t work for health insurance, and never did. All we ever had was a patchwork, semiprivate system supported by large government subsidies.

That system is now failing. And a rigid belief that markets are always superior to government programs – a belief that ignores basic economics as well as experience – stands in the way of rational thinking about what should replace it.

Bob — I respect your philosophy. Much better to rely on friends than strangers for care. BTW: I also am without a car, by choice, it is much too expensive compared to the benefit for those of us in NYC.

[quote]But in the real insurance market, a company that offered such a policy to anyone who wanted it would lose money hand over fist. Healthy people, who don’t expect to face high medical bills, would go elsewhere, or go without insurance. Meanwhile, those who bought the policy would be a self-selected group of people likely to have high medical costs. And if the company responded to this selection bias by charging a higher price for insurance, it would drive away even more healthy people.[/quote]

Interesting. Mr. Krugman has effectively provided the exact reason as to why government should not be providing insurance of any kind. It seems that government provides insurance that any insurance company knows would run them out of business: health insurance for all citizens regardless of health status, flood insurance and tornado insurance, farm insurance to guard against drought, and social insurance to guard against economic downturns. These types of insurance encourage risky behavior, overconsumption, fraud, and abuse. These tend to make insurance more expensive than it otherwise would be. The problem with government providing these insurance plans are that when the perverse behaviors are carried out, the costs are borne by the taxpayer, not the shareholder of a large corporation, and in the long run this lowers standards of living for all citizens.

[quote]I’m not an opponent of markets. On the contrary, I’ve spent a lot of my career defending their virtues. But the fact is that the free market doesn’t work for health insurance, and never did. All we ever had was a patchwork, semiprivate system supported by large government subsidies.[/quote]

Hmm, I wonder how the sick and ill got treated prior to when America’s employers decided to provide health insurance as a benefit to avoid paying taxes?