Mark Thoma on Health Insurance

I find Kling's arguments convincing. But I wonder why there is not more public demand for health care insurance policies which covers only catastrophic outlays? For example, an HCI policy with an excess of 10 000 dollars? Surely that would be much more affordable? Why doesn't the market provide it?

Bruce,

I find Kling's arguments convincing. But I wonder why there is not more public demand for health care insurance policies which covers only catastrophic outlays? For example, an HCI policy with an excess of 10 000 dollars? Surely that would be much more affordable? Why doesn't the market provide it?

You'd have to ban non-catastrophic 'insurance.'

As long as it exists, the costs for non-catastrophic products and services will be 2 or 3 or more times as much for the uninsured as for the insured. There is no point in a catastrophic plan whose benefits are included in the present plans. As long as a provider produces for a market made up predominately of third party 'insurance' companies, there is no incentive to hold down prices for the uninsured. In fact the higher prices are advantageous in allowing bigger numeric discounts to the 'insurers.'

Regards, Don

Don - Thanks. I see that - as things are now - 'comprehensive' health insurance has inflated the cost of even simple procedures etc.

What puzzles me is that this has happened with health insurance but not car insurance. In the UK, if you do not have comprehensive insurance for your car then you repairs are cheaper than when the money comes from insurance companies - garages ask 'is this an insurance job?'

Maybe the root of the problem is lack of supply of medical care, eg insufficient physicians due to restrictive practices wrt. licensing?

If there were more physicians and more competition etc, then maybe some of them would offer cheaper health care for direct payment from patients (thereby avoiding the transaction costs of dealing with insurance agencies).

Bruce,

What puzzles me is that this has happened with health insurance but not car insurance. In the UK, if you do not have comprehensive insurance for your car then you repairs are cheaper than when the money comes from insurance companies - garages ask 'is this an insurance job?'

The car insurance would be expected to be the model norm, if everything else were equal. The repairer would drop his price just enough to get your business, if that didn't set a cap on his pricing for other individuals, assuming that what you pay isn't going to be broadcast on the BBC.

Even more important, he will judge that there is little risk that giving you whatever discount is necessary, above his marginal cost, will cause the insurance companies to remove him from their lists of approved vendors.

At least in the US, there is a strong possibility that discounting for the non-insured will cause difficulties for health providers in their dealings with the insurers. Who would pay insurance premiums if they could get the same services and prices on their own?

Some more information and thought is required as government and regulations must also fit in there somewhere.

Regards, Don

You can purchase a high-deductible health care policy with a health savings account (HSA) today:

http://www.cato.org/pub_display.php?pub_id=5482

HSAs couple high-deductible health insurance with a tax-free savings account (the HSA) for out-of-pocket medical expenses. Individuals and/or employers can contribute money to HSAs tax-free up to the amount of the insurance deductible. HSAs must be coupled with insurance that has a deductible of at least $1,050 for individuals and $2,100 for families.

By the way:

"State Health Insurance Regulations and the price of High-Deductible Policies"

http://fhss.byu.edu/econ/faculty/showalter/insurance-regulations-1%2014%2005.pdf

They found that prices differ by about 100% depending on state regulations. Each mandate increases price by 0.4% for individuals or 0.5% for families.