Arnold Kling

Mandatory Health Insurance?

Arnold Kling
The Golddigger's Dilemma... Malthusian Myopia...

Glen Whitman writes,


To enact any mandate, legislators and bureaucrats must specify a minimum benefits package that an insurance policy must cover. Yet this package can't be defined in an apolitical way. Each medical specialty, from oncology to acupuncture, will push for its services to be included. Ditto other interest groups. In government, bloat is the rule, not the exception.

What I say about mandatory health insurance is that I can be for it in theory but not in practice. That is, I might support mandatory catastrophic health insurance, meaning a high-deductible policy with narrow coverage.

But that is like saying I could be in favor of unicorns. No one is ever going to see mandatory health insurance plans that are narrow in coverage and have the kinds of deductibles that I consider to be high. The way that the Romney mandate worked out in practice, the mandates in mandatory coverage were so broad that 600,000 people who had health insurance before the law was passed were told that their plans no longer qualified as health insurance in the state of Massachusetts.

Also, the Massachusetts idea of a high-deductible policy is $1000 or $2000, which is less than one-third of average annual per capita health care spending in the state. My idea of a high-deductible policy would be something like $10,000 or $15,000 a year. Better yet, a five-year deductible of, say, $30,000.

Needless to say, my idea of an appropriate health insurance policy would not be allowed in any state. Health care providers would go ballistic.

Thanks to Tyler Cowen for the pointer.

UPDATE: Tyler has more good points to make.



COMMENTS (12 to date)
Bill Stepp writes:

There are at least five causes of the health insurance mess:

1. Third party payment, either by employers or the government.
2. The gradual elimination of high deductible policies, which have been replaced by low co-pays and other notrums that mandate essentially first-dollar coverage.
3. Guaranteed issue policies, along with community ratings, which prevent insurers from excluding people with pre-exisiting conditions,
and charging appropriate premiums based on an applicant's risk profile.
4. Mandated coverage, such as "mental health" coverage (thanks, I assume, to the lobbying efforts of the Therapeutic State's rent seeking reps), preganancy coverage for single people, etc. Why can't a single male (or female) buy a policy that doesn't offer that coverage?
5. Inability to shop for the best deal across state lines. Why shouldn't you be able to buy the best policy regardless of where you live?
Can you say "50 state insurance regulators"?

Here in the People's Republic of New York, I bought a Mutual of Omaha policy with a $10,000 deductible in 1997. Two years later, Mutual of Omaha exited the People's Republic (Guardian, the last of the old line indemnity carriers, had stopped writing health insurance in 1994) so I switched to GHI, which had only a $5,000 deductible with--surprise--a higher premium.
In 2005 GHI dropped that policy and gave me an option to switch to a $30 co-pay--at a 91% higher premium. I told them where to take their offer.

Over the years, my health insurers have never paid a dime on a claim I made, because they never exceeded the deductible. The only serious thing I had was a broken ankle in 1996, which cost me maybe $3,500 out of pocket. No big deal.

What is a big deal, and what should make people want to do a Peter Finch "I'm mad as hell and I'm not going to take it any more" routine, is the cascading layers of State intervention in the health insurance market (and this mainly at the state level, Mr. and Ms. Federalist Society Conservative). These have eviscerated the market, eroded consumers' choices, driven up their insurance prices (or made it impossible to get any private ccverage), and enriched rent seekers and crookeaucrats.

"I'm mad as hell and I'm not going to take it any more."

Eli writes:

Arnold, I have proposed (to the handful of people willing to listen) a Pigovian tax on low deductible insurance, on the grounds that these plans pollute the price system and create a negative externality. I'm curious about your reaction to this idea. Any thoughts?

F.S. writes:

The health care in US “sicks” one two reasons.
The USA has the highest health expenses. Causes are: Excessive insertion of costly, high-engineered instruments, to many examinations on the part of medical practitioners, lack of competition among the big insurance companies, high administrative expense.
The other crises consists of the about 40 million Americans without insurance coverage just because of the obligation for health insurance.
This unsocial health care system drives an increasing number of Americans in bitter poverty.

“Profit-orientation is bought dearly”
Profit oriented businesses dominate the divisions nursing homes, mental institutions, rehab hospitals and HMO’s.
Market provides efficiency – that the neo-liberal dogma. However the reality doesn’t follow this dogma. Hospitals controlling by investors optimize the profit but not the cost.
This will cost the commonality dear.

In addition, the structural corruption in health care in the USA becomes number one in white-collar criminality until today; about 3% to 10% of the whole health care budget disappears by reason of large-scale fraud activities and corruption.

I don’t know whether the mandatory health insurance is the best solution and whether it works in practice, but things can't remain this way.
Government have to adopt radical reforms and to take responsibility for health care.
F

R. Richard Schweitzer writes:

Until everyone stops conflating insurance, which is the Transfer of Risk, with provisions for Health Care, which is not a transfer of risk, no rational solution can be expected.

Further, like "Social Security," "Medicare," and "Medicaid," having these matters as continuing issues unresolved is to the advantage of the political class and those suborned to them. Such issues provide raison d'etre; they creat "make work." There is no exigency to resolve them.

R. Richard Schweitzer
s24rrs@aol.com

Michael Sullivan writes:

Also, the Massachusetts idea of a high-deductible policy is $1000 or $2000, which is less than one-third of average annual per capita health care spending in the state. My idea of a high-deductible policy would be something like $10,000 or $15,000 a year. Better yet, a five-year deductible of, say, $30,000.

Your calibration bothered me a bit, because my experience is that more than $2000 is an awful lot to spend on healthcare in a year for a healthy person. My whole life, I don't believe my covered expenses have ever exceeded that, even when I was in an accident that required emergency care and a bunch of Xrays. And I have chronic allergy issues, and get bronchitis and pneumonia often, so my healthcare expenses are probably higher than average for someone of my general age and condition.

My gut instinct would be that a disproportionate share of health expenses are spent on a very few people requiring extremely expensive care.

Turns out I'm correct. A quick google found this study showing that for the us civilian population as a whole in 2003 there were mean healthcare expenses of $3601 and a median of $1021.

So a deductible of $1000 would be about what a typical person would expect to pay if they footed their own bill, not 1/3.

I think $1000 is too low, especially if we're talking about *mandated* coverage, but it seems to me that the appropriate ballpark for the middle class is in the $2000-6000 range or $10-15K over 5 years, not $10-15K or 30K(5). Most people would be in serious trouble facing 10k in health expenses, and don't have a reasonable expectation of facing that were they uninsured in any given year, unless they've already lost the health risk lottery (they are 65+ or already have some chronic problem). My income is well above average, and while I could handle a 15k/year medical exposure if I had to, I'd be very uncomfortable with it.

If I made only the ~40k a year that the median full time worker in this country does, I would only choose a policy with that high a deductible if it very nearly dominated the other options (if I were to save on premiums nearly all of the difference in deductible). But with my typical expenses actually being only around $1000, that shouldn't happen in a competitive market. It would only be the result of ill conceived regulation or radical market failure.

Floccina writes:

My idea:
Provide universal coverage with low deductibles for the poor and very high deductibles for the middle class and the rich. By high deductibles I mean like $100,000/year but based on one's last year's adjusted income. Tax any gap insurance heavily. The middle class and rich are almost all capable people and thus would not be likely to skip preventive care even with very high deductibles. IMHO it would drive prices down in response to the high deductibles of the rich and middle class, but the poor who might be inclined to not use sufficient preventive care in face of deductibles would be encouraged by the low deductibles to use preventive care.

Floccina writes:

F.S. wrote: "I don’t know whether the mandatory health insurance is the best solution and whether it works in practice, but things can't remain this way.
Government have to adopt radical reforms and to take responsibility for health care. "

I agree with the first part of your statement but I see in it the good news that if Government does nothing people will more and more start to solve the problem themselves. If things can't remain this way they won't.

Bill Stepp writes:

The middle class and rich are almost all capable people and thus would not be likely to skip preventive care even with very high deductibles. IMHO it would drive prices down in response to the high deductibles of the rich and middle class, but the poor who might be inclined to not use sufficient preventive care in face of deductibles would be encouraged by the low deductibles to use preventive care.

I'm not sure exactly what you mean by "preventive care"--let's assume you mean annual check ups and the like. Such healthcare should not be paid for by insurers, because the point of insurance is to insure against unforseen events, such as cancer, broken bones, etc.
Just as car insurance should not pay for routine automobile maintenance (such as oil and lube jobes, tire balancing, etc.), so too health insurance should not pay for annual exams, etc.
I think some carriers pay for excercise programs on the grounds that these prevent more costly ailments. I jog and do other excercise, but don't charge my insurer the cost of my togs, jogging shoes, etc., which would be absurd even if I could.

Floccina writes:

Bill Stepp I was thinking of mammograms ($300) and colonoscopies. I agree that they should not be covered but the Democrats will argue that the poor will pass on getting them if they must pay. Poverty correlates with a lack of wisdom. Non-poor should of course pay for these out of pocket.

Mike Feehan writes:

"There are at least five causes of the health insurance mess"

OK, yeah that's a good 5. But is the cost of and access to health insurance the underlying problem that is to be solved? Or is it perhaps a symptom of a different, underlying problem?

I think it's very clear that if health care were not expensive, health insurance would not be expensive. If the cost of health care were not rising, the cost of health insurance would not be rising.

That's why I think the cost of insurance is a symptom, not the fundamental problem. I think the underlying problem is the high--and rising--cost of health care. Trying to cure a disease by focusing all one's attention on the symptom is not a rational strategy. You would change your doctor if you thought that is how she were practicing medicine on you.

It's true that the presence of insurance induces some higher demand and thus higher cost but is that the main reason that health care in the U.S. is so expensive? I doubt it. I think more central factors include the aging of our population, the continued emergence of high-tech care, the rising standard of living throughout the post-WWII years, defensive medicine, harmful personal behaviors (poor diet, inadequate exercise, inadequate sleep, substance abuse, smoking, alcohol abuse, stresses of modern life, i.e., all the "personal responsibility" stuff that we seldom seriously think about), etc, etc. These all contribute more to the cost of health care, IMO, than the presence of insurance - although the presence of excessive insurance coverage certainly does have its own effect on demand.

Wouldn't it be smarter to address these factors directly, rather than obliquely thru some insurance mechanism? Why is it that the debate is dominated by discussions of the "insurance mess" rather than probing for relief from the high cost of health care? Is a puzzlement.

Mike Feehan writes:

"Most people would be in serious trouble facing 10k in health expenses"

Interesting.

But then, why are most people not in serious trouble facing 15k - or more - in car-purchase expenses?

Rice7036 writes:

Mandatory health insurance is a great idea if it is affordable. I for one do not have a need to go to the doctor on a regular basis. However, I hesitate to go to the doctor when I really need it because the deductibles are so high. I don't see why I pay out so much monthly in dues and then don't have anything covered when I do go to the doctor. The more wealthy people can afford the plans with low deductibles and abuse the system whereas the hard working single income families are punished it seems and may pay out monthly and never even use the insurance. What gives. How can some people get ahead. So the idea is great if it is altered to fit the income levels of the person. Then maybe the abusers of Medicaid will be pressured to pay some of their own bills instead of using the money they save by not paying out anything on insurance/medical bills instead of being the chain-smoking, alcohol abusing, foodstamp(for steaks of course) using liars they are. A majority of these people lie about the total household income. A lot of them could be considered a middle-class income household but they only provide part of the truth and the result is hardworking people paying their medical bills. If it was mandatory for health insurance then maybe they would be denied some of their freebies and everyone could have insurance without abusing the programs that should just be for the people who really need them.

Comments for this entry have been closed
Return to top