David R. Henderson  

Confusing Health Care and Health Insurance

Baseline Scenario: The Book... The Consumer Satisfaction Stan...

President Obama Walks Into His Own Trap

And the insurance companies continue to ration health care based on who's sick and who's healthy; on who can pay and who can't pay.
The above is from President Obama's speech in Pennsylvania on March 8.

If we take Obama literally, then shouldn't we applaud insurance companies? Don't we want them to ration care by paying for it for those who are sick and not paying for it for those who are healthy? Fire insurance companies ration payments to those whose house has not burned down, saving the money for people who are insured and whose houses have burned down.

Of course, that's not what he meant. He meant the following:

And the insurance companies continue to ration health insurance based on who's sick and who's healthy; on who can pay and who can't pay.

And of course he meant that they tend to deny coverage or charge premiums to those who are sick.

Why did he make that verbal slip? Because he's used to making it on purpose. He, like so many people who advocate further government intervention in health insurance, has been trying to confuse the issue for years--and he ended up confusing himself. President Clinton did it regularly, talking about tens of millions of people going without health care when what was really true was--and is--that tens of millions of people go without health insurance. There has always been a large uncompensated health care sector--doctors and hospitals giving care but not collecting, or not collecting much, from those who can't pay. Moreover, many people who lack health insurance actually, believe it or not, pay for their own health care. Health economist Linda Gorman writes:

Overall, national estimates suggest that the uninsured pay for about half of their care
People who oppose the Obama/Senate/House plans for further intervention are wrong to criticize universal health care. We already have universal health care. That doesn't mean it's not rationed. It is rationed, both to those with health insurance and to those without health insurance. But in that sense it's rationed everywhere. In Canada, the provincial governments ration by making people wait, by denying coverage of certain drugs and procedures, and by making it illegal for people to buy health care, except on a few procedures.

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COMMENTS (18 to date)
Shawn Smith writes:

Good point...a lot of people who don't have health insurance do so for personal reasons. They either consider themselves healthy enough that they don't need it (like life insurance for young people) or they have enough savings that they can afford most medical procedures.

Health insurance/care is already one of the heaviest regulated industries, along with energy and education. Yet, all three of those industries are the ones with the most complaints from consumers and producers alike. That's not a coincidence...

Universal health insurance does not guarantee universal health care.

Patrick R. Sullivan writes:

Barack Obama betrayed an ignorance of the economics of auto insurance in an anecdote he told during his little health care summit. Why would he better understand a more complicated form of insurance.

david writes:

If there's already universal care in this sense - nice word games here! - why not attempt to reduce costs by pushing preventive care? Does anyone really think the current situation of de facto taxpayer coverage when you're finally packed off into the ER in an ambulance is optimal?

spencer writes:

Shawn --I doubt that many people that are smart enough to have enough savings to pay for almost any medical procedure are so dumb that they would not have insurance.

Can you show me that many such people actually exist and are not just a figment of your imagination?

Aaron writes:


"Most" is not the same as "almost any". My wife and I did not have health insurance for about a year once. We were in a situation where we had no income but a decent amount of savings. She incurred some medical expenses, and each instance was not any more than a few hundred dollars. The exception was an emergency room visit, which was about $2,000. We could afford it, and we do, in fact, exist.

David R. Henderson writes:

I've got an example that's more extreme than Aaron's. When my daughter was about two, we got to be friendly with a couple in a park we took her to. They had a son the same age as our Karen. It turned out that he had been born premature and that they owed the hospital $70k. (They were young and probably assumed a trouble-free pregnancy.) I asked him if CHOMP, our local hospital, had written it off. He said that no, they were making payments--I think he said about $1,000 a month.

Floccina writes:

That doesn't mean it's not rationed. It is rationed, both to those with health insurance and to those without health insurance. But in that sense it's rationed everywhere.

Does anybody really want their health insurance company to OK any request for treatment no matter how inappropriate?

Patrick R. Sullivan writes:
Shawn --I doubt that many people that are smart enough to have enough savings to pay for almost any medical procedure are so dumb that they would not have insurance.

In which case they'd have less savings, no?

Why would someone with the income of a Julia Roberts, LeBron James, Bill Gates, or even a top notch sales professional waste money on health insurance (other than catastrophic)?

cjc writes:

I've always thought that proponents of Obamacare confuse several related but distinct concepts:

1. The aforementioned health care vs. health insurance.

2. Health insurance vs. access to care (There seems to be an assumption that if something is covered by insurance, people will be able to find providers, no matter how bad the incentives are for providers. Examples include the branch of Mayo Clinic pulling access to Medicare patients because of low reimbursements. Similarly, the relative scarcity of gerontologists because of low Medicare reimbursements.)

3. Health care today vs. health care tomorrow (What we do now is science fiction compared to, say, President Eisenhower's time, when the most powerful man in the world were told to get bedrest after having a heart attack. What kind of health care will we have in 30 years, provided that incentives today don't discourage innovation?)

dlr writes:

Spenser, I don't have health insurance, and I could easily afford the premiums. I haven't had insurance for 5 years, and I have no intention of getting it unless I am forced to by law. I refuse to buy it because I think it costs far too much for what I would get. If I get sick, I'll pay for it myself. I bet I'll end up paying less for my care this way than by paying the outrageous premiums the insurance companies want to charge me. If I get sick, hey, maybe I'll fly to Singapore, and get my procedure done there. I hear they have world class care there, and prices dramatically less than what we have here.

I would probably qualify for the subsidies that Obama wants to give the uninsured to buy health insurance, and I still say forget it. Health insurance as it's currently set up is a rip off - if the government pays for it or if I pay for it. The only people who get their money's worth are hypochodriacs.

If the federal government wanted to really help uninsured people they could start by protecting us from the predatory pricing practices of doctors and hospitals. They charge people without insurance twice as much FOR THE SAME PROCEDURE as they do people who are insured. The big insurance companies negotiate discounts, and medicare of course negotiates discounts, and the uninsured patient pays through the nose. Anytime I DO go in and get some care, I end up subsidizing all the people who are insured. And that is the biggest rip off of all.

BZ writes:

Hi Spencer,

My second and third jobs out of college were both very small startup firms that offered me a choice between help on health insurance premiums through the company, or a fatter paycheck. I took the later. The third one later added an HSA option and then moved us to a mandatory plan. I objected, preferring the extra pay I knew I was foregoing. That was over 10 years ago. I'm approaching 40 now and should probably care more about such things, but I just don't. Isn't that my right? If I was given the same option at my current company, I would take it in a heartbeat. This is why I favor ending the tax exemption for health insurance. I'm certain that would revive my choices in larger firms like the one I'm with now.

Seth writes:

Is it rationed? Maybe that's why we spend 17% of GDP on health care. We have universal coverage and it's not rationed - at least not much.

Tom West writes:

I'm approaching 40 now and should probably care more about such things, but I just don't. Isn't that my right?


A lot of regulation in society is now about preventing you from taking risks that, if you fail, will harm you enough that the rest of us will feel unhappy.

So, even if you are willing to make the calculated risk of dying untreated and even if you are stoic and don't complain if your gamble doesn't pan out, the simple knowledge of your suffering may make the electorate uncomfortable enough that they're willing to prevent you from taking that risk.

Same thing with jobs were safety is possible at cost. You might prefer the greater pay instead of increased safety, but the rest of us may be unwilling to risk seeing you crippled for the rest of your life.

Welcome to democracy.

Hildebrand, The Insurance Warden writes:

Yes! You know, I find myself constantly pointing out that the government has never been able to (honestly) promise health care; it can only ever promise a health care plan (insurance)!

But now that I reflect, state governments already do kind of provide health care by requiring all ER's to administer care regardless of whether their patient will pay. So the cost of all ER visits is heaped entirely upon those who pay their bills, rather like a tax on the financially responsible.

John Eley writes:

Of course Obama confuses health care with health care insurance. He must do so because he knows full well that he has no intention of addressing the real problems associated with rising health care costs. He has no intention of taking on the medical profession and challenging those in it to start setting limits on the care that they foist upon an unsuspecting public which is all to eager to live forever. He has no intention of asking physicians and the producers of medical technology to ask if there are not in fact limits to cost beyond which they should not go if they are to be responsible citizens. He has no intention of asking us to consider how much health care that we as citizens demand in light of the fact that we have a wide range of other legitimate needs that could be served with the funds that go into health care. He has no intention of limiting anyone but insurance companies since they are easy political targets. He can exploit public ignorance of the fact that medical costs not insurance prices are the villians in the drama.

mulp writes:

"We already have universal health care. That doesn't mean it's not rationed. It is rationed, both to those with health insurance and to those without health insurance. But in that sense it's rationed everywhere."

Yeah, but the US universal health care model rations care like goods were rationed in the Soviet Union. Those with connections, god jobs, political influence, get their goods/health care quickly; those without wait until they happen on a line, or hear rumors that the thing they need will become available, and then they rush to get in line.

Why is the US health care system more like the Soviet command economy than a free market when it comes to essentials?

In the ideal free market, one waits in line by choice. Your favorite artisan is capable, or perhaps only willing to produce something, so you decide to wait until you can purchase it, or you chose an alternative. You want a great meal prepared by a specific chef, you plan ahead and arrange to dine in the future. But that doesn't mean you don't get to eat for 8 months if that is the earliest you can arrange to get a seat that meets your requirements for dinner.

On the other hand, if you have renal failure and the cure is a kidney transplant, even with lots of money, you may be forced to wait in line for years. However, even if poor, and often especially if poor, you live on with dialysis, something for which the supply can be expanded to meet demand. Long term dialysis is largely single payer, and while one can argue Medicare has prevented innovation, short term dialysis is not covered by Medicare and for those who get it, they pay out of pocket or with insurance. Even those on long term dialysis have the option and means in some significant cases to pay outside of Medicare.

Rather than the dialysis industry innovating, it has been the customers who have been the ones driving innovation. These patients and their families have setup charities to collect money to fund R&D to provide better options. They have lobbied to have new products approved that reduce costs and improve health, like home dialysis.

Innovations are adopted in a market system because they have higher efficiency - more for less, the same for less, more for the same.

Japan has that dreaded innovation stifling government run health care system, but yet it has managed to develop some of the most innovative medical equipment on the market, driven by the local Japanese market's government cost constraint system that involved government price controls. Japanese CT scanners are smaller, easier to operate, and all in all cheaper to buy and cheaper per scan, than CT scanners in the US. Japan has nearly three times the per capita CT scanners, and nearly twice the number of MRIs.

The CT scanners and MRIs in the US are more advanced in the sense they are larger and offer more bells and whistles, but a lot of those bells and whistles have come in response to researchers needs, not the practice of medicine. And the US government funds a lot of research with public policy promoting private research funding with lots of tax preferences that have government sharing in the funding. So, it isn't the free market driving innovation in medical devices in the US, but government policy that originated more than anytime else with LBJ and Nixon.

Again, the US health care system is more like that of the Soviet central planners where government technocrats defined the areas of investment, not the free market. Japan, with its government run health care system and price controls that are set based on market theory has driven innovation with markets.

In Japan, the price authorities study the spending and where the quantity is rising rapidly without obvious justification, the allowed price is reduced. If a price seems to be reducing the use of a procedure that is deemed more beneficial than the alternatives, the price is raised.

(While one can argue this leads to errors, this is true in the free market where a firm introduces a product at too low a price which harms the firm with failure to meet demand, lowered quality, reputation lost. On the other hand, pricing something too high results in insufficient demand to stay solvent and competitive (Apple vs the PC).)

The nations with universal health coverage do so in many different ways, but nearly all use some form of market model to allocate resources just as for-profit firms do, and compete for market share of GDP the same way firms do. The US has created a Soviet style system of health care delivery, one that relies on either political favoritism or long waiting lists, without the central planners to hold accountable.

RES_MD writes:

In all of the years that I have responded to requests from the ER's and hospitals where I practice; not once did I ask about insurance coverage. In these years, I've never had another physician ask about insurance when I've called for assistance. The uninsured are cared for when they present themselves. This occurs for a variety of reasons. Compassion, dignity, professionalism, and perhaps some peer pressure. Nonetheless, it occurs on a universal basis. I strongly suspect that we could do away with Medicare and Medicaid with only a change in the tax code. Allow us a tax deduction for the amount we would have collected if the patient had been covered. The immense cost of administering the current federal bureaucracies, plus the one Obama is proposing, would fall to a negligible amount. That change alone, would result in measurable improvement in reducing costs. When I read of the 500 billion dollars that is going to be saved by reducing waste and fraud in the federal programs, it sets off my internal BS-ometer. If those savings were true, then do that first, then we'll proceed with the Presidential/ Congressional Coup d' etat on the healthcare system. Respectively, RES_MD

Evan writes:

I believe Obama is wrong to promote a government health care program. It would be different if people in the United States were refused medical care if they couldn’t pay, but this is not the case. I believe we should have as little government involvement in our lives as possible. Government health care is just one more way for the government to control our lives even more. Americans should at least be able to choose between government health care and private health insurance if it comes down to it.
A government health care program only helps the poor people in the United States who can’t afford any type health care. I think this program will only hurt everyone else. There is nothing wrong if the government steps in and helps those who need help. The government should leave everyone else out of this program.

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