Wednesday, March 18, 2009

Health Insurance Paradox

After I posted "Free Market Viagra" in early March, a concerned reader commented publicly that I had my "free market" definition wrong. She noted that between government regulation, federal and state spending for Medicare, Medicaid and other discretionary health care outlays that we (Americans) " no way whatsoever, have a free market health care system". We can't both be right.

My understanding is this: who the payers are is immaterial to defining a free market. Neither does regulation necessarily indicate that a market is not operating as a "free" market. Case in point; the government pays for all military hardware, is very specific about what it wants, regulates the process and then spends billions in the free market. This is why Boeing and Northrop Grumman have sales guys who treat generals to golf outings.

In our free market health care system we have providers who decide what to offer, where to offer it, how much to charge and to whom to offer it. This explains why the big drug companies spend more on marketing of erectile dysfunction drugs than they do on Alzheimer Syndrome research. From the drug manufacturers' standpoint, it's better for the stockholders if the manufacturers insure that Grampy can get a woodie than it is to insure that he can remember with whom he is sleeping. Some would argue that this is an odd decision. Not really; it is a free market decision, the gummit doesn't mandate it.

I'll save the rest of my big pharma comments for a subsequent posting. Let's turn our collective attention to the 800 pound turd in the punchbowl, which has cleverly disguised itself as a gorilla, the great American, for profit, private health insurance industry.

Lest you think that I am an unreconstructed insurance scold, let me set the record straight; some of my friends are in the insurance game and they are--with one or two exceptions--reliable, upstanding people. My very own father is still plugging away at making sure that people have the life and property coverage that they need. At nearly 90 years old, we thought that he would have left this challenge to others by now, but, noooooo. Do not let him corner you at a cocktail party.

However, there's insurance and then, there's insurance.

Life insurance is pretty straight forward, either you are or are not dead, except for Jimmy Hoffa, Keith Richards or Senator Robert Byrd. They are considered outliers. Property and casualty insurance is somewhat more subjective, to whit: the water damage was caused by flooding and not a burst pipe so there is (or isn't) coverage.

Health insurance, however, is just chock-full of subjective, market-driven decisions before payment is made.

The first free market decision is whether or not to insure at all. Pre-existing medical conditions usually doom an applicant. After all, insurers want healthy health insurance customers. In a free market system this makes sense. Of course this system creates a pool of uninsured citizens, many of whom could afford the premiums and who are, via poor decisions or bad luck, the most likely to need health care. When these citizens finally show up at the emergency room, society pays for their care one way or another. The insurance companies have no skin in this payment game because providing sick folks with coverage is bad business.

If one has health insurance, the free market subjectivity issue does not go away, however. The insurance company will subjectively decide one or all of the following: which physician(s) can be visited, which treatments are covered, which drugs can be used, how long the treatment will last and what are the "normal and customary charges" on which they will base their eventual payment. You can be sure that each decision is carefully vetted on how it will impact the company's profits.

Unlike death and property damage, the range of subjectivity surrounding health care insurance coverage is the main ingredient in the industry's business model. The less they pay, the more they profit. Therein is the consumer's paradox. The insurance companies have legions of employees whose job it is to review claims and find ways to deny them. They also negotiate with the providers to secure cheaper rates, yet our national health care costs escalate about 7% each year. So much for that cost control strategy.

Besides, the insurance industry simply raises its premiums to match the health care cost increases and concentrates on keeping its percentage of the total payment low. The patients or the taxpayers pick up the rest.

The George W. Bush administration introduced private health care insurance into the Medicare system in order that "...competition among private insurance providers would drive costs down", you know, the free market promise. The Medicare Advantage program, which Prez BHO is now trying to dismantle, costs Medicare 13% MORE than what it pays for retirees who chose to stay with straight Medicare. There are no differences in medical outcomes between those who opted for Medicare Advantage and those who didn't. There was one "advantage", alright; the private health insurers made more money. The downside is that we, via the gummit, spent more for Medicare. Oops, and a tip-o-the-hat to W from the health insurance poobahs.

To conclude today's post--but leaving many threads still dangling to be discussed and trimmed later--it's instructive to note the following: in the entire developed world, it is only in America that the loss of a job often means the loss of medical insurance coverage and only in America does a major medical event, insured or not, often lead to personal bankruptcy.

Neither of these facts is acceptable unless you believe that access to health care is a privilege not a right. If you are in that camp--populated primarily by healthy people who have subsidized health care coverage, are independently wealthy through their own efforts or who won the "lucky sperm contest"--please refrain from trying to convert me.


Observoid of the day: No one ever talks about Custer's next to last stand.

1 comment:

  1. I think you can both be right in this instance. From your point of view, we have one of the most free market health care systems in the world, which is true.

    But one fact you left out is that the government heavily subsidizes third party employer-provided insurance via tax-free enrollment. This is a huge competitive advantage that can't be underestimated. An employer will never care as much as the individual about the level of health care provided.

    Its possible that if the gov't never subsidized insurance in the first place it would look a little more like car or life (as you mentioned) insurance. We would most likely all be insured for catastrophic events, major surgeries, etc. and would come out of pocket for routine visits. In my view, that is much closer to a true free market (because health care is vital there will always be some need for gov't assistance to children, eldery, etc).