Single, business, individual payers Notes for October 9

Main points

There is a relationship between cost and coverage. High costs explain why the majority of the uninsured lack insurance. And the growth of health care costs poses the greatest threat to the present system, where the vast majority of the non-elderly get health insurance through employers.

Krugman and Wells ask two questions about costs.

  1. What explains why the cost of health care is growing faster than the cost of everything else?
  2. What explains why the US spends much more on health care than other countries?

Krugman and Wells’s answer to the first question is: technology. We can do more but it costs more. Their answer to the second question is: the private insurance system’s overhead.

They don’t propose to do anything about the growth of health care cost. Instead, they want to capture the overhead in the private insurance system by converting to a single payer government insurance system.

Neither of our candidates proposes to do the same. Our discussion was about how their plans respond to the two different kinds of costs.

Both candidates propose various innovations that would save costs. Only the McCain plan directly addresses the growth of health care costs. It will probably raise administrative costs. The Obama plan would also create a regulated insurance market (the exchange) that would have administrative costs similar to those in a single payer, government system. (Whether those would be high or low is up for debate, of course.)

A philosophical difference

When I was reading a report on the health plans from the Commonwealth Fund I found an assertion that seemed to me to encapsulate one of the basic unstated differences in values that people bring to the health care debate. Here it is.

“The purpose of insurance is to pool risks so that people in good health subsidize those who become sick, the young support the old, able-bodied individuals support accident victims, and so forth across the life span. Life is uncertain and insurance coverage, whether for material belongings or health, protects against financial ruin in the event of a catastrophe, accident, or illness. The broader and more diverse the risk pool, the less likely it is that one event will cause financial ruin for an individual, a group, or an insurance carrier. In addition, with a broad and diverse risk pool, individual premiums will be lower.”** Collins, et. al. The 2008 presidential candidates’ health reform proposals (The Commonwealth Fund, October 2008), p. 27.

I say that’s an unstated value because the authors assert that this is the purpose of insurance as if it were an obvious fact. But I don’t think that those on the libertarian right would agree. I think they would say that the purpose of insurance is to buy protection against life’s uncertainty. Individuals can buy whatever protection they want, provided they can find others to voluntarily join a pool with them. The authors of the Commonwealth Fund report see insurance as a way of achieving a social goal. Others might look at it from the perspective of individuals who are primarily looking out for themselves.

For instance, all of the references to individual flexibility or consumer choice in the Tanner article rest on the individualistic way of looking at health insurance. The idea is that it’s a good thing for individuals to have flexibility and to be able to buy only the insurance that they want. The same values lie behind this remark about the desirability of allowing individuals to skirt state insurance regulations that require minimum levels of coverage.

“if consumers were free to purchase insurance in other states, they could, in effect, “purchase” the regulations of that other state. A consumer in New Jersey could avoid the state’s regulatory costs and choose, say, Kentucky, if that state’s regulations aligned more closely with his or her preferences. Many consumers would undoubtedly choose less regulation. For example, young and healthy individuals with low incomes may choose not to buy coverage that forces them to subsidize older, sicker (and generally wealthier) individuals. For those risk-adverse individuals who prefer greater regulatory protection, the cost of those protections would be reflected in higher premiums.”†† Tanner, A Fork in the Road, p. 15.

What Tanner is describing is precisely the erosion of broad risk pools. That’s the back side of individual flexibility.

One other remark about the Commonwealth Fund passage. The last sentence claims that individual premiums are lower with a broad risk pool. Well, they’re lower for people who are likely to make claims: older or less healthy people. They’ll be higher for younger and healthier people.

Of course, we all grow old.

This page was written by Michael Green for The Election, ID-1, Fall 2008. It was posted October 15, 2008.
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