I see a few candidate hypotheses:
1. Adverse selection in insurance markets. In this view, outside of the corporate employment context, mostly the unhealthy — the "lemons" — show up to buy health insurance.
2. Poor information about the cost and benefit of different medical procedures and providers. I am puzzled why we don’t have better institutions for evaluating providers and spreading this information to consumers. Part of the problem is legal, part of the problem is measurement (doctors could dump near-hopeless patients to get better ratings), and part of the problem is that many people don’t want to know how good (read: bad) their doctor is.
3. Time consistency. Ex ante, we are most worried about catastrophic health risk. Ex post, most of the overinvestment in health care comes for victims of catastrophic health risk. No set of institutions can square these dual perspectives satisfactorily.
4. Showing that you care. This is Robin Hanson’s hypothesis. You spend money senselessly on health care, mostly to show your wife you love her and the kids.
Believers in national health insurance tend to emphasize number one, which might be alleviated by forced mass pooling. In contrast, I am skeptical that adverse selection is the significant problem.
It is less clear that national health insurance could improve performance on number two. People would remain underinformed. Government might have less incentive to rip them off, but the implication would be that government provision is "lazier" in general. Not a comforting thought.
National health insurance does address numbers three and four, albeit in backhanded fashion. Ex ante, people feel protected and the program is popular. Ex post, such systems spend less money on the last six months of life than does the U.S. system. The relevant denial of treatment is often invisible rather than a stern hand pulling the plug.
The bottom line: Defenders of NHI place great stock on #1. If #1 were significant, we could, at least in principle, use national health care to both lower costs and improve treatment.
If #3 and #4 are the major problems, national health insurance provides benefits by restricting overinvestments in health care. This is consistent with Europeans living longer and spending less on health care. The U.S. maybe could replicate these benefits if a) we push out private insurance companies, b) we ration or abandon expensive procedures which don’t extend lives very much, and c) we adopt healthier lifestyles.
I am skeptical of #1, and I am not ready to bet on a), b), or c), much less all three at once.
The problem with (b) is that some fraction of our expensive procedures are steps towards better research and cheaper procedures for other, non-terminal people. Terminal cancer patients enrolled in cancer trials are one example. A larger effect may be in the value of repeated surgeries for the surgeon — there is a lot of evidence that surgical outcomes are better when you get a surgeon/hospital who perform the same procedure very frequently.
Ah, but once NHI was in place, then people buying add-on insurance to pay for expensive end-of-life care would no longer really count, would they? I suspect that those expenditures would then be put in the ‘optional’ rather than ‘required’ category (along with orthodontics, breast augmentation, etc).
Unless b) and, to a lesser extent, c) come to pass, any health care “reform” is just arranging deck chairs on the Titanic.
One irony is that while us Americans are much more religious than Europeans, we’re also far more frightened of death, therefore far more insistent on costly end-of-life procedures. It should be the other way around. We should be more willing to accept a peaceful, natural death because we believe that something better awaits us on the other side (unlike those heathen Euros, who believe that death brings oblivion).
I’m with Bill Step here, with the addendum that while markets outperform government reliably, there is no guarantee that government/corporate hybrids will.
I put the most stock in #2, regarding the availability of price and performance data on services and providers.
I would also add a #5 hypothesis: People use health insurance to pay for normal, expected, and repeating expenses rather than to insure against some risk (probability < 1). Why do we use insurance to pay for birth control and annual check-ups?
I believe the solution is in the HSA/HDHP. When I am holding the cash to pay for procedures, I am far more interested in shopping prices for medical services.
The HSA is efficient in other ways as well. The premium I pay is less than my previous employer paid for a group health plan.
For what it’s worth, my personal experience reinforces #1. For years I was a computer consultant and maintained personal health insurance (for general principles, I thought everyone did). My buddy the insurance agent guided me on getting a policy (“don’t put ‘self-employed’ that means you are a bum”).
He also told me horror stories, including one about a client who had gotten a required physical exam, and the blood work came back with a “high normal” on the prostate cancer test. Despite being within the normal range, he was refused coverage. He retook the test, and scored completely normal. At this point the insurance company offered him coverage for four times the normal rate!
Anyway I kept my original Blue* policy for years, and ever year they increased my rate. I asked my buddy, why is this? He said, “They raise your policy on the assumption that something is wrong with you. If you are healthy you’ll leave and get a new policy somehwere else. Only sick people stay.”
I could continue, I went to a permanent position (with company health care) before retiring way early and searching for my own. Long-story-short, even though I am healthy I was refused everywhere until I argued in writing and got an independent policy.
They make you fight for coverage, make no mistake. And not only do you need to be healthy, you’ve got to have the resources and skills to navigate their system.
#2 is a different level of cause from the others. If we don’t have better institutions, we need an explanation for that fact. The other three explanations are more fundamental.
Odograph’s experience points not to #1, but rather to something slitghtly different: The amount of expense insurance companies go to in order to deny claims. A profit-driven enterprise whose job is to pay out money is driven by rather contradictory motives, is it not?
In fact, ANY sort of enterprise whose job it is to pay out money is going to operate in a very skewed market, no?
I’m curious why you left off:
5. Administrative costs. Billing and paperwork. The private system as currently conceived is byzantine and confusing. It costs a great deal of money just to navigate it. In many cases this is deliberate. For example, insurers aggressively audit claims looking for even small mistakes that would allow them to deny payment. Doctors and other providers then spend to defend themselves. I believe I read of a recent study in California which found billing and paperwork to account for at least 20% of costs in the private health care system. In contrast, Medicare is widely reported to have only a 2% or 3% overhead. Now, I suppose you could argue that by spending less on auditing, Medicare is wasting money and is thus less efficient overall, but I’d like to see the evidence.
6. Credit risk. It seems to me that we have something approaching de facto universal coverage already. It’s just dysfunctional. Emergency rooms, at least, are prohibited from denying care. Many people with large medical bills end up declaring bankruptcy. These costs are obviously recovered by raising the overall price of healthcare, and thus paid by insurers and the rest of us. Furthermore, receiving expensive emergency care at the last minute when complications arise from perhaps minor conditions does not strike me as efficient. It seems likely that many of these could be treated earlier (more cheaply) or prevented entirely if more people could afford to see a doctor regularly.
Add me to the list of those who say that the question of preexisting conditions must be addressed. I recently shopped for private health insurance (when it appeared that my former employer would abandon 25 years of “When you retire, you can stay in the company group plan on the same terms as employees” promises). The one group plan which I could join that covered preexisting conditions had premiums twice as high as any other plan. The broker I was working with said that the HSA/HDHP she represented would not increase the premium based on such conditions, but would specifically exclude the cost of treating them from the coverage. As others have mentioned, we can deal with the common cases, it’s the uncommon ones — eg, someone who requires dialysis that costs more than they earn in a year — that create problems for the market system.
I believe that we will eventually end up with a national insurance plan, and its creation will be driven by the group aged 55-64. As more conditions can be detected, and more and more expensive treatments become possible, the private insurance firms will eventually price that group out of coverage entirely. It is worth remembering that Medicare was not created because someone thought it would be a nice thing to do — by the mid-1960s, it was nearly impossible for those aged 65+ to buy private insurance.
We really need to work on improving our health care. I hope we can soon resolve this issure and all have universal health.
“Not to mention the waste of human capital that too-early retirement often represents.”
That’s an interesting consideration, and one that I sometimes think about in my early retirement … I tell people I do “newtonian work” as I hike and bike.
Do you think that by not seeking and holding a programming (or similar) job I hold down the economy, or do I just let it be filled by someone who needs it more?
BTW, you do benefit from my blog comment insights
People all the time let their cats and dogs die because their medical care is too expensive. In my social class spending that kind of money on a pet is considered ridiculous (and I personally consider it immoral).
–As Tyler well knows, just about every first-world country has nationalized healthcare. –
Thanks to the US taxpayer and military.
They’re all pouring big money into it. They all have problems. One comes across articles in the anglosphere on a fairly regular basis, depending on the blog/paper you read.
Canada doesn’t really offer in vitro treatment. They come here. It ain’t just the old, it’s the young and what about the babies/fetuses who have some health problems?
Are we moving into eugenics here?
Frankly, I think it’s a little absurd to say that the complex of issues around insurer selection of their client pool isn’t a huge problem in private health care markets. Some of those issues line up well with classic adverse selection, some may just be insurers using market power to try to screen out small buyers (like individuals) that they can’t be assured they’ll make a profit on.
I really wonder about the general consensus on certain blog comment threads that people are dying like flies in Canada and England due to nationalized health care. The people who live in those countries seem to be happy with their system and have no desire to change to the U.S version, perhaps they just don’t like their sick relatives very much.
“The people who live in those countries seem to be happy with their system”??
Um, except for all the folks crossing the border into the US to get medical care that they can’t get in Canada. Or all the folks in the UK who can’t get the care they want (not sure what they do). The WSJ just had a front page article about the UK deciding Alzheimer’s patients can’t have Aricept or similar drugs for cognitive decline. Those patients (well, their families, really) are up in arms and protesting. They don’t sound too happy.
NOBODY is claiming that “people are dying like flies in Canada and England”, but there are problems with health care in those countries and things that folks in the US would NEVER stand for (long lines and dying while waiting for care and explicit rationing, mainly).
Geez. Reading this post, you’d think that nationalized healthcare was some kind of cutting edge concept that has never been tested. Well, it’s not. As Tyler well knows, just about every first-world country has nationalized healthcare. It works for them. Perhap their systems are not perfect, but they’re all better than ours.
Battlepanda, I’ve got to say you seem to have a peculiar idea of “it works”. My own experiences have been with Canadian health care primarily. In the couple of years I lived largely in Canada, I saw:
- my cousin arrive at an emergency room in Toronto with severe vaginal haemorrhage. They stopped the immediate haemorrhage and gave her an “emergecy” gyn appointment — six weeks later. Where I went to med school, she’d have been seen by the gyn resident before she took her feet out of the stirrups.
- a friend who needed ophthalmic surgery for a degenerative condition. Was scheduled three years in the future, because he hadn’t actually been blinded yet. (He ended up taking a job in the USA to get US health care.)
I also, in that time, lost a girlfriend to an agressive brain tumor. She survived a little more than two years, but in Britain they’d have given her steroids and told her to write a will before she was too demented. In that two years, she had a chance to see her older son enter high school, go to a prom, and reconcile with her ex-husband, seeing that her kids were going to be well taken care of.
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What is strange is that people in the 55-64 age group are more and more likely to retire, sometimes even before getting into that group, despite the difficulty they often face in getting health insurance. Wouldn’t it be worth their while to keep working and enjoy the benefit of employer-paid insurance? Not to mention the waste of human capital that too-early retirement often represents.
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