Is health insurance good for you?

by on February 17, 2010 at 7:44 am in Economics, Medicine | Permalink

Kevin Drum follows up on recent debates.  Apart from mortaility, he mentions:

…preventive care, pain reduction, life improvement, employability, stress reduction, medical bankruptcies, etc.

One way of measuring the value of health insurance is by its market price and by that standard many of the current uninsured just don't value health insurance very much.  That's why they don't buy it.  I don't mean to rule out paternalism a priori, but it's odd not to mention the price of insurance as a bound of its value.

There is a more-than-defensible line of argumentation that the value of a poor man's life is not measured by his money.  But again, that has more force for when someone gives him health insurance (Medicaid) than when we make him buy it.  In the latter case we're also taking away something he values and the scope of that value, all things considered, also may well go beyond its monetary measure.

It's also the case that market data can prove misleading.  It could be that government provision can get the poor health insurance more cheaply, without the private sector mark-up.  That possibility militates in favor of a Medicaid expansion but not the mandate.  When it comes to the mandate, policy doesn't avoid the private sector mark-up on the insurance and there's also a loss from the relatively low valuation of the insurance.  Even with the subsidies, a lot of the poor would be worse off having to buy the product.  Those that are better off won't be better off by so much.

It's one thing to count up "lives saved from insurance" but a lot of those lives are, in ex ante terms, actually made worse off from the mandate.  Some recent research indicates that an economic downturn saves the lives of a lot of lower-middle class individuals by limiting their consumption of cigarettes.  Surely the first question is whether the downturn makes those individuals better off — doubtful — and not whether it saves some of their lives.

Another way to value health insurance, especially govrernment-supplied health insurance, is to look at differences across states.  Texas is skimpy with Medicaid benefits but New York is much more generous.  If you're considering moving across state lines, how big a draw is this?  Can any of you refer me to a paper on the implicit hedonic value of Medicaid benefits or other forms of insurance?  I would be interested in understanding this data.

I've read many blog posts on this topic in the last week but they are skimpy on the ordinal approach, which in my view further favors Medicaid expansion over the mandate.

1 not_scottbot February 17, 2010 at 8:04 am

‘One way of measuring the value of health insurance is by its market price and by that standard many of the current uninsured just don’t value health insurance very much.’

And many more of the insured simply can’t afford it, regardless of how much they value it – a simple example being the not so recently unemployed.

And I remain impressed at how a debate can be framed – for example, how not having access to the sort of health care considered routine in a country like Germany for all its citizens can actually be construed as a benefit for the poor in the U.S., those Americans having to pay for something they currently don’t have being helpfully kept from bearing the undue burden of actually being able to visit a doctor or dentist. A proposition being made by a state employee with tenure (presumably – your GMU home page link http://www.gmu.edu/jbc/Tyler/index.html seems broken), who is exceedingly unlikely to forego all the benefits which that position provides, such as health care, regardless of how little it may be valued.

Health care is not exactly a subject where dispassionate consideration of monetary aspects alone can be defended as anything but amoral, which is why societies with universal health care have been more deeply concerned about providing health care to everyone than its cost – and remarkably, the most expensive nations such as Germany or Switzerland are able to do that for a third less of the total cost than in the U.S. But then, those other societies just don’t seem to have the benefits provided by the seemingly unique American perspective that health care is meaningless in anything but cost terms, which may be the reason they have essentially universal health care, while the U.S. remains a shockingly dismal example of how not to provide routine access to health care, paying more for less than anywhere else in the industrial world.

2 Cliff February 17, 2010 at 9:06 am

Do Americans pay more for less, or do they pay more for short waits, the best medical technology in the world, an essentially unlimited supply of health care, medical innovation which every other country free rides on, and woefully inefficient government regulation?

3 Cliff February 17, 2010 at 9:20 am

Michael,

Not so for many of the uninsured, who are healthy young people who could get good insurance coverage for $150/mo, or good catastrophic coverage for half that.

4 libert February 17, 2010 at 10:09 am

I think Tyler is overlooking the reason the the mandate. The purpose of the mandate is to diversify the risk pool, not paternalism. The mandate would eliminate the adverse selection problem, driving down premiums to a level where (at least some) individuals would find it rational to purchase insurance. Of course they don’t want to buy insurance at today’s prices, but under a mandate, those prices would be lower.

For a meaningful comparison, you need to use the policy-case prices to determine whether buying insurance under a mandate is cost-benefit justified, but Tyler is using the higher baseline prices. That is, many individuals would find it worthwhile to purchase insurance at the lower actuarially fair prices, and the mandate helps reduce prices closer to that point. Thus, even if individuals do not value insurance enough to buy it now, that doesn’t imply that they do not value it enough to buy it in the policy-case of the mandate.

5 Will McLean February 17, 2010 at 10:16 am

One limitation to this argument is that we artificially lower the cost of being uninsured to the uninsured by providing essential medical care to the uninsured even if they can’t pay the market price. And the shortfall is shifted to the insured, artificially raising the price of being insured.

6 AyeCarumba February 17, 2010 at 11:38 am

The mandate is a laughably bad idea. They should either go back and fight for Single Payer/Medicare expansion or just drop it. The mandate is a compromise to get something passed which will likely make people worse off.

7 jimbino February 17, 2010 at 11:50 am

Insurance makes sense for the unhealthy and for bad drivers. FEMA flood insurance returns only some 60% of the premium dollar. Title insurance returns some 2% of the premium dollar. Health and car insurance lie somewhere in between, returning some 50% of the premium dollar.

Neither flood insurance nor title insurance is burdened by problems of moral hazard or adverse selection. But health and car insurance sure are.

In general, it is foolish to participate in insurance of any kind, since the return is far worse than that of roulette at 96%. Young people would be wise to abstain from participation in health insurance and young men, in particular, are fools to participate in health insurance, through which they would be paying for the perinatal care of young women. Pregnancy is not even an illness!

Every young man can avoid insurance by emigrating and working overseas, returning only when he is old and infirm. Even in socialist Germany, a young man need not participate in the Krankenkasse if he earns a decent wage or works selbständig. In this country, a young man can opt out of health insurance by working for a small company that offers none or by offering his services as a contractor or an independent, as I have done for years in IT, always earning some 2x the salary of a “benefitted” engineer. Car insurance can be avoided by moving to Wisconsin or New Hampshire, the only two states without requirements.

8 Ken February 17, 2010 at 1:52 pm

“it’s odd not to mention the price of insurance as a bound of its value.”

Perhaps because that means you then have to argue that the value of insurance increases by up to 23% a year. Or I guess you don’t have to go that far, since Anthem Blue Cross is backing down; but you still have to argue that, year after year, the value of insurance is increasing several percentage points faster than GDP.

9 Ajay February 17, 2010 at 4:11 pm

Our health insurance just went up 48% from one monthly bill to the next – only found out Feb 11. Since we live in MA we can’t choose not to have it. After shopping around (keep in mind, with two weekends, a holiday, and a salesperson/agent that can’t be bothered to return phone calls or emails and has thursdays off too, I have very limited time to get this done before March 1) I find that there are two companies available, Health New England and BlueCross/BlueShield. Some choice – we switch companies and benefits to get the cheapest available and it’s still $823 a month IF we’re approved. And I’m supposed to be happy it’s not the nearly $1300 a month that’s on the bill due March 1.

Here’s the thing. I couldn’t pick my “primary care” physician out of a line up. Last year, I was referred to a surgeon by my dentist for a small bump on my lip. I had an office visit, an office surgery, and a follow up office vist – 3 visits totaling less than an hour (INCLUDING travel time and waiting rooms). That’s the health care our $10,000 in health insurance bought us.

We own a small business, and we no longer have employees. We barely have customers – there is very little left for them to spend after various taxes and insurance costs, if they have jobs. I doubt very many would say health insurance is good for them.

10 Milton Recht February 18, 2010 at 1:00 am

Health insurance costs do not include the opportunity cost to the insured that they incur from the particular insurance plan. These negative costs to the insured decrease the value of the benefit of having health insurance.

For example, many workers take off from work, using sick days, losing a payday, etc., to go to the doctor. If insurance increases visits to the doctor than there are comparative productivity issues and lifetime earning issues that need to be counted. If workers, with non-life threatening illnesses take off more time because of the availability of insurance, then having insurance may decrease one’s chances of promotion and pay increases and decrease lifetime earnings. Also, many insurance plans control costs by limiting or delaying access to a medical provider. Without insurance, a person might get treatment sooner. There may be an insurance vs higher income trade off.

Likewise, the individual medical treatment decisions may vary depending on the type of health insurance or having no health insurance. For example, someone with a hurt knee that interferes with work productivity may have to wait several months to a year (as in Canada) for an MRI and necessary knee surgery. The person might have chosen to have the knee surgery sooner to improve their work performance sooner, but they were not given the choice. Without health insurance and by using their funds, or by having the ability to purchase a better health insurance plan privately than provided by the employer or government, the employee might choose to have the surgery much sooner, not wait and be a better worker sooner and earn more.

There are also insured costs that occur due to false positives and medical accidents. People who go to doctors have an additional risk that people who do not go to doctors do not have. This extra cost needs to be subtracted from the benefit of health insurance.

Health insurance studies ignore the opportunity costs to the insured through delays, treatment limitations, repeat visits, negative workplace effects from absenteeism for doctor visits, and negative costs from medical accidents and mistaken diagnosis and treatments.

To get a true sense of the value of health insurance, both the positive and negative costs to the insured should be tallied to get an accurate picture. For some people, it may be a rational economic decision not to have health insurance.

11 Chris D February 18, 2010 at 12:20 pm

The focus on market forces, to the exclusion of reality, may be the main reason libertarianism isn’t taken seriously. It’s well established that individual health insurance is a broken market: companies often won’t sell even to the young and healthy. Even if I could get insurance, I’d value it less (even if I had money for food and rent) because I’m fairly certain that if I made a major claim, they’d find cause for rescission.

Other commenters have covered the objections. But you can do better than that first paragraph, which is nonsense.

12 mulp February 23, 2010 at 8:38 pm

Bottom line: Dick Cheney had a heart attack because he has government run health care so that made him unhealthy.

Of course, he chose to have a heart attack because he has Cadillac health care effectively for free, so he just wanted to max out his use of his free government run health care.

13 MiniME February 23, 2011 at 1:14 pm

Having a health insurance is something that everybody needs.I once took a breathalyzer test and everything was very easy.The doctor told me that if I wasn’t insured I had to pay a big sum of money for that test.

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