John Cochrane on portable health insurance

by on December 26, 2013 at 12:48 pm in Economics, Law, Medicine, Uncategorized | Permalink

The entire Op-Ed is interesting and noteworthy, but the part on health insurance is perhaps the cutting edge of the piece analytically:

Health insurance should be individual, portable across jobs, states and providers; lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick. Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.

People want to buy this insurance, and companies want to sell it. It would be far cheaper, and would solve the pre-existing conditions problem. We do not have such health insurance only because it was regulated out of existence. Businesses cannot establish or contribute to portable individual policies, or employees would have to pay taxes. So businesses only offer group plans. Knowing they will abandon individual insurance when they get a job, and without cross-state portability, there is little reason for young people to invest in lifelong, portable health insurance. Mandated coverage, pressure against full risk rating, and a dysfunctional cash market did the rest.

Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance. Allow national individual insurance offered and sold to anyone, anywhere, without the tangled mess of state mandates and regulations. Allow employers to contribute to individual insurance at least on an even basis with group plans. Current group plans can convert to individual plans, at once or as people leave. Since all members in a group convert, there is no adverse selection of sicker people.

I suppose my worry is this.  As individuals age, they will become greater health risks and that will hold even if Cochrane keeps Medicare going.  That means a higher price for their individual portable insurance.  It is not clear to me under what conditions premia can be raised legally (what does “unexpected increase” mean?), but it seems the result is much higher premia for sick people, or legally-mandated low premia, but then providers will restrict access and lower the quality of care, as another means of raising the price of course.  Contractually speaking, price is verifiable but quality of care is not.  The overall problem is not one of “adverse selection” but rather simply that the good information of the suppliers means that insurance is hard to sell at all for many conditions.

I do understand the option of letting the premia rise, and selling insurance against that event too, and maybe that could work.  Still, it is surprising how many insurance markets don’t really blossom even if it seems they would make economic sense.  Just ask Robert Shiller or look at the earlier history of failed CPI futures.   I’d like to experiment with Cochrane’s idea, which I think has real promise, but on a trial basis first.  The question is what such a trial might actually mean, and who would be willing to give up their current arrangements to make such an experiment possible.  If the recent Obamacare reactions show anything, it is that status quo bias is getting stronger all the time in matters of health care.

foosion December 26, 2013 at 1:02 pm

Remind me again why the systems that makes healthcare cost half as much in every other major country won’t work here, especially considering that by just about any statistical measure our overall system is mediocre?

Abe Froman December 26, 2013 at 1:06 pm

Its because innovation in Healthcare is hard. Drug development and imaging is expensive to develop. Those countries get to free-ride off the innovation that occurs here in the US. We pay for the innovation, they skim it from us later at cheaper prices.

foosion December 26, 2013 at 1:12 pm

Oddly enough, not all innovation occurs in the US. There are much more efficient methods of financing innovation than our current system – prizes and govt grants for example.

Consider Pasteur and Fleming – their nationalities and their financing.

Ryan Vann December 26, 2013 at 1:35 pm

There are tons of grants available for research, and I don’t see how grant systems are more efficient than say regular old speculative investing (not that efficiency is the only pillar of a healthy system). I work in research administration at a public university though, and maybe my viewpoint is a bit tainted.

mike December 26, 2013 at 5:54 pm

“I work in research administration at a public university though”

The first time I read this I thought it said “public university trough”

John Schilling December 26, 2013 at 2:06 pm

Fleming didn’t develop a useful drug. That was Florey and Chain, and most of the work involved in turning penicillin from a laboratory curiosity to a useful drug was financed by the United States Government as part of a crash program during World War II.

Prizes and grants are useful for generating laboratory curiosities and academic papers. Those, in turn, can be used to generate hype-laden press releases about how AIDS/cancer/alzheimer’s/whatever is going to be cured Real Soon Now. Or they can be used as the starting point for an actual drug development program, but between there and a useful drug is on the order of a hundred million dollars, a decade, and a 90% failure rate.

It may be possible for a prize or grant scheme to finance that part of the process, but it strikes me as likely to be inefficient and prone to mismanagement and corruption. It has not been demonstrated on any significant scale that I know of. What does work, here and now, is large privately-funded pharmaceutical companies which may be based in many countries but which are pretty much all financed by the returns from the US prescription drug market.

What will work in the future, is unclear. But handwaving “Prizes! Grants! Fleming!”, isn’t helpful.

Ryan Vann December 26, 2013 at 2:25 pm

Well put.

ezra abrams December 28, 2013 at 1:26 pm

as a researcher, TOTAL GARBAGE
you literally have no clue about what you are talking about, and I don’t have the energy to correct you

And as for all you people who think that we spend a lot on RnD and innovation: that is (a) debatable – there are a lot of foreign drug companies, and (b) why do you think that innovation is good ?
surely you have heard of new, $$ treatments that make people worse – like MRI for backpain ????

Most of that $$ RnD that leads to treatments that offer little or even negative consequences to the patient comes from private for profit companies, not public universitys.

I mean, don’t any of you read about companies making me to drugs ? That is our profit driven healthcare system, not real innovation

I could go on, but I think you all have a blind spot:
We *know* that other comparable countries seem to have similar outcomes with less spending, but that they have a huge advantage we don’t: you don’t have to worry
let me repeat that: worry is bad, bad for your relation with your spouse, your kids, your coworkers, your own health
yet in socialized systems, you don’t have to worry about having healthcare

I just don’t get it: it works, yet you refuse to even put it on the table

what am i missing ???

Popeye December 26, 2013 at 1:12 pm

So half the cost of medical care is innovation? Even when we factor in all of that routine care?

Yancey Ward December 26, 2013 at 1:17 pm

How much of the medical care available today was available 30 years ago?

dead serious December 26, 2013 at 1:32 pm

How much of the medical care available today is necessary today?

I’m not talking about medical advances, but rather over-prescription of tests, procedures, etc.

Michael December 26, 2013 at 2:10 pm

DS,
To get a good idea, then make people pay for that care out of their own pocket (or funded HSA), instead of the infinite insurance company pot of gold in the sky, and you will quickly find out.

john personna December 26, 2013 at 2:19 pm

Wouldn’t it be more efficient for government to grant universities to specifically develop those treatments which (in equal value) decrease future costs and increase human welfare.

Remember, the drug industry is all about getting us on prescriptions for life at this point, and not about 6 pills and done.

john personna December 26, 2013 at 2:21 pm

(When the government-medical complex assigns funds for future research, there is a significant agency issue. The “best” drugs are those with highest revenue. Nothing beats future revenue like a 20-year treatment period.)

XVO December 26, 2013 at 3:19 pm

Ya, but if someone beats the 20 year treatment with a 1 year treatment it doesn’t matter how good the revenue would be. No one will pay for the 20 year treatment when a cheaper alternative is available. Then the 20 year treatment people go out of business.

Although I’m not sure why the “government-medical complex” would be after the drugs with the highest revenue.

john personna December 26, 2013 at 5:23 pm

Obviously if you want 20 year revenue you go after different things, and not the sort of illness that might have been “cured in 6 days” with another sort of pill.

mulp December 27, 2013 at 12:43 pm

But the logic of conservative economists is the 1 year treatment that replaces the 20 year treatment that costs $100 per year is that the superiority of one and done sets the price at $5000 for the one year because:
o the innovation deserves a 1000% roic
o the user surplus of 19 years without the bother of treatment belongs to the drug company
o when the patent expires in 15 years, the generics will cost $50 for the one year, so the drug company needs the 1000% ROIC to invest
o the government needs to pay for the $5000 treatment cost to keep American drug innovation rewarded in ten fold increases in stock prices

brad December 26, 2013 at 3:42 pm

Without Americans paying twice as much as everyone else we might not have the 12th SSRI, or the S-enantiomer of omeprazole. The sheer thought of such a scenario fills me with nameless dread.

mulp December 27, 2013 at 12:51 pm

Just like the “high” drug prices drove those Berkeley chem students to create the thousands of psychoactive derivatives of LSD and STP to stay ahead of the FDA’s ability to add new compounds to the class 1 controlled list.

That was a period of innovation like that of the sulfa drugs prior to the create of the FDA. That followed the large number of deaths from a new sulfa drug compound of hundreds (that turned out to be botched manufacturing).

RZ0 December 27, 2013 at 2:11 am

I’ve been thinking through this argument – our medical costs are higher because other nations free-ride off our innovation. This might explain why our drug costs are higher, or why our equipment costs more.
But it doesn’t explain why our doctors are so well compensated. Our GPs make a third more than any other country in the world. If anything, the improved technology would make their jobs more efficient, meaning they would be paid less than elsewhere.

wjw December 28, 2013 at 3:12 am

Big zero. Big zero is the level of innovation in the U.S., aside from some stuff coming through NIH subsidies.

joshua December 26, 2013 at 1:18 pm

Because most of those countries are the sizes of states and/or much more homogenous and there’s something about our size and/or diversity that makes it harder? That’s my best working hypothesis, anyway…. something to do with huge interest groups having huge incentives to lobby for huge pieces of huge government pies… I call it “Too Big To Govern.” If the last month of arbitrary Obamacare delays and exemptions is any indication (and the delays and exemptions have really been going on since the law was passed), our politicians, who are obsessed with approval ratings and news cycles when they’re not obsessed with lobbying contributions, have great difficulty keeping their hands off such allegedly brilliant technocratic inventions. Question 1, are there other reasons to expect that ‘simpler’ but more genuinely ‘socialist’ systems would be treated any differently by both groups of incentive-following interest groups and politicians? And Question 2, are there other reasons those other countries appear to have less trouble with their interest groups and politicians?

The Anti-Gnostic December 26, 2013 at 5:07 pm

“Too Big To Govern” – well put.

Paul December 26, 2013 at 9:30 pm

Well put indeed.

Sweden has an admired health system with under 10 million population. But in the US health care must be the job of the Federal government? What’s up with that?

Ryan Vann December 26, 2013 at 1:27 pm

It won’t work because ending the bonanza in overpriced care is not going to sit well with those that stand to lose were the system of payment to shift to one less byzantine (be it single-payer, or abolishing third-party payments entirely).

All those HCAs, billing clerks, etc, etc, not to mention physicians themselves would be looking at serious pay-cuts, or even job losses.

But hey, that all sounds stimulative to me.

brad December 26, 2013 at 3:46 pm

Same with out of control higher education costs. You think all those deanlets and deanlings are going to go quietly? Or professors are going to go back to 4/4 teaching core classes rather than 2/1 teaching pet seminars?

Ryan Vann December 26, 2013 at 3:54 pm

True, there are much more groups in the network of profiteers that would be politically difficult to overcome.

Dan Weber December 26, 2013 at 1:50 pm

I’m sure it’s been explained to you before, countless times, but for those viewers just joining us:

* Americans won’t stand for being told “no” when their doctors recommends getting something, even if they really shouldn’t get it (to say nothing of the much harder question: when it would be of some benefit to them, but at great cost)

* You won’t be able to cram down doctor’s salaries by fiat, even if they “deserve” to be crammed down. Your political allies won’t even bother showing up to lose.

* You won’t be able to just cut care for old people, even if they would be better off doing it, and/or even if they “deserve” to have their care cut, for the same reasons as the previous.

* No one can convince the American people that everything will be as better off as you claim it will. The President (any President) could stand up a stack of bibles and say “I promise this health plan will be better than what you have now, period” and no one would believe it.

There’s a lot about other countries’ health systems that I would like to have in the US, but the problem isn’t just that no one until you has ever thought about doing it and the evil people are standing in your way.

One of the smallest steps towards getting care like European counties would be to first make it legally possible. But if the supposed allies of those plans can only concern-troll “geeze, remind me again why we can’t just have single-payer??” then it’s not even worth bothering to try to build a coalition.

Brian Donohue December 26, 2013 at 2:08 pm

+1.

john personna December 26, 2013 at 2:22 pm

But actually, we can. It is our decision. “No we can’t because we’re too foolish or too dumb” is … well, sadly self-supporting.

brad December 26, 2013 at 3:50 pm

Just how overcompensated greedy doctors are in the US is obscured by the fact that as a group they are the single whiniest profession in the entire country. Have you ever heard of an involuntarily unemployed doctor? Or a doctor working full time making less than twice the US median household income? Yet to hear them talk they need to turn tricks to make ends meet.

Dan Weber December 26, 2013 at 4:53 pm

Say you are 100% completely right about whiny doctors. You still will utterly fail to cram down their wages. They are extremely well organized in their lobbying efforts.

Careless December 27, 2013 at 4:42 pm

Or a doctor working full time making less than twice the US median household income?

Yes, there are lots of those. They’re called “residents”

Michael December 26, 2013 at 2:17 pm

Partly because these healthcare systems aren’t as homogenous as you think, and frequently don’t look quite as gold plated up close.

Back when we were in Paris a few months ago, the hospital next to Notre Dame was draped with dozens of hand-painted banners unfavorably comparing their hospitals to what is available in the US.

There’s an old saying, the grass is always greener on the other side. So, don’t buy into the mythologies.

Cliff December 26, 2013 at 2:42 pm

Well, by just about any statistical measure our overall system is the best in the world. You can only obfuscate that by failing to adjust for demography and cultural differences like accident frequency (driving prevalence)

MD December 26, 2013 at 3:07 pm

Maybe there’s a moral hazard problem. Maybe we live more recklessly because of our health insurance system.

Brett December 26, 2013 at 3:29 pm

No it’s not. The only thing we’re better at than the Germans, for example, is breast cancer survival rates – and it’s not a big difference. On every other metric they beat us, including the ones like “wait time”.

I assume by “adjusting for demography”, you mean “excluding the poor black people”. I’m sure that if you excluded all minorities and poor people in most systems, you’d end up with a really functional one regardless of the actual insurance set-up.

TMC December 26, 2013 at 3:47 pm

BS. Anyone who’s read an econ blog for the past few years has seen the studies that, once you adjust for population, or accidental death, or different definitions of a live birth, that the US outperforms all other countries.

Right now even arguing this anymore makes you basically a liar.
Should be a Godwin’s law a sorts for this kind of thing.

I won’t argue that we don’t cost too much though.

Ad Nauseum December 26, 2013 at 5:28 pm
mike December 26, 2013 at 6:12 pm

“I assume by “adjusting for demography”, you mean “excluding the poor black people”. I’m sure that if you excluded all minorities and poor people in most systems, you’d end up with a really functional one regardless of the actual insurance set-up.”

No country in Western Europe has anywhere near as many dysfunctional, violent, congenitally low-IQ (“poor”) “minorities” as the USA does. That’s why you “adjust for demography”

Max December 27, 2013 at 11:04 am

As a favour to us all, would you please consider finding somewhere else to spend your time on the internet? Based on your comment history, there is really nothing redeeming about you and you have nothing useful to share. I’m sure this is not your fault – perhaps just poor genetics or unfortunate influences growing up that you were unable to overcome.

On the plus side, the internet has made it easy to find like-minded communities, and I am certain that there is a white supremacist cesspool that would welcome you with open arms, and provide you with all the confirmation bias your heart desires.

Best wishes for 2014.

ezra abrams December 28, 2013 at 1:30 pm

uh, before you blame the dysfunctional, etc, perhaps you should read this
http://www.nytimes.com/2013/12/28/nyregion/like-his-old-partner-scarcella-chmil-comes-under-scrutiny.html?ref=todayspaper&_r=0

basically these two cops lied and bought witnesses in order to convict random innocent poor people of murders, so the cops could clear cases.

Careless December 27, 2013 at 4:49 pm

the whole “Hispanics outlive whites” thing seems like a problem with your belief.

Nattering Nabob December 26, 2013 at 6:09 pm

Heavier-than-air flight is impossible because if it were possible we would have done it already. Those ‘aircraft’ that you think you’re flying on when you go to Europe or Canada are just loud blimps. There are many proofs to this effect:

Premise 1: USA Roolz!

Dan Lavatan December 27, 2013 at 8:02 pm

They all have different systems. The reason I suspect a single-payer type system won’t work well is that the Medicare already spends too much to match the costs of other countries, and would so if it expanded to include the same percentage of healthcare expenditures as the public systems in other countries.

I’d support a Singapore style system, but of course that largely avoids use of insurance. Any insurance or 3rd party payment at all is probably half the problem.

Floccina December 27, 2013 at 10:02 pm

Remind me again why the systems that makes healthcare cost half as much in every other major country won’t work here, especially considering that by just about any statistical measure our overall system is mediocre?

Looks to me like they mainly use monopsony and price controls. They would most likely work here too but they still have healthcare spending growing faster than GDP so the problem persists bur more than that we think we could do better.

BTW Utah and Colorado low pretty good on cost and outcomes compared to other countries should the other states copy them on healthcare? Would they get the same results if they did?

Ryan Vann December 26, 2013 at 1:07 pm

“is surprising how many insurance markets don’t really blossom even if it seems they would make economic sense.”

Sense doesn’t generally transfer to practice for numerous reasons, mostly political. Anyway Cochrane anticipates such a response when he wrote ‘We do not have such health insurance only because it was regulated out of existence. Businesses cannot establish or contribute to portable individual policies, or employees would have to pay taxes. So businesses only offer group plans.’

Which gets me wondering why a simple policy of tax favoring individual policies isn’t a rather easy populist sell?

“The question is what such a trial might actually mean, and who would be willing to give up their current arrangements to make such an experiment possible.”

If I can get an HSA styled arrangement, count me in.

Yancey Ward December 26, 2013 at 1:18 pm

In a large company, which employees would find it most advantageous to separate themselves from the group plan of the employer?

Ryan Vann December 26, 2013 at 1:42 pm

Discerning shoppers, I’d imagine.

Brian Donohue December 26, 2013 at 2:09 pm

sorry, we were looking for “young and healthy”.

Ryan Vann December 26, 2013 at 2:21 pm

Maybe an educated guess, but still seems a guess to me. Moreover, is this supposed to be a problem?

Brian Donohue December 26, 2013 at 2:52 pm

I may be mistaken, but I think Yancey’s point is that a national “HSA plus real insurance” scheme would create a destabilizing “death spiral” of higher costs among traditional employer group-health plans, so there is considerable inertia in favor of the status quo.

I think Cochrane’s idea makes a lot of sense, but “how do we get there from here?” is not obvious.

Tummler December 26, 2013 at 3:53 pm

I can somewhat confirm this. My employer, who employs predominately older individuals, provides health insurance for its employees and allows its employees’ family members to participate in the group plan, but employees are responsible for the premiums of additional insureds. My wife, who is in her early 30s, was able to obtain an ACA compliant plan for half as much as it would cost to participate in the group plan. The ACA has a higher deductible than the group plan, but the yearly amount saved in premiums almost equals the higher yearly maximum out-of-pocket expense. Imagine how much she may have saved without the maximum allowed 5-to-1 (or is 3-to-1?) premium spread.

Jamie_NYC December 26, 2013 at 7:38 pm

@Tummler
“My employer, who employs predominantly older individuals…”
“My wife, who is in her early 30s…”
Way to go, Tummler!

RZ0 December 26, 2013 at 2:47 pm

This insurance system doesn’t make economic sense, that’s the problem. What has been proposed is a lifetime guaranteed health insurance premium, similar to what you get when you buy a life insurance policy.
No insurer is going to sell a health policy like that, as none of them would have forecast 8% health inflation over the past 30 years. Had my cohort (now in our 50s) bought policies like this, every health insurer in America would be broke.
The proposal is very similar to long-term care health insurance. That product has struggled to take off, both in the private and the public markets. (Obamacare had a long-term health product that was scuttled early on.)

Brian Donohue December 26, 2013 at 3:02 pm

But whole life insurance still sells.

In principle, a system of guaranteed health insurance (repeating INSURANCE) can be structured on an actuarially sound basis, but you need a mandate.

But people, we’ve had socialized health insurance pre-Obamacare even. At some point, somebody’s gonna be able to take all the money we throw at this issue and devise a comprehensive and useful system that provides insurance against large expenses, and people will pay for routine stuff with cash, like they do anything else.

AlanW December 26, 2013 at 10:38 pm

And the wailing of those losing their existing coverage will deafen the world.

RZ0 December 27, 2013 at 2:44 am

whole life sells because it has a highly predictible insurance basis. Insurers know a lot about the longevity of a cohort of people, and they are able to diversify that away by creating a pool of insureds. And the payout at the end is known. Buy a 100K policy and when you die, you’ll get 100k.
The remaining risk is investment risk.

For health insurance, you have enormous risk that medical inflation will outrun your premium. Health actuaries monitor the monthly inflation rate in projecting future policy costs and setting reserves, and that’s on the current one-year policy.

The marketplace already tells you a multiyear health policy is tough on insurers. Before Obamacare changed things, you had to pay more to have a policy that was guaranteed renewable. And no one was offering a 30-year health policy with a fixed premium schedule.

Anyone who disagrees is welcome to present value per capita health spending over the past 30 years and create a fair-valued health plan for 1983 customers. Then they can compare that cost to what a one-year policy cost at that time and tell me how they would market it.

It amazes me when economists proclaim that a) buyers want a product; b) sellers want the same product; and proclaim puzzlement that such a product does not exist. When that happens, the economist really needs to understand that the evidence is strong that either his premises are faulty or the product cannot be produced at a clearing price. I learned that in economics class.

Byomtov December 27, 2013 at 9:21 pm

Exactly.

Comparisons between whole life and health policies are silly. An insurer who writes a $100K whole life policy is never going to be looking at a $1 million payout.

joshua December 26, 2013 at 1:11 pm

Overall it sounds better than Obamacare, but how does “deregulation” and “free market” go with “lifelong and guaranteed-renewable”?

mike December 26, 2013 at 1:26 pm

Obviously he thinks insurance companies will offer such plans without being forced to

prior_approval December 26, 2013 at 1:28 pm

Magic.

dead serious December 26, 2013 at 1:37 pm

Exactly.

We’ve heard ad nauseum that the free market solution is always best. Except when it’s not.

It would be crazy to claim that the federal government is looking out for one’s best interests, but between a government-run system full of hiccups or a free market system where the incentive is to deny claims and wait to be sued by already-bankrupt policy holders, I’ll take my chances with the former.

Ryan Vann December 26, 2013 at 1:52 pm

Last I checked, US has private and public programs where one could look at comparative claim denials if one were inclined to be a bit more empirical about things.

jmo December 26, 2013 at 1:57 pm

IIRC Medicare essentially never denies a claim.

Ryan Vann December 26, 2013 at 2:18 pm

This report’s recollection is a bit different.

http://www.ama-assn.org/ama1/pub/upload/mm/368/2008-nhirc-report-card.pdf

Just briefly glossing over things. Aetna and Medicare seem to have a relatively high claim denial rate, with the most common rationale for Aetna being that payment was already made on previous claim, and the rationale for Medicare being either some data entry error (I presume these were ultimately fixed and paid) or the charge was not covered (for a variety of reasons). Seems to me, if I am concerned a claim will be denied, and am concerned that I will be denied for a non-covered expense, the public sector is what I need to be weary of.

Additionally, it would appear claim denial due to pre-existing conditions is a rather low risk (a single digit probability of a single digit probability)

jmo December 26, 2013 at 2:43 pm

Ah, I thought you meant denial as in “The cancer drug your doctor prescribed is too expensive, we need you to use another drug.” Which is what most people are worried about. That doesn’t happen very often in America even with private insurance, but is almost unheard of with Medicare.

Additionally, it would appear claim denial due to pre-existing conditions is a rather low risk .

Presumably because they were priced out of the insurance market and are therefor uninsured.

mike December 26, 2013 at 6:14 pm

The mendacious claim raised by “dead serious” is that evil greedy insurance companies “deny claims and wait to be sued by already-bankrupt policy holders”

Ad Nauseum December 26, 2013 at 2:55 pm

Well, as Cochrane pointed out in his piece, “We do not have such health insurance only because it was regulated out of existence.” – See more at: http://marginalrevolution.com/marginalrevolution/2013/12/john-cochrane-on-portable-health-insurance.html#comments

So a certain level of deregulation may be needed in order to allow such a system. He did not say that everything about health insurance should be deregulated.

Marie December 27, 2013 at 10:02 am

Yup, stop giving government incentives for a poor system, and put in reasonable legislation to protect freedom of choice and free competition.

When you buy insurance, you are buying a product that 99% of the time you are specifically purchasing for use in the future. It’s like buying something to put on the shelf to use for later. It’s inherent in the product.

So it makes sense to have law that secures that, no insurance company ever has to sell a policy but if they do, it’s on the understanding that unless there is bad faith (nonpayment) on the part of the buyer the product will be available for use in future. That’s like laws against fixing the scales, it doesn’t warp the system, it just keeps the players honest. As for rate increases, you pick a standard and the law goes after anyone who tries to raise outside that standard. If the rate increases so much most folks can’t afford the rise, you will have the insurance system collapse, yes. And you will have a ton of people buying outside insurance. And the rate of medical costs will stop going stupid up because doctors will stop charging people (and I’m not making this up) $650 an hour to talk to them about why their kid has a stomach ache. Because if they don’t, they’ll get everyone going to midwives, chiropractors, and naturopaths who put themselves under those shingles because the law then allows them to tell you to give your kid tums and charge you $50.

Set the system up so that the law protects free and honest competition, and then leave people the frick alone. Safety net the whole thing, sure, but stop telling people who don’t want their boss or their senator making their health care decisions for them that they have to.

lxm December 26, 2013 at 1:21 pm

First, I would like to say that it would have been all right if you had taken Christmas Day off from blogging. Maybe think about taking New Years day off. Just give it a try. You might like it and it might result in reduced health insurance premiums.

Cochrane says, “Health insurance should be individual, portable across jobs, states and providers; lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick.

Sounds like single-payer to me. John Cochrane: socialist!

Except, of course, for the implication that if you do not buy in when you are young and healthy, you will be screwed.

Also, don’t you think we will need a few regulations to make this proposed insurance market work?

Nick December 26, 2013 at 2:51 pm

The issue with this conservative proposal (or any individual based proposal, I suppose) is the issue of what if you don’t get in early enough? Someone finds out they get cancer at 27 and there will be renewed demand to revamp the entire system again because someone is “shut out of the crappy US healthcare system.”

Not to say this case isn’t a real problem that should be addressed, but rather, it would appear that unless a new system dominates the old system in every way, shape or form, it will not be accepted.

Z December 26, 2013 at 1:26 pm

What’s interesting is I recall hearing this argument (portability of insurance) three decades ago. I’ve been holding up veterinarian medicine as a good alternative model than the current dog’s breakfast. I’ve been making that argument since HillaryCare. There’ no shortage of solutions that would work far better than the current criminal conspiracy. Until Americans run out of money or rebel against the ruling class, nothing changes.

Nick December 26, 2013 at 3:05 pm

Veterinary medicine? Really?

http://en.wikipedia.org/wiki/Animal_euthanasia

Brett December 26, 2013 at 3:26 pm

I thought the same thing. People love their pets, but truth be told most of them are willing to let their pets die or be put down if it’s going to be too expensive.

That’s not the case with human medical care. By and large, society is not willing to just let people die for lack of medical treatment, even if we allow a lot of people to die that way out of apathy when they fall between the cracks of the systems set up to help them (like the EMTALA act and Medicaid).

Dan Weber December 26, 2013 at 5:28 pm

Many times people put down their pets *because* they love them.

But we can’t do that for people. No, granny has to spend the last three months of her life in a hospital bed defecating into a plastic bag while her mental facilities fail her.

TMC December 26, 2013 at 3:54 pm

Not sure how that’s a rebuttal. You can get virtually any treatment for an animal as you could for a human.
Prices are much better.

Z December 26, 2013 at 3:54 pm

The word that comes to mind is obtuse.

First off, socialized medicine always brings some method of saying “no” to the patient. The Dutch are actually snuffing people out to save money. The Brits just leave you standing in line until you die. You can pretend otherwise, but that just makes you a fool. All goods and services are rationed. No exceptions. The question is how do we drive down prices so the greatest number of people can afford basic services.

Second, you must not own pets. People in America go to great lengths to save their pets. I used to take my cat to a cardiologist. They did heart surgery on dogs. At the same clinic, they did chemo and radiation for pets with cancer. People were spending thousands on sick animals.

Third, every day in America doctors tell families there is nothing more to do for their loved one. That’s not always true, but it is what a moral doctor will do to ease the suffering of the patient and the family. Rather than drag out the inevitable, they just let the person go in as much comfort as possible.

msgkings December 26, 2013 at 4:39 pm

But more often every day in America some 90+ year old is hooked to machines bringing revenue to the hospital and doctor for days and days to no end.
It’s not the patient or patient’s family paying either. This is where death panels need to come in. The financial incentives overwhelm the morality of doctors, not to mention the legal ones.

Dan Weber December 26, 2013 at 5:31 pm

Doctors do whatever they can to not die in the same manner as other people are allowed to.

Z December 26, 2013 at 5:33 pm

Yeah, I want the post office deciding who lives and who dies. You nuts have more trust in the demonstrably incompetent than you do in your own family. Self-hatred is powerful stuff.

RZ0 December 27, 2013 at 2:56 am

mskgivings, I hear that tale much more than I’ve seen it.
Did it happen to you? Did it happen to a friend? I’m sorry if it did. I don’t think it happens often, though.
I’m in my fifties and have been around quite a few relatives dying and quite few friends whose relatives died. Some died suddenly. Some had long declines. But the elderly person hooked permanently to machines just isn’t common. Every family I’ve been around that has had to confront such a tragedy has pulled the plug, because that’s what one does, out of love. I had to do it. I suspect you would do it as well. I find no evidence that our hospitals are brimming with oldsters on ventilators.

Doctors make plenty of money in other ways. They don’t need to be that ghoulish.

msgkings December 27, 2013 at 11:59 am

@ Z: I just don’t think the public (via Medicare) can afford to pay for keeping the coming waves of baby boomers alive well past their reasonable lifespans. The post office won’t tell you to kill grandma, but they will probably start telling you that the public can’t afford to pay for her continued machine-aided existence. Think denials of organ transplants after say age 90, or time limits on procedures that don’t add quality of life. Or are you of the opinion that Medicare should cover anything and everything for everyone over 65, forever? Also, your quaint penchant for accusing those who you disagree with as hating themselves is, well, cute. Those self-hating liberals could just as easily say you hate everyone besides yourself. With the same level of accuracy.

@RZ0: I agree the proverbial ‘barely there but for the machines’ situation isn’t that common, but there’s no question end of life care is where most of the Medicare dollars get spent. And with the demographic wave coming, there simply isn’t enough money to pay for it all. Some kind of rationing will end up being implemented, the only question is how we get there and what it looks like.

MD December 26, 2013 at 6:09 pm

socialized medicine always brings some method of saying “no” to the patient

All medicine always brings some method of saying “no” to the patient. For instance, if you do not have enough money or you do not have insurance for a procedure, you might be told “no.” This is pretty obvious stuff. You can pretend otherwise, but that just makes you a fool. I suggest you stop being so obtuse and self-hating about it.

jmo December 26, 2013 at 1:39 pm

We need to permit the Southwest Airlines, Wal-Mart, Amazon.com and Apples of the world to bring to health care the same dramatic improvements in price, quality, variety, technology and efficiency that they brought to air travel, retail and electronics.

Ah, but if i walk into an Apple store, Walmart, or go online to Amazon and don’t have any money, no one has a problem with me being told no. That is a major difference.

If we could move to a system where people without the ability to pay were escorted out of emergency rooms by security – his plan would totally work. We don’t live in such a world.

Cliff December 26, 2013 at 2:44 pm

Uncompensated care is a trivial problem

jmo December 26, 2013 at 2:52 pm

Wrong.

If you never bother to get insurance and at 35 get hit by a car, you’ll soon end up on Medicaid. The vast majority of your treatment wouldn’t classify as uncompensated care. despite the fact that you stuck the public with your bill.

Dan Lavatan December 27, 2013 at 8:09 pm

The most likely result of the situation you describe is the car driver would be liable.

In at least most red states, individuals without kids can’t qualify for Medicaid under any circumstances. Even then, the individual hit may well have paid plenty of taxes apportionable to Medicaid.

wetragafv December 26, 2013 at 3:01 pm

The whole Medicaid system is basically a way to pay for uncompensated care. Not trivial at all.

Dan Weber December 26, 2013 at 5:35 pm

If you look at total ED bills, and compare to total US health care spending, the former is 1% to 3% of the latter.

Getting people out of the ED and into outpatient clinics sure sounds like a money saving technique, but it’s not really the thing that’s driving health care costs.

Adrian Ratnapala December 26, 2013 at 1:44 pm

I do understand the option of letting the premia rise, and selling insurance against that event too, and maybe that could work. Still, it is surprising how many insurance markets don’t really blossom even if it seems they would make economic sense.

Does this make economic sense? Is the idea that on my 18th birthday my parents should buy me some “meta-insurance”? But presumably poor children should also get meta-insurance, and so should kids who are already sick enough to raise meta-insurance premiums. It makes more sense for it to come as a 0th birthday present from the Queen. She can tax the cost back out from the rich.

The point is that protecting the indigent is not something we should be asking the private sector to do. It’s what society (via government) wants, and should pay for.

mike December 26, 2013 at 2:01 pm

If “society” wanted it as much as you claim they do, they wouldn’t need government to put a gun to their heads to do it

jmo December 26, 2013 at 2:07 pm
MD December 26, 2013 at 3:11 pm

Do you think that there is a majority of Americans who would vote to deny the indigent emergency medical care?

mike December 26, 2013 at 6:18 pm

Is that what Adrian Ratnapala is arguing for? The status quo?

MD December 27, 2013 at 11:54 am

No, just trying to suss out how big of a fool you are.

Cliff December 26, 2013 at 2:45 pm

It’s what 50.2% of people want? Or 35% like Obamacare?

Adrian Ratnapala December 26, 2013 at 3:13 pm

I think it is about 95% — because I am only talking about the nice, motherhood statement “Should we help the poor and the sick get access to decent healthcare.” If you drill down into specific proposals, then you will get far lower numbers, especially when you add path-dependent political debates.

My preference, would be just the kind of “meta insurance” I mentioned above, where the state provides a kind of voucher that you can take to the private providers. If you don’t pick a provider yourself, the state must auction off your voucher to the lowest bidder. I reckon that proposal will get about 10% support.

jmo December 26, 2013 at 1:55 pm

new hospitals and insurers swamp your inbox with attractive offers and great service.

And then you can spend your time going though them to find out which are legit and which are frauds.

He also seems to be under the impression that the median 100IQ voter, with 2.3 children and a job, has the time to wade through all this and make an informed guess at the value of the off-patent vs. on-patent oncology drug rider his agent is trying to sell him.

prior_approval December 26, 2013 at 2:12 pm

‘Health insurance should be individual, portable across jobs, states and providers; lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick.’

So, just like Germany’s for profit healthcare system, with the Krankenkassen being the ‘insurers.’

‘Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.’

Oops – not like Germany’s system at all, which is 1/3 cheaper than the American one, and covers those routine expenses that the American system apparently cannot provide without costing too much (including routine dental care, it must be noted – is routine dental care part of what is being offered in the U.S. these days?).

Ryan Vann December 26, 2013 at 2:24 pm

What is meant by routine dental care?

Firionel December 26, 2013 at 2:25 pm

You should be careful here: The German system is devilishly complex. For starters it is a weird hybrid of for-profit providers, tax-subsidized providers, single-payer insurance, for-profit insurers and tax funded coverage for those who many commenters here like to call the indigent.

The sort-of single payer part of it contains a major transfer (premiums are based solely on taxable income from labour). If your income is above a certain threshold you can opt out, but you still have to get insurance in the private sector. And you cannot get back into the more-or-less government run part of the system once you have opted out (well, mostly).

I really believe it is model that is working well, but it might be a tad too complex for the standards of American policy debates. It most definitely has, ahem, death panels. Oh, and dental coverage isn’t great, though it is easy to get additional insurance for that on the side.

Cliff December 26, 2013 at 2:49 pm

What routine expenses are you talking about? The ones that many plans pay for without co-pays and have been proven to have no, or even negative, benefit?

Brian Donohue December 26, 2013 at 3:05 pm

What on earth do routine expenses have to do with insurance?

Zero.

Adrian Ratnapala December 26, 2013 at 3:17 pm

p_a did not actually say the German system was insurance. Literally “Krankenkasse” means “cashier of the sick”.

prior_approval December 27, 2013 at 1:36 am

Thanks – German doctors, hospitals, medical equipment manufacturers, pharmaceutical companies are for profit, and generally privately owned (leaving aside whether religious charities are also ‘privately owned’).

The ‘insurers’ are a much more complicated picture. AOK (Allgemeine Ortskrankenkasse – ‘General Area/Region Insurer’) covers everywhere and everyone who is not otherwise covered. When eligible. This is even more complicated, but it is possible, if moronic, to not pay for health insurance in Germany. Leading to the same result that most Americans consider simply bad luck – though in Germany, the fact you are bankrupted is exactly what one would expect by not bothering to be insured, and nobody wastes much sympathy on such idiots. Just one reason that even trying to explain most of the American written comments here is really not possible when speaking with Germans – except to point out just how different the U.S. truly is.

There other major ‘insurers’ and many smaller ones. They do compete on price, actually, but the services provided are essentially the same. AOK is the most expensive one, generally, as it is the one that includes those who are not paying into another Krankenkasse. Everybody who is insured by a Krankenkasse can go to basically any doctor/dentist anywhere in Germany. At any time they are open, for any reason. You might have to wait an hour or two, unless you have a real problem (something like slicing your finger with a knife, as a routine sort of example).

‘Routine care’ in Germany would include things like dentist visits or fillings, or going to a doctor for booster vaccinations (tetanus is a personal example), or because something hurts, or because your child (who costs nothing extra in terms of the Krankenkasse – this is considered basic public health, of course – a healthy citizenry being an investment that starts before birth) has been coughing for a couple of days, or says their ear hurts.

Nobody in Germany can imagine what it is like to have a health care system unable to provide such a basic level of service for essentially everyone, from before birth to their death.

The Obese Dog December 26, 2013 at 2:31 pm

A few things are in tension:
1) If you can’t use all relevant rating variables, some groups will subsidize others (Sick/healthy, male/female, etc…). The groups that subsidize then pay an actuarially unfair premium and have an incentive to go without insurance if they can or buy the leanest plans possible if they can’t. As the ones doing the subsidizing drop out on the margin, rates must increase above to compensate above pure medical trend.
2) If you can use all rating variables, then it is rather easy for insurance companies to compete for the best segments of existing blocks of business. This makes high rate increases and churn between policies and carriers inevitable as the healthy churn into new polices and only the sick are left behind.

These problems are only exacerbated by lifelong and guaranteed-renewable insurance which is why it doesn’t exist.

Tyler’s arguments against adverse selection are dismissible for two reasons:
1) Timing: If you wake up one morning and feel a lump somewhere and suspect cancer, the insurance company doesn’t immediately know. They won’t know until you visit a doctor and get diagnosed and then they receive the paperwork. You can use this timing difference against them.
2) Use of rating variables: Even if there is not asymmetric information, if one can’t use certain information in rating, you also don’t even collect it in a way that resembles the use of it (to avoid regulatory scrutiny) so it’s no different than not having it at all. There have always been restricted rating variables.

Brett December 26, 2013 at 3:10 pm

Offering a ton of cheap high-deductible catastrophic plans isn’t going to solve the problem of the uninsured and under-insured, or any cost problems for that matter. The majority of health care expenses are created by the small percentage of the population that gets really sick, and insurance companies know that. If you have some characteristics that make you a high risk for that type of thing, you’re going to get denied regardless of how cheap the plan is – unless the plan comes with an extremely low lifetime cap (and even then it’s unlikely).

If you really want to get cheaper health care, then you need to make sure everyone is covered aside from very small amounts of fees, and you need to get the supply-side costs down. If you want the “Walmart of Health Care”, then you need to break the power of the American Medical Association to constrict the ability of anyone who isn’t a doctor from treating people, and also disrupt some of the rules designed to constrain the supply of new doctors (particularly residency requirements). It’s not something that’s going to come from the “insurance” side of health care – the only way to get health care cheaper on the “insurance” side is if you start drastically denying care to large numbers of people, or use monopsony power to force the supply-side costs down.

John Schilling December 26, 2013 at 5:24 pm

“If you have some characteristics that make you a high risk for that type of thing [getting really sick], you’re going to get denied…”

What characteristics would those be, exactly? Smoking and obesity would be the obvious ones, but the morbidly obese and the tobbaco addicts could get insurance in the pre-Obama private market. They were charged extra, as they should be, but they were not denied. I’m trying to think of something else that is even more positively correlated with risk of illness, knowable to an insurer, and not so rare as to be readily patched over in an otherwise-sound system, but nothing comes immediately to mind.

If you are thinking about people who are already really sick, that’s a different problem. And it’s not a trivial one, particularly during the generation or two of transition when we are still dealing with all the people who got really sick before WonderCare (in whatever form) was implemented to make cheap insurance available to all. But the solution to the real problem of people who got really sick before they could buy insurance, is by definition not retro-insurance. All you can do there is confuse the issue by taking something that is by definition not insurance, calling it “insurance”, and making it harder for people to find and buy actual insurance.

Look, homeowner’s insurance is a good thing. Some system for making sure people whose uninsured homes burn down aren’t left to die in the gutter, would also be a good thing. But they are two different things, and they should probably be provided separately. Not as “homeowner’s insurance with full coverage for pre-existing fires and fire damage”.

steve December 26, 2013 at 9:01 pm

A past history of a PE would guarantee you could not buy insurance in the private market. Or, as Matt Welch (Reason editor) noted, just visiting the doctor can make you uninsurable.

http://reason.com/archives/2009/12/07/why-prefer-french-health-care

Steve

nl7 December 26, 2013 at 3:42 pm

Still sidesteps the way medical providers are structured, with overlapping and fractured pools of different services all sending separate bills to customers at different times. Someone should experiment with streamlining the org chart, and a useful goal should be sending a single bill to the patient-customer (maybe some internal wrangling over distributing credit within the company). There are many different rules from insurers, state laws (like certificates of need) and medical boards (the corporate practice of medicine doctrine) that are operating to encourage fragmentation among medical providers. If corporations could openly practice medicine (the same way they sell us clean water, pure water, life-saving drugs, fire safety advice and financial advice) then we could have more unified provision of services and a simpler experience for patients.

Sometimes it makes sense to separate units operating in close proximity, like stores in a mall or stalls at a street fair. But when the customer is interacting with a hospital like it’s just “the hospital” as a single entity, it probably doesn’t make sense to divide that too much. So I agree with the changes to insurance, but that means non-insurance provision of medical care will grow and will need to change.

Ryan Vann December 26, 2013 at 4:02 pm

“I may be mistaken, but I think Yancey’s point is that a national “HSA plus real insurance” scheme would create a destabilizing “death spiral” of higher costs among traditional employer group-health plans, so there is considerable inertia in favor of the status quo.”

Strikes me as a bit overly dramatic. Supposedly the young and healthy these days opt out of insurance groups in large percentages due to the high premiums, and select to self insure. This hasn’t as yet caused any death spiral that I know of. Moreover, such a conclusion requires a hyper aware and rational consumer perspective of the world, one which my experience instructs me not to share.

Yancey Ward December 26, 2013 at 6:02 pm

It hasn’t happened yet since it isn’t usually possible for a young and healthy employee to take as salary the amounts spent on his employer supplied health insurance, and buying his own, less expensive individual policy. Believe me, I tried to find a way to do this every single year I worked for a large employer. The literal best I could do was save a bit of money by taking the least expensive policy option from my employer so that I didn’t have as much deducted from my pay. If I had declined the insurance altogether, I would have received none of what the employer had been spending.

If employers can give as salary exactly what they spend on an employee’s health insurance without the employee incurring income and payroll tax on the entire amount, then it is precisely the younger and healthier employees who will bail out on the employer’s group plans.

quadrupole December 26, 2013 at 11:02 pm

My employer has been good enough to communicate to me our split on the cost of medical insurance (to demonstrate that cost increases are appropriately shared). As a result I know that they are spending about $15k on my insurance. If I could simply shunt that to an HSA I would rapidly be self insured.

Shane M December 26, 2013 at 9:03 pm

In my experience, the employer subsidy is large for health insurance, and the employee who opts out cannot get that subsidy back as additional salary. It encourages buying more insurance than you need. Ex: Part of the compensation for young people comes as over-priced health insurance (given their risk profile). An employee purchasing insurance outside of the group plan provided by the employer just loses that part of their compensation – it is non-transferable.

Stan December 26, 2013 at 4:29 pm

Cochran’s idea is foolish in the extreme. It would require everybody with employer provided health insurance to change policies, thus losing the advantages of community rating within the employer’s staff and of the greater buying power and expertise of an employer as compared to an employee. The Republican party will never accept this scheme. If they did, they’d deserve being called the stupid party.

Yancey Ward December 26, 2013 at 5:54 pm

I have long been an advocate of similar kinds of long term, renewable health insurance policies in the US, but one has to make one adjustment that I don’t think Cochrane made- there has to be a hard cap on total health care expenditures under the policy for each age cohort. You simply have to be able to make a reasonable guess at the maximum costs of such a policy over a policy holder’s lifetime. If there is no cap, good luck at finding a reasonable and affordable premium level. If you can design such a system where the policy holder has some incentive to not reach the hard cap, then even better.

Marie December 26, 2013 at 9:46 pm

My husband and I spent our entire lives on employer insurance and then in the last five years bought our own policy.

Laws vary by state, but as a general rule, when we had insurance through the employer we could lose it with a firing, a business closing, a business changing policy, a business lay off — all subject to COBRA, but pretty much we were on thin ice and didn’t know it.

Once we bought an individual policy for the family, we could lose it only if we didn’t pay the premiums.

They couldn’t raise the premiums if our health as individuals changed — they could only change the premiums on the basis of all premiums being raised because of overall rising costs.

This led me to understand that if we had as young people bought policies and kept those, and if our employers had given us the money they’d paid insurance companies and we’d used (probably only part of) that to continue paying our premiums, we would never have had to worry about portability. And we would never have felt shackled to a job because a family member had a pre-existing condition.

But that wasn’t an option, in large part because the federal government encourages (with money) corporations to pay insurance companies instead of paying their employees enough to pick and pay for their own insurance.

Shoot, I’d even be able to stand the individual mandate if we could get rid of company-provided insurance. Cochrane is right on.

But it’ll never happen.

Cyrus December 27, 2013 at 9:32 am

Individual, portable, and lifelong may be a pick two of three situation.

Lifelong is the hard part: how many health plans exist in approximately the same form over a 40-year period?

People might want to buy this product, but the insurance companies don’t have a good actuarial model for estimating a 25-year-old’s expected medical expenses through age 65, and so they can’t sell it. (See the vanishing market for lifetime-priced long-term-care insurance. People do want to buy it, but insurance companies overestimated their ability to price it, and now it’s gone.)

Large provider-based HMOs have more ability to price it because they have some long-term control over their own future costs, but that didn’t go over well in the court of public opinion in the 1990s.

Yancey Ward December 27, 2013 at 11:48 am

Why a hard cap on payouts is an essential ingredient in pricing the thing for the long term.

dead serious December 27, 2013 at 11:06 pm

So a catastrophic plan that doesn’t cover catastrophes.

Sounds brilliant.

Yancey Ward December 28, 2013 at 11:24 am

No, dumbass, it covers catastrophes up to the cap- if that cap isn’t enough for you, then you get to pay for a higher one. You don’t get to claim a $1 million dollars when your $250K house burns down, do you?

prior_approve December 28, 2013 at 4:38 am

‘Lifelong is the hard part: how many health plans exist in approximately the same form over a 40-year period?’

Germany’s, Britain’s, Switzerland’s – those three come instantly to mind.

Jane the Actuary December 27, 2013 at 11:01 am

The ideal here is that health insurance would function somewhat similar to life insurance, I take it — that one has the option to protect against increasing premiums by purchasing a whole life policy or a very long term policy. But that concept isn’t directly transferable to health insurance because the latter is such a big-ticket item and there’s too much risk in it. You’d have to be able to predict, at the age of 20, which health insurer is going to provide you the best customer service, most appropriate network of doctors, etc., 40 years later — not to mention the fact that life insurance just pays a fixed amount regardless of where you live, where, in the health insurance world, equivalent indemnity policies really don’t exist any longer, and various insurers’ networks are very regional, and one certainly can’t be expected to live in the same location for decades.

So, yes, moving to individual health insurance has a lot of appeal, but the solution to increasing rates due to age is really more of a vouchercare concept with rates fully underwritten by age (and sex) but federal subsidies varying by age (and sex) in response, to cusion the impact.

And just for fun, I’ll flog one of my very first blog posts, from this past summer: http://janetheactuary.blogspot.com/2013/07/vouchercare.html

James Kahn December 27, 2013 at 12:29 pm

I see your argument about the complexity of health insurance making the analogy to life insurance a bit dicey. But I don’t see the problem with the perfectly foreseeable increase in premiums over one’s lifetime. There are lots of expenses that people save for if they are anticipated, like children’s college education. And if you are worried that people will won’t save, either to game the system or because they are irresponsible, combine the portable, permanently renewable policy one gets at a young age with a savings plan, which would effectively level out the outlays. For example, one buys a $10,000 policy at age 18. Initially $6,000 of that is savings, $4,000 actually goes for the insurance. Over time the insurance component increases, eventually to more than 100%, drawing down the savings later in life.

Jane the Actuary December 27, 2013 at 5:11 pm

It’s not about the savings issue — it’s about being locked into a product that may be entirely unsuitable several decades in the future, because one would then be unable to switch insurers if the first one turned out to be inappropriate — because you’ve moved, or they’ve got lousy customer service, or the like. With whole life insurance, the cost of the product is lower, you’re not locked into a given region of the country, and, if nothing else, there’s the ability to take the cash value — which I suppose, in principle, could be true of a “whole life” health insurance policy . . .

Of course, that ignores the issues of the insurer predicting medical costs decades in the future. But I suppose the closest analogue is long-term care insurance, which, if you’re in your fifties when you buy it, would potentially have the same duration as a hypothetical “whole health” policy for one’s working life. And the way these policies respond to uncertainty about future costs is by paying fixed sums per day rather than covering X% of the cost of a nursing home or home health care provider.

And in any case, that’s all addressing the age-based pricing; the alternative is a policy that doesn’t level out premiums due to aging, but simply responds to pre-existing conditions by covering medical costs over the term of the policy, and any future medical costs arising from a health condition that appears during that year. . .

Dan Lavatan December 27, 2013 at 8:22 pm

If you were smart enough to use a savings-based approach why would you deal with insurance at all later in life? The idea would be to purchase reinsurance for the amount between the amount saved and some cap. You would very quickly reach the cap, or at least the point were reinsurance premiums are less than $100/year…

wjw December 28, 2013 at 3:14 am

Funny thing…All this nonsensical comment verbiage regarding HCare doesn’t exists in Canada or anywhere else in the developed world. HCare systems there, simply, work. And folks there get on with things.

Marie December 29, 2013 at 1:57 pm

Yes, when people have no freedom to make their own decisions about things, there’s no point in talking about it.

ezra abrams December 28, 2013 at 1:21 pm

can you tell me why the alternative – socialized medicine – is not superior ?
All the problems (and, of course, the many we havn’t thought of, or that will be created by eager entrepreneurs looking for a fast buck) go away

As to why healthcare cost more in this country: as a liberal, i’m highly dubious of all these cross country comparisions; I know, from my job, that getting basic statistics for just the US is often difficult (eg, reliable numbers on the incidence and mortality due to hospital accquired infections; the prev gold std, Klevens et al in JAMA was clearly not right)

However, why does no one bring up the profit motive ? IN a socialized medical system, your only incentive to perform a knee operation is patient status; if research shows that the operation doesn’t do any good, you can stop doing it

In the us, the profit motive means you keep doing the operation (this is not outright greed, rather, doctors manage to convince themselves that the operation really is needed)
Like bypass surgery; billions spent on something that for many people does little

Marie December 29, 2013 at 2:06 pm

People are individuals. They each have motivations.

So a surgeon who does a knee surgery may be motivated by the desire to help, or the desire to make money, or usually both.

This is true regardless of whether the medical system is socialized or privatized. In your socialized system (take in Medicaid or Medicare here) the money-motivated will do the surgery if it is on the schedule and if it brings him more money than other uses of his time. He is still performing operations based on the income from them, not based on their efficacy.

In neither case, privatized or socialized, is the doctor left free to make a decision based solely on the good of the patient. In both cases, he will decide based in part on the money and in part on the needs of the patient, and the ratio varies based on the doctor, not on the system.

I can give you an example, we’re on Medicaid now because our former insurance is gone. There are two devices used by kids with my kid’s condition. One improves lifestyle and is “covered” by Medicaid. One improves safety, and is not. The doctors prescribe and use the device that is covered, rather than the one that is more medically useful, and they don’t bother (as far as I can tell from talking) to advocate for the system to change. Their office profits every time this device is used by a patient, because the use moves through their office, but they also feel it is a handy device for their patients and if it is covered, why not prescribe?

Both systems motivate people to make decisions in part for money. The question becomes what direction those money-motivated decisions will be made in, who decides the direction — the patients, a corporation, or the government? The best system will let informed patients be the ones making the decisions, and then money may be used to motivate doctors to facilitate those decisions.

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