let insurers be insurers

I usually argue in this blog for a universal, single-payer health care system, because I think such a system has several huge advantages — namely, it’s simple and easy to understand, it’s accountable to us through our elected representatives, it could control costs more effectively than our current hodge-podge of stingy socialism and non-competitive capitalism, and it would shift the emphasis of care back to monitoring and prevention, rather than after-the-fact treatment.

But I’m an intellectually curious guy, and willing to admit that there are many workable solutions to providing universal access to health care, from Britain’s National Health Service to France’s hybrid system to Germany’s 200 private-but-heavily-regulated insurers. And since it looks like single-payer is off the table in the U.S. for the foreseeable future, I’m willing to engage in thought experiments like the one proposed by businessman David Goldhill in a recent NPR interview.

Goldhill notes, correctly, that even in situations where all health care exchanges are conducted entirely in the private realm, and therefore are theoretically driven by rational choice, in fact there is an information blindness that makes it nearly impossible for health care consumers to be informed about the costs and benefits of their potential health care purchases. They don’t know the costs because all prices are based on a complex series of negotiations between the doctor’s billing department and the insurer’s claims department, and they don’t know the benefits because they aren’t subject matter experts and must defer to the doctor’s recommendations as to what medicine or treatment or surgery will be most effective and why.

The latter is a perpetual problem in consumer economics, though it ought to be ameliorated in some way — perhaps by better public awareness campaigns, or perhaps through the establishment of some sort of private concern, a sort of Scientific American meets Consumer Reports, an unbiased, impartial, and trusted source of information about health and science, written by experts for the layman and based on the best peer-reviewed science available.

But the former problem — the invisibility of prices — isn’t a necessary part of the equation at all. There is no a priori reason why doctors and hospitals couldn’t post lists of their prices on their websites or in their offices. “Routine checkup — $90.” “Tonsillectomy — $4,000.” “Tonsillectomy with ice cream — $4,004.” And so on. The fact that they don’t, and that we rely on insurers to negotiate prices for us, goes a long way toward explaining why we pay twice as much as the rest of the industrialized world for health care that is a long way from the very best. When consumers are faced with a purchase in which the costs are hidden while the benefits are presumed to be, essentially, infinite (or at least inarguable), it’s not surprising that they either force others to spend unreasonably on their behalf or find themselves suddenly faced with bankruptcy.

Goldhill’s proposed solution to this problem is to require everyone to buy catastrophic insurance coverage, with a deductible in the $50,000 range. (In the Atlantic Monthly article on which the interview is based, Goldhill suggests that this should be a government-run program that would eventually replace Medicare and Medicaid, but it could just as easily be a well-regulated private industry.) Expenses below the $50,000 level would be paid for either by that conservative perennial, the Health Savings Account, or through credit.

The details of this proposal are annoyingly vague — it’s not clear, for example, whether that $50,000 “deductible” is per illness, per diagnosis, or per year. If it’s yearly, it would still not solve the problem of massive, unpayable medical bills for people with chronic, expensive illnesses. Cancer treatment regimens, for example, can easily end up costing a quarter million dollars or more, and there’s nothing that restricts that process to a single year. Illnesses of that kind are somewhat rare, fortunately, but if, as Goldhill asserts, we each spend $1.7 million on healthcare in an average lifetime, it’s not hard to see that we will probably have to spend that in clusters: $500,000 in a span of 5 years, but in other decades, next to nothing. (I, for example, spent something in the neighborhood of $1500 on health care between 21 and 30.)

This also points up the essential flaw in the HSA idea. If I had gotten a dangerous cancer in my twenties, it probably wouldn’t have been caught very early, because I wouldn’t have been going to the doctor very regularly, since I would still have been trying to accumulate money in the HSA. So by the time I had reached the tipping point in the illness — the point at which going to the doctor can no longer be put off for any reason — I might very well have been past the point at which treatment would be effective.

I think Goldhill might be onto something with the idea of funding health care spending on credit, though. Surely it ought to be possible to create a class of credit card that could only be used for health care. It would be interest-free or nearly interest-free; companies would be allowed to charge a carefully regulated annual administrative fee, but nothing more. The card limit would be, essentially, whatever the lower limit of the catastrophic plan is, and payments on the card balance would be tax-deductible. Users would not be allowed to default on payments or escape them through bankruptcy (just as they aren’t allowed to escape student loans now), but they could pay only the minimum balance during times of hardship, with some sort of incentive for paying it off faster.

There are many potential objections to such a plan, of course. Libertarians would balk at being forced to buy coverage, though I imagine they would balk less if they understood that it meant they would no longer be directly subsidizing someone else’s health care through programs like Medicare. (Also, libertarians like people to take responsibility for costs, which this would do.) And it’s obvious that around the $50,000 mark, people could easily be persuaded to overspend, on the theory that catastrophic insurance will be on the hook for the remainder. Finally, even a credit card with very favorable terms doesn’t entirely erase the barrier to regular and preventive care for the poor and the frugal. (Though if it brings down office-visit prices overall, it might well get more of the currently uninsured or underinsured to see a doctor once in a while.)

Nonetheless, there’s a great deal to admire in a plan that puts pricing information back into the market and empowers consumers to make conscious choices, while not forcing them to forgo medical care altogether. It would encourage direct price and quality competition among health care vendors, because consumers would no longer be channeled into the few practices approved by their insurers. Meanwhile, insurance, no longer responsible for endless low-level costs, could go back to its more proper job of pooling risk for the truly disastrous cases — and since the healthy as well as the sick would be forced to pay into the pool, per-person costs would decrease enough that denying claims would be a less tempting money-making strategy. Finally, by uncoupling insurance from employment, it would achieve a great social and economic good, stimulating more risk-taking by laborers and small-scale entrepreneurs.

It’s depressing that real conservatives and champions of market economies aren’t bringing more creative solutions like this to the table. There are probably dozens of solutions to the health-care crisis, each with its own potential pitfalls and potential gains. The worst possible solution, of course, would be to enact wimpy, half-hearted “reforms” and let the problem continue to spiral out of control as the population continues to age.

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