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Saturday, November 5, 2011

Capitalism and Health Care

In order to understand the health care crisis you have to understand that there are people who genuinely need health care on a regular basis.  To the vast majority of you, health insurance is simply a matter of risk reduction, the same as auto insurance or homeowner’s insurance.  It’s there to pay the bills that might come about, not the bills that you expect to come about.  This is especially true for young adults.  Most people in their twenties or thirties could go years without health insurance and barely notice it missing.  For your average American, health insurance is only there as a safety net, just in case shit hits the fan.

But if you have a long-term medical condition, health insurance is an entirely different animal.  There are two things that change the situation in a very drastic manner.  First, health insurance for people with long-term conditions is not about risk reduction.  These people have medical expenses all the time.  They aren’t looking for health insurance because they want to protect themselves from a potential cost in the event that they get sick.  They already have the costs, and they’re trying to find a way to afford it.  For these people, health insurance has nothing to do with risk reduction.  It’s about getting access to prohibitively expensive but critically important treatment on a regular basis.

The second thing that changes is that health insurance companies suddenly start doing everything they can to avoid paying your expenses.  And I’m not talking about deductibles and copays here.  I mean genuinely trying to avoid or delay covering your expenses as much as possible.  Health insurance companies that won’t cover a pre-existing condition, or companies that withhold payment for as long as possible.  There have been a lot of regulations passed over the past couple of decades that made things better, but it’s still a huge mess.  Messy enough for this.

To put this in perspective, I’m going to map it to auto insurance.  Your average American with health insurance is much like your average American with auto insurance.  The whole point of the service is to offer risk reduction.  On average, you will pay more for your insurance than you will actually get back in coverage – this is how the insurance company makes money.  But if you happen to get unlucky and have a very expensive accident, your coverage will pay out more than you put in.  It’s rare, but that’s the whole idea behind risk reduction.  It’s the basic model for insurance.

Now imagine if you and your insurance company knew with near-absolute certainty that you were going to get into an automobile accident every month for the rest of your life.  Can you imagine the kind of insurance premium they’d want to charge you?  Most auto insurance companies would jump through every hoop they could find to try and figure out a way not to sell you their product.  And this is exactly what happens in the field of health insurance for the people who genuinely need it.  The people who need the product the most are exactly the people health insurance companies don’t want to sell it to.

This is the first of two critical things that don’t happen in other industries.  In fact, other industries are required to sell their product in a non-discriminatory fashion.  Take the DC subway system for example.  They have several stations that are wheelchair accessible, which typically means installing an elevator that wouldn’t otherwise be installed.  And whenever an elevator breaks down, they offer shuttle services to mobility impaired customers.  All of this costs money, and yet we don’t see the metro charging people in wheelchairs more for these services.  In fact, nearly every industry in the nation charges the same rates for their products, even to customers who are more expensive to service.  We don’t see Wal-Mart or McDonalds charging more to people in wheelchairs to cover the cost of installing access ramps or accessible rest rooms.  And coud you imagine the kind of backlash Burger Kind would recieve if the tried to jack of their prices for a starving customer?  Yet auto insurance companies can charge you more simply because you’re male or you own a red car.  And health insurance companies can refuse to sell you the standard product if you’re disabled

And what about the second critical difference?  Well let me ask you a question.  How many of you have ever decided what company to purchase your health insurance from?  With most forms of insurance, auto or homeowners or whatever, you have a whole bunch of companies that you can choose from.  If Safe Auto is refusing to cover you or charging you outlandish fees or otherwise being a terrible company, you can ask Allstate to make you a better deal.  Just like you could choose to go to Burger Kind if McDonalds suddenly decided that being pleasant to customers was old-fashioned.  This is the linchpin of capitalism.  The whole idea behind a free marked is that competition between companies will keep the individual from getting squashed, because the individual has the power to shop elsewhere if a company isn’t meeting their standards.

But for most Americans, health insurance comes through employment.  And most employers offer you exactly one health insurance plan.  In my own case, I can receive health insurance from one and only one provider through my employment.  Technically I could shop around for better coverage.  But since other insurance companies aren’t subsidized by my employer, I’d have to pay significantly more to buy insurance from a different group.  And this is the case for most Americans.  Generally speaking, your health insurance company is picked for you by your employer.  If you want to switch, you will have to either pay a significantly larger premium, or find another job.  So while there still is some competition in that health insurance companies must compete for contracts with employers, the power of shopping around does not lie with the individual like it does in other industries.  So if one health insurance company isn’t meeting an individual’s needs, it is very difficult for that individual to take their business elsewhere.  And this dilutes the effect of competition, which causes problems for a free-market system.

To reiterate, the following are reasons capitalism is not working for the health insurance industry:
1. Individuals can't choose who to buy health insurance from.

2. Health insurance companies, like most insurance companies, engage in blatant discrimination.  I'm not going to sugar coat this in the name of political correctness.  If you charge me more for insurance just because I'm male (e.g. Auto) or I have a disability (e.g. Health), then you're discriminating.  Other companies aren't doing this kind of thing.  Why are we letting insurance companies do it?

3. What health insurance companies try to sell is not what Americans with medical conditions are trying to use health insurance to obtain.  What these people actually need is affordable heatlh care.  But the insuracne industry is all about selling risk reduction.

The first problem seems like it shouldn't be too hard to fix.  And yet, it also seems like solving it would not have a large enough effect.  What we really need is a solution to problems 2 or 3.  Either make sure health insurance companies offer genuine "risk reduction" at the same price even to people with ludicrously high risk, or just do away with the idea of health insurance altogether by making healthcare affordable.

IF the first option can be kept profitable for the insurance industry while actually solving the problem (as in, not making health insurance prohibitively expensive), then I see no real problem with it.  We could keep health insurance as a private, profit-driven industry so long as we make it play by the rules.  We don't let other companies engage in blatant discrimination in the pursuit of profit.  I see no reason for us to lower our standards for health insurance.

But if the first option cannot be kept profitable, then we have a problem.  If health insurance is an industry that can't turn a profit without breaking the rules, then why are we trying to force it into a profit-driven economic model?

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