Ken Arrow may have made an important contribution to understanding health care markets fifty years ago, but I see Arik Roy’s critique of his ideas to be wholly irrelevant. When I talk about the free market not being a good fit for health insurance, I am not talking about how expensive it is to get a medical degree, the importance of trust in the doctor/patient relationship, or any differences in the relative medical knowledge of a doctor and their patient. It’s not about the patient as consumer. It’s about the nature of insurance.
You insure your house against fire, your car against collision, your family-supporting income against death. You do these things, not because your house will definitely burn down or because you will definitely be in a car accident or because you are certain to die before you retire. Health care is different. Except for a tiny subsection of people who die suddenly while in good health, everybody is going to get sick and die and use a ton of health care in the process. When you buy health insurance, you aren’t buying coverage for something you hope won’t happen but coverage for something you know almost certainly will. You’re not really insuring against anything. What you’re doing is spreading out the cost of end-of-life healthcare by making many small payments during your working years.
This is no different from how Medicare works, and that’s why Medicare does work. There is no reason why there should be one system for people over 65 and another for people under 65. There is nothing about private health insurance that makes health care more rational or cheaper. All we want to do is help people pay for their health care needs by collecting a percentage of their earnings in each paycheck (while they are earning paychecks) so that the money will be there when they need it. Whether that money goes to Aetna, Blue Cross, or the Treasury Department is not particularly important, but it costs more if we have to add corporate profits to the price tag.
There are ways to discourage people from over-utilizing the health care system. That’s why we have deductibles and co-pays. The government can apply those concepts just as well as the insurance companies, and without spending a ton of time trying to deny people the coverage they’ve paid for.
Here’s the deal. When it comes to the provision of health care, it’s not about free markets. It’s about an entirely unnecessary market. There isn’t one coherent reason why people should buy health care insurance when they know for a fact that they are going to need health care. This becomes even more obvious when you turn it around. Would you insure someone’s house against fire if it was already on fire? Would you insure a car against theft if it had already been stolen? Of course not. Likewise, you wouldn’t agree to pay for a sick person’s health care.
All I want is to pay a relatively small fee each month for the rest of my working life so that I will be taken care of when I get sick. I may get sick tomorrow. I may get sick when I’m 101, like my grandmother. I have zero interest in paying ANY of that money to a for-profit health insurance corporation that wants to find any loophole to screw me out of what I’m entitled to. I cannot imagine ANY WAY that that insurance corporation is superior to just paying the money in taxes. None. I can’t even imagine a possible way that they’re better. They’re certainly not cheaper. They definitely are more intrusive about what treatments I can get. They not only don’t care about me, the moment i get sick they consider me their adversary. Why would I pay for representation like that?
It’s insane that a large enough segment of our population has been brain-washed to the point that they think private health insurance isn’t the worst scam since Enron. Free markets? What does that even mean in this context?
Even if I wanted to think about health care exclusively as a transaction where I weigh my perception of the doctor’s expertise against the price he’s demanding, how do health insurance companies help this process?
They don’t.
But Arik Roy will continue to spout the insurance industry’s b.s.
