Before you go thinking about how this applies to healthcare... health insurance in the U.S. is different from other types of insurance and personally I think we'd all be better off it were not even called "insurance."
Health insurance is a mix of pre-paying for predictable and certain expenses with tax-free dollars, a transfer/entitlement system to ensure that more people can afford insurance (by design, your premium does not match your expected risk--either you are pooled with others at your employer, or your exchange account is subject to rating band requirements which means, for example, that in many states old people can only be charged 3X more than young people even though old people are likely to be much more than 3x more expensive to insure), and actual insurance. I'm not sure what percentage of your premium reflects the cost of actually insuring you against uncertain future health events, but it's far from 100%.
This is an interesting article, and some of it applies to healthcare in the U.S., but much of it does not.
"health insurance in the U.S. is different from other types of insurance and personally I think we'd all be better off it were not even called "insurance.""
Agreed. If regular, predictable events are covered, it is not insurance. Regular, predictable events are not insurable. Be cause math.
Wellness checkups and scheduled preventative care and yearly mammograms/prostate are all fantastic things ... but they're not insurable. If someone is selling "insurance" for those things, you can be certain that you're paying 100% of the cost somewhere.
>If regular, predictable events are covered, it is not insurance. Regular, predictable events are not insurable.
The problem in the U.S. is that we have this bizarre system where hospitals charge exorbitant prices and then insurers haggle them down to something halfway sane. So when you're paying for "insurance" you're (ideally) getting both catastrophic coverage (i.e. actual insurance) as well as access to a cartel that negotiates prices down from impossible heights on your behalf -- even for routine care.
Since most people who regularly access medical care do so through these cartels, care providers have no incentive to make care more affordable than what they can get away with -- and insurers have no incentive to allow the price to drop either, since people being able to afford care outside the cartels would ultimately undercut their profits.
This system is fundamentally unworkable. There's really no way to detangle the perverse incentives here in a way that will bring prices down to a level comparable with single payer healthcare.
The ultimate reason behind hospitals attempting to charge exorbitant prices is due to Medicare and Medicaid paying under cost for services. Hospitals need to make that difference up somewhere. Surprisingly, if you remove the profit hospitals make on ancillary services like the gift shop, parking fees and investment income, they are losing money.
Isn't the overly-litigious nature of the U.S.A also why costs are so high?
The malpractice insurance that docs and hospitals need to carry in order to defend themselves should they be sued is passed onto consumers in the form of higher medical costs.
Or at least that's how someone once explained it to me. Is that not also a contributing factor?
Anybody in the entire health care system can point their finger at someone else and claim that they're the ones who are gouging us. I suspect that they're all gouging us.
One thing I've read is that states with caps on malpractice claims do not have lower medical costs.
"Payment rates for Medicare and Medicaid, with the exception of managed care plans, are set by
law rather than through a negotiation process, as with private insurers. These payment rates are
currently set below the costs of providing care, resulting in underpayment. Payments made by
managed care plans contracting with the Medicare and Medicaid programs are generally
negotiated with the hospital.
Hospital participation in Medicare and Medicaid is voluntary. However, as a condition for
receiving federal tax exemption for providing health care to the community, not-for-profit
hospitals are required to care for Medicare and Medicaid beneficiaries. Also, Medicare and
Medicaid account for more than 60 percent of all care provided by hospitals. Consequently, very
few hospitals can elect not to participate in Medicare and Medicaid."
That quote is misleading because it implies that the cost of care is static, that it's not also heavily influenced by spending choices made by the hospital that don't affect patient outcomes. Or heavily influenced by the consequences of the broken healthcare system, like the overuse of emergency rooms by people who can't afford to see a doctor.
Hospitals could easily afford to provide care at Medicare/Medicaid rates — if they're willing to have less impressive lobbies, marketing materials, corporate facilities and shareholder profits. Citation: all other first world countries.
Do intelligent people ever go to for-profit hospitals? I'd group those with for-profit universities and for-profit prisons as "nope, not touching that, stay as far away as possible and hope they all disappear".
Maybe, but for the same expense I'd rather go to (non-profit) Harvard than (for-profit) Trump University.
All the best universities are non-profit, for the obvious reason that it allows them to keep massive endowments, which are spent on better education instead of being paid out to investors.
It's because in addition to the reimbursement, hospitals are paid a bonus fee by US taxpayers called a DSH to subsidize the subsidies. This serves to incentivize providers not to drop Medicare/Medicaid patients and also covers up the losses incurred.
Hospitals charge high prices because they can. They are often local monopolies, and behave accordingly. And with an utter lack of price transparency, which makes the idea that patients could shop around a joke.
There is a simple reason for the "cartel": it's called moral hazard.
You have the monopsony that comes from collective buying power on the one hand. (An argument for SINGLE PAYER insurance.)
On the other you have the usual moral hazard which says, if the customer ain't paying, try to charge as much as possible.
So it's this game of bigger and bigger armies. Same as when countries can't make a peace deal where neighborhoods and individuals long ago could have. A single person can torpedo a deal. It's all or nothing.
It's also why some British bureaucrats in the NHS face the choice of dropping coverage for a drug because the company just won't play ball and charge a low enough price. When are you willing to walk away when you represent a lot of people??
There's some nuance here: It might be that a rational insurance provider encourages their clients to do regular checkups for conditions that can be caught early and treated at a much lower cost.
Now, the parent comment still is correct that that cost would have to be covered by premiums, but the premiums should still be equal or lower than they were if they didn't provide the checkups.
In effect, in such cases the insurer could market the regular checkup as a benefit, but rationally if they could they'd rather make the checkups a policy obligation to preserve their margins. This is what aligned incentives looks like :)
There's some nuance here: It might be that a rational insurance provider encourages their clients to do regular checkups for conditions that can be caught early and treated at a much lower cost.
I'm a member of Kaiser HMO, and they do just that -- they regularly notify me of screening tests I should be doing and they offer several ways to contact my doctor without actually seeing my doctor.
If I'm not sure I need to go in to see him for that lump on my toe, I can call a triage nurse for advice, set up a phone call appointment with my doctor, or do a video chat with him.
For my last annual checkup, my doctor emailed me, asked me to go in for some bloodwork, then a few days later, I went to visit the doctor and we talked over the results while he conducted the physical.
I know some people don't like Kaiser, but I've had only good experiences with the system, and I love their electronic records system - I can view test results online, and if I'm referred to another doctor, the other doctor has instant access to my records.
I'm not sure I agree. If my insurance is on the hook for prostate cancer treatment, then they may expect a prostate exam to save them money, in which case they would have an incentive to pay for it.
Preventative health saves more resources than reactive health (i.e. catching cancer early as opposed to when it display symptoms). One of the big problems of healthcare insurance in the U.S. is treating it like car insurance - a numbers game of reactions to accidents.
Some insurance policies cover 100% of annual checkups but it still trains people to avoid going to the hospital.
It's not that different, though. Preventative measures show up in many insurance contexts (although I guess usually as a premium discount, not as being paid for by the insurer): fire alarms, and training for motorcyclists and pilots, come to mind.
Wouldn't insurance companies want people to get preventative care over reactive care, to lower their own operating costs? I know that Cigna is a big proponent of this, but I can't think of any others that do the same.
> Agreed. If regular, predictable events are covered, it is not insurance. Regular, predictable events are not insurable
Ignoring the US specific stuff, there's a reason that my private health insurance basically covers a regular medical screening - and it's not because the cost is in the premium. It's because that preventative strategy allowed them to reduce the size of claims from people who otherwise would find problems later and those would be more expensive.
Imagine, if you will, a car insurer who can't turn around and refuse to pay out on claims where the car hadn't been serviced in 5 years. The tyres are bald, the break pads worn, etc. Now imagine that they offer a yearly basic road-worthiness check for free each year. They'll sell more policies (because it's free stuff, and they care) and have fewer claims caused by poorly maintained cars.
The costs are being paid, clearly, but they come in part from changes in the claim profile that you would be paying for otherwise.
> If someone is selling "insurance" for those things, you can be certain that you're paying 100% of the cost somewhere.
Nope; probably more like 150%. Except I hear that in America, those insurers can get a deal for you for the routine stuff compared to someone un-"insured". Pretty f'ed up.
Payors are healthcare wholesalers. They can buy health services from physicians and facilities at about a third to a tenth of the cost you can because:
1) It's not life or death for them; and
2) They can buy in bulk
The problem is that every condition becomes a "pre-existing condition" when you change insurer. And because insurance is tied to jobs, people are forced to change insurers frequently (whenever they change jobs, or whenever their employer changes providers).
So you're on insurance A with no pre-existing conditions and get cancer. Next year your employer switches to insurance B. Now you have a "pre-existing condition" - is it fair to suddenly refuse to treat you? If that's the case, what's the point of having "insurance" at all?
If this were an "insurance" market, when you get diagnosed with a problem (cancer, say), the old insurance A would have to pay for the cancer treatment, and keep paying even if you leave the insurer.
Any "new" conditions would be covered by your new insurer B (or not covered, if you didn't get new insurance), and insurer B would have the right to refuse to pay for pre-existing conditions because those would be covered by your old insurance A.
But that isn't to say that if we had "insurance" life would be altogether better. Insurers would increase the premiums of people who beat cancer, because cancer has a habit of coming back. Quite likely anybody who beat cancer would be unable to afford insurance in the future.
Not necessarily. In my view, all insurance is a creature of regulation. Insurance needs regulatory oversight to manage substantial moral hazards and arbitrages, otherwise nobody would buy it. The enabling regulations for health insurance could include provisions for managing the care of people who have pre-existing conditions.
That's not true. Look at insurance clubs in third world countries (funeral insurance clubs in South Africa for example). It's completely unregulated, but people band together to help amortize the cost/risk of rare financially devastating events.
That's fair, but I suspect that the insurance industry as we know it would be reduced to a microscopic fraction of itself without enabling regulations. Likewise for business in general without liability limitation and other corporate regulations.
If you're talking about the pre-existing condition of broken leg, I agree with you. You should not be able to sign up for insurance after breaking your leg and get all the relevant care paid for.
If you're talking about the pre-existing condition of fat and family history of heart disease, then I disagree.
Isn't it still insurance though, as in insurance against tremendous healthcare costs without it? Maybe I'm misunderstanding, but I thought the definition of insurance was just protection from loss
I think insurance is not an accurate word for the health care industry. I, like you, think of that word as coverage for risk, and in fact that is how the industry started in sixteenth century Netherlands (mentioned in that blog post).
But the business of insurance is about defining and measuring risk, and putting people into pools so that you can charge the riskier people more.
I don't think that maps well to health care, especially when you consider how good DNA testing will be in a matter of years. "Yup, your kid is in a high-risk pool for leukemia. You get to pay $50,000 a year for family insurance instead of the normal $19,000." [The first number is made up.]
Also, if you run an insurance business and someone with a pre-existing condition knocks on your door, their "market" rates will be their cost of treatment as their risk has become a certainty.
If you don't think charging people based on your best knowledge of the risk is fair, then it is a government program, a forced redistribution of risk across a larger pool; not insurance.
Also, as far as I know health insurance companies can't charge different rates based on genetic testing. How would this be different, than, say, laws preventing car insurance companies from charging different premiums based on race?
Health insurance is a mix of pre-paying for predictable and certain expenses with tax-free dollars, a transfer/entitlement system to ensure that more people can afford insurance (by design, your premium does not match your expected risk--either you are pooled with others at your employer, or your exchange account is subject to rating band requirements which means, for example, that in many states old people can only be charged 3X more than young people even though old people are likely to be much more than 3x more expensive to insure), and actual insurance. I'm not sure what percentage of your premium reflects the cost of actually insuring you against uncertain future health events, but it's far from 100%.
This is an interesting article, and some of it applies to healthcare in the U.S., but much of it does not.