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ThoughtsOnline

Wednesday, October 14, 2009


As I've said before, there isn't a health 'insurance' problem as much as a health 'care' problem, with problem being defined as some number of people not being able to get all of the health care they want for a price they're willing and able to pay.

People with pre-existing conditions want treatment for those pre-existing conditions... but without having to pay any more for it. People butting up against lifetime coverage caps want to keep receiving care in excess of those caps... but without having to pay any more for it. People who object to the deductibles and co-pays they have to pay want lower deductibles and co-pays... but without having to pay any more for it. People who don't like taking generic drugs want to be able to get the name brand stuff... but without having to pay any more for it.

So what the issue really involves is a cry of 'we want more... and we want you to pay for it'.

The second misunderstanding is not realizing that health insurance companies really do nothing more than try to match the amount of premiums collected with the amount of benefits paid out. Raise the amount of coverage... and the premiums go up by roughly the same amount. Include mandates to cover Procedure X or Test Y... and the premiums go up by roughly the same amount. Insurance companies aren't evil... their customers have told them they want X amount of coverage, the insurance carriers agreed to provide that level of coverage for $Z in premiums... and it is to both parties advantage that the insurance company not pay out benefits that exceed X... for if they did, the insurance company's customers will be getting a higher premium hike than otherwise would be the case. Put another way, when an insurance company tells somebody 'no, that isn't covered', they're acting in the interests of their other policyholders who really don't want to have to pay more in premiums because someone got paid for something that was outside of their agree-upon coverage.

And because the politicians can't or won't realize these two points none of their proposals will really solve anything.

Even the supposedly business savvy Republicans get it wrong. For example, they call for eliminating the state bans on people buying insurance from out of state insurers; the right argues that this will foster competition and result in lower health insurance costs.

But... it won't. Discounting the possibility that one insurance company has developed some new efficient way of processing claims (which would reduce overhead costs and thus allow the insurance company to charge less in premiums while preserving the level of profitability), the ONLY WAY one insurance company can charge lower premiums is if they provide a corresponding lower level of benefits.

While this might appeal to some people who decide they can do without coverage for X procedure (maternity care for women past childbearing age), those who do want that coverage (women of childbearing age) will end up having to pay additional premiums to their insurance carrier to offset the premiums lost from those people not wanting that coverage... resulting in no overall lessening of health insurance dollars. Put another way, the maternity care in the aggregate isn't going to cost any less... and if you let some people off with lower premiums for giving up that coverage, all you're doing is shifting the cost to the people who want to retain that coverage.

So where is the reduction in costs? There isn't one. Well, there could be... if people decided to not have kids, reducing the amount of money spent on maternity care which in turn reduces the need to charge insurance premiums to cover maternity care.

But, notwithstanding whether it is a good idea to lower the birth rate, how many medical procedures are as 'optional' as maternity care? Fixing broken bones? Not optional. Getting antibiotics? Not optional. Treating heart attacks? Not optional.

As illustrated with the maternity care example, the only way to lower health 'care' costs is to either (1) lower the demand for health care (2) lower the supply of health care, or (3) find a way of providing health care for less money. The first two are non-starters, people are just not going to give up wanting to go to a doctor when they don't feel good and getting fixed for what ails them... they're not going to do so voluntarily and they sure as heck aren't going to stand for a government bureaucrat telling them they can't get treatment.

So... by process of elimination, the ONLY thing that will work to lower the amount of money spent on health care is to find a way of providing health care more cheaply. Increasing the number of doctors and hospitals could foster competition and lower prices. Eliminating the malpractice premium could lower prices.

Ah... but basic economics dictates that lower prices can stimulate demand as customers increase their purchases of the newly lower priced products... which would result in a situation where it costs less for any given procedure... but with no less money being spent in total than before.