Dissent Of The Day

A reader writes:

One sticking point I've always had with the standard conservative approach to health care is the underlying assumption that it will behave like a free market. Free markets are based on two primary principles - the idea that people have sufficient information to choose the optimal solution and that they can and will delay gratification. Neither idea seems particularly plausible when it comes to health care.

Even highly educated people are unable to assess whether a particular test or procedure is worth the cost. Nor, generally speaking, do they even have the time to research their options - if you're having a heart attack, are you really going to debate with the doctor whether a stent is necessary or try and determine which is the lowest-cost hospital? You could argue, I suppose, that of course people can't and shouldn't make those sort of micro-decisions, but that they should be able to choose among insurance plans and thus free market principles can operate in that arena. Only, the incentive structure for insurance companies isn't weighted properly either. Insurance only works at all because of pooled risk - you pay into a general pool and insurance companies are able to calculate the statistical likelihood that they'll have to pay out in case of accident. "Accident" is the key word - it's an event that has some probability of occurring given someone's history and lifestyle. But it's a finite, time-limited occurrence that incurs a certain amount of cost. Car insurance, therefore, works. Yes, you pay more if you're a poor driver or a 16 year-old, but there's still some statistical probability that these people won't get into accidents. Health care isn't like that. If health care insurance companies were only hedging against the likelihood that someone will slip and fall and break an arm, or fall off the ski lift, then the private solution would work fine. Now imagine the following case. To continue with the car insurance analogy, pretend that everyone has one car that cannot be sold. Some people have lemon cars whose brakes fail every week, or have continuous oil leaks, etc. In other words, the insurance company knows that it will have to pay out on the people with lemon cars, not just occasionally, but continuously. There's absolutely no incentive to insure these people at all. We could, as a society, say well, that's tough. Only, eventually, we all end up with lemon cars - we're all going to die one day, and the large majority of us will be sick for some time before that. The only way to insure people with lemon cars is stick them in a large group of average people and calculate the risk for that pool as a whole. This is why employer-provided health care insurance works - the employer has done the risk pooling and the insurance company can't sift through the employee rolls to weed out anyone with a lemon car.

This is why the standard Republican plan strikes me as so nonsensical. Having health care that isn't job-dependent would be great, yes. I think that we've reached the end of the time when employer-provided health care is a workable solution. But, providing tax credits to purchase health care isn't going to make insurance companies want to provide insurance to people with pre-existing, chronic conditions. There's no financial incentive, and that's the primary governing philosophy of any company. Purchasing individual insurance plans, essentially, gives the insurance companies too much information. In the end, I think that the only way for health care to work is to force large enough risk pools such that the cost is spread among many and the only entity with the incentive to do that in the long run is the government. It won't be perfect, there will inefficiencies, and it will cost a lot, but given the current imperfections, inefficiencies (the U.S. spends more on administrative health care costs than any other civilized nation), and cost, I'm still pretty sure that it be an improvement.

If I'm missing something about how health care can behave as if it were a free market, please make a post on how it's supposed to work. Right now, I don't get it.