Wednesday, November 11, 2009

Five health insurance issues (3)

In response to my post on catastrophic health insurance, Grim commented:

I like the idea of market-based reforms. However, I'm not sure why a government plan would be better at simulating the market than, you know, the market.

For example, the DeLong plan that I surrender 20% of my income for health care expenses? The market as it currently exists offers much better deals than that.

In general my preference is for a free market with only as much government regulation as is necessary to keep the more predatory impulses of capitalism in check. However, I have a lot of reservations about whether a totally free-market approach is appropriate for health insurance. I prefer regulation that says, “Thou shalt not” rather than regulation that says “Thou shalt”. Once you wander into government telling private companies what they should do, you’re in trouble and that’s increasingly the case with government regulation of insurance companies. They’re being told what they must do - who to cover, what conditions to cover, how much treatment to provide. That’s a bad situation; bad for the companies, bad for the government, bad for the company’s customers.

Yet I understand why we’ve gone down that road. We want certain things from health insurance and we are trying to get them via government intervention while still maintaining - or appearing to maintain - the companies as private entities. I’m not at all sure that’s working well. We may simply be unable to get what we want from health insurance within the framework of our current system.

This is a big part of why I was so intrigued by the catastrophic insurance plans I discuss in my earlier post. These plans may be the best way to address five issues I think any health care or health insurance plan must handle, the issues we’re trying to handle through our increasingly intrusive regulation of the insurance industry. In sorting out why I think these plans are promising, I’ve written at considerable length about those five issues.

My post about the first issue is here; about the second issue is here. This post is about the third issue; subsequent posts will deal with the other issues and then I’ll have a grand finale. As usual, I’ve created a new category - “Five Health Insurance Issues” - to link the posts.

Issue 3: A health care system completely run by the government is a very bad idea. One of two things will happen. The first possibility is that the government-run health care system will pay for anything anyone wants covered. The best description I read of how this happens - and I’m sorry I can’t remember where to credit the author - is that a group which wants a treatment covered has a lot of intensity and can lobby energetically; those who will pay the bill (i.e., the rest of the taxpayers) have little intensity so there is no lobbying group to mount a counter-offensive. The squeaky wheel gets the grease. This is, of course, unsustainable in the long run so even if this is the first result of a totally government-run health care system, we’ll eventually end up with the second possibility.

The government will begin rationing care. Decisions will be be made on some combination of effectiveness and cost with a lot of (again) lobbying thrown in. This is not an irrational approach: there is only so much money to go around and what we spend on health care we don’t have to spend on, say, national defense or education. However as the horror stories that float out of Britain and Canada make clear, this is not a good thing for the individuals who will suffer more pain or die sooner than they would if the most effective possible health care was available to them.

So point the third: A health care system run entirely by the government is a bad idea.

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