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Category: Economics

What Difference Does Health Insurance Make?

Almost everyone thinks we should insure the uninsured. I don’t recall even a single dissenter. Yet it is precisely when everyone agrees on something that thinking begins to get very sloppy. So let me be the devil’s advocate and challenge the idea.

Why do we want to insure the uninsured? Forget about the costs, for a moment. Are there any benefits? What are they? I can think of four candidates. If people are insured:

  • They may get more health care.
  • They may get better care.
  • They will enjoy protection from the financial effects of catastrophic illness.
  • They will be less likely to be free riders on the charity of others.

The first three items are “it’s for his own good” benefits and, frankly, the case for them is pretty lame — especially in the context of RomneyCare and ObamaCare. If you expand the demand for health care but do nothing to increase supply, people in the aggregate will not be able to get more care. One person’s gain in care will be offset by someone else’s loss. (At least that tends to be the case, when the principal currency patients use to pay for care is time and not money.)  Since the costs of non-price rationing will rise in the process, the whole exercise must make society as a whole worse off.

The same objection applies to the idea of “better care.” Better care for one person must be obtained at someone else’s expense, if the supply of medical resources is unchanged.

[I suppose you could make an additional argument: If we insure the uninsured, they will have a better chance of getting a “fair share” of health care. In other words, care will be distributed more equally. While that argument makes sense in the abstract, it doesn’t work if you segregate the previously uninsured into plans that pay providers below-market rates — as both RomneyCare and ObamaCare do — and cause them be pushed to the rear of the waiting lines. See below.]

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Making Sense of Health Care Prices

Take a look at the chart below. It shows representative prices for a knee replacement for different patients in different settings. The most shocking thing about the chart is that prices for essentially the same procedure are all over the map. Here are some obvious questions:

  1. Why is the price of a knee replacement for a dog — involving the same technology and the same medical skills that are needed for humans — less than 1/6th the price a typical health insurance company pays for human operations? Why is it less than 1/3 of what hospitals tell Medicare their cost of doing the procedure is?
  2. How is a Canadian able to come to the United States and get a knee replacement for less than half of what Americans are paying?
  3. How are Canadians getting knee replacements in the U.S. able to pay only a few thousand dollars more than medical tourists pay in India, Singapore and Thailand — places where the price is supposed to be a fraction of what we typically pay in this country?
  4. Why do fees U.S. employers and insurance companies are paying vary by a factor of three to one, when foreign, and even some U.S., facilities are offering a same-price-for-all package?

It’s amazing how often people cannot see the forest for the trees. Think how many volumes have been written trying (and failing) to explain why our health care costs are so high. Sometimes the answers to complex questions are more easily found by asking the simplest of questions.

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Will the NFIB please go away…..

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Let’s be honest–I absolutely abhor the so-called National Federation of Independent Business (NFIB). It’s not a representative business group. In 2004 95% of their members said they voted for Bush, compared to 53% of all small business owners. (Remember that election was 50–50) Nonetheless, the first line of the recent NY Times article on NFIB joining the Republican Attorneys-General lawsuit on the individual mandate is that they’re trying to depoliticize the “largely Republican assault” on the new health care law. Ha, bloody ha.

But I’m not grumpy that the NFIB is joining this pointless lawsuit. I’m grumpy that they’re so blatantly going against the interest of small businesses. And yes I run one! So to remind you how stupid the NFIB is (in global not political terms) I’ve reprinted an article I wrote on Spot-on back in 2006–-and sadly nothing has changed. (The great thing about being a relatively veteran blogger is that I can really recycle material!)

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Small Business Shock-troops That Can’t Do Basic Math

Long ago, back in 1994 when Democrats walked freely in Washington, an outfit called the National Federation of Independent Business (NFIB) took a large role in overturning the Clinton health care plan and, consequently, a supporting role in the Republican Congressional victory later that year. And in health care policy, as they say in the movies: They’re baaaaaack.

Now, The NFIB is a narrow-(minded) interest group like any other; typical of any Washington trade association. But in health care it’s policy involves cutting off its nose to spite its own face and doing so with a rather dull knife.

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