One of the recurring subarguments in the various raging health care debates of late has been some people saying that health insurance should be left up to the free market and some saying that the free market shouldn’t be involved in health insurance at all, along with various positions in between. A few actual debating points have been tossed around, but I haven’t seen a thread devoted specifically to this issue, so I figured I’d start one.
I’m strongly the side that is opposed to a free market for health insurance, at least if it’s anything like the way it’s implemented in the US, and I’ll explain why. First of all, though, I’m NOT against free markets in general. I mean, I support anti-monopoly laws and things like the FDA, yada yada yada, but I’m firmly convinced that a lightly-regulated free market economy, as we mostly have in the US, is the best kind possible; and I think that recent history generally bears that out.
But I don’t think that should apply to health insurance. Why?
(One clarification: by “health insurance” I mean, “the ability to generally pay for health care”, even though various possible plans aren’t really “insurance” at all.)
(1) Health insurance is (arguably) a necessity, not a luxury. Compare the health insurance market to the sports car market. If whatever economic system produces sports cars results in a society in which 5% of the population own sports cars, that’s cool. And if it results in a society in wihch 95% of the population own sports cars, well, that’s cool too (I mean, assuming they all actually want sports cars). That’s very different from health insurance. A society in which only 5% of the population has health insurance, is one that is in a state of catastrophic failure. When we hear about poor third-world countries where only 30% of the population has access to clean water, we tut tut and shake our heads sadly. But is that really any different? My point is: for non-necessity goods, there is no “right” amount of access to that good for the society as a whole to have. The market and supply/demand determine a price for sports cars, and whoever can afford them can afford them. But health insurance is different.
(2) In health insurance, there is a direct economic incentive for the insurance company to, for want of a better word, screw some of its customers. If I’m a customer of a car company, there’s not some weird thing that’s going to happen that suddenly causes the car company to lose millions of dollars on the transaction. But with health insurance, there is. At which point, it’s clearly in the company’s best financial interest, at least in the short term, to find some way to deny that coverage. It’s well worth it for a company to drop $20,000 of billable lawyer or employee hours poring over every piece of paperwork ever filed by that customer if there’s a good chance that doing so will result in a justification for refusing to pay millions of dollars in medical bills.
I’m not saying that corporations are automatically evil or heartless, although that’s an interesting discussion. I’m saying that any system in which a company’s bottom line financial interest is directly opposed to customer’s health and happiness is a system in which the free market will not result in good. (That’s one of the reasons that pollution has been so much of an issue and required so much regulation etc. If dumping toxic crap in the river is cheaper than doing something “better” with it, companies will do so until there’s a reason not to.)
This, by the way, is one of the big differences between health insurance and, for instance, car insurance. Car insurance has a MUCH lower variability of payout, from the insurer’s perspective. Most accounts will need no payout, a few will need a few thousand, a smaller few will need the entire price of a car. Compare that to medical insurance most will need nothing, a few will need a few hundred or thousand, and a smaller few will need truly massive amounts.
(3) (This one has nothing to do with a hypothetical free market, but relates specifically to the way things work in the US.) Right now, given how health insurance is so frequently linked to employers, the “customer” of health insurance isn’t actually a person, it’s a corporation’s HR department.
I had an interesting experience lately: I own a home in an HOA, and I needed to get a copy of the pool key. So I drove off to the property management company’s offices, and the service there was just comically bad. They didn’t accept either credit cards OR cash! WTF!!! I had to drive around to find a place to get a money order, all to pay way too much money for a pool key copy. “This is ridiculous, how can a place with such idiotic policies stay in business”, I thought to myself. Then I realized… I (as an individual) am not the consumer of their product. The HOA (as an organization) is. If I have a bad experience there, I can’t just go start buying that service from somewhere else. Sure I could eventually rile up enough sentiment in the HOA to possibly change vendors (even assuming there’s another one in the area), but that’s a ton of work on my part, and it might not ever work if the prices this company offers are cheap enough. The moral of the story being: the free market provides at least some pressure to provide good service, but that pressure is enormously diluted if the buying decisions are not being made by the person who is actually experiencing the lack of good service.
Similarly, the health insurance I have (which, in fairness, I’ve had fine experiences with… but then, I haven’t had any serious problems) is really not something that I was the customer for. Rather, the customer was my company’s HR department, meaning that the bottom line pure-cheapness is going to be vastly more important and any complaints anyone has are going to be diluted by having to go through another entire layer.
(4) The whole preexisting condition thing. Now, “preexisting conditions” have become somewhat of a codeword for “insurance companies are evil”, but it’s more complicated than that. So let’s say I do everything right and, at the age of 20, research all the various insurance options available, and pick a plan which fits my needs, and start paying my premiums. At age 25, I develop diabetes or some similar expensive lifelong condition. At this point, the free market totally ceases to function for me. Presumably I can continue to have my initial plan that I already chose, and keep paying the premiums (assuming they’re not going to try to screw me). But suppose I do some more research and realize “hey, the company I’m with has gotten much worse over the past 5 years, but this other company here is really good”. Well, if I want to go get insurance with that other company, then we hit the preexisting condition problem. They’re 100% guaranteed to lose money if they sell me a health insurance policy at the normal rate. So why would they? But if they wouldn’t, then I’m locked into one insurance company for life. Which means that of course there’s no incentive for them to treat me well at all, because I’m stuck. And of course, in the US, it might also mean I’m locked into the job I currently have forever, and if I get laid off I’m totally fucked.
(5) I admit I’m getting in a bit over my head, economics-wise and actual-knowledge-of-the-insurance-industry-wise, but there’s one other point which I find at least somewhat relevant. So going back to the car industry as an example, how does a car company make more money? Well, a bunch of kind of generic ways that apply to just about any industry (advertising, brand loyalty, customer service, etc.). But, at some level, car companies sell more cars and make more money when they make better cars. There’s a strong incentive for car companies to improve their cars, and the cars that are for sale together are WAY better, in any number of different ways, than those for sale 10 or 30 or 50 years. In fact, this is one of the clearest advantages of a capitalistic system. The cars produced in communist countries back when there were communist countries were generally viewed as POS jokes, because they were terrible and there was very little incentive for anyone to innovate.
Compare that to the health care insurance industry. What innovations or advancements or progress does the health care insurance industry come up with? What’s the equivalent in the health care insurance industry to airbags or hybrid cars? Note that I’m not talking about the health care providers themselves, who (much as we liberals like to mock big pharm) are, partly out of pure economic self interest, working hard to come up with new ways to treat various things. But what possible innovations are there in health insurance? Sure there are a few things like computerizing record keeping and so forth; and in theory providing superior customer service; but, fundamentally, the major innovations that health care insurance companies seem to come up with involve lobbying for more loopholes and coming up with new ways to deny claims. And this is not because they’re evil or lazy, it’s because there really isn’t any other way for them to innovate or distinguish themselves from other insurance companies… particular when they are employer-linked. It’s kind of like Coke and Pepsi… they’re spending billions to wrest bits of market share from each other, but their basic products never really change. Except that if Coke or Pepsi is going about things a bit unethically it doesn’t ruin lives.
