if airline travel worked like health care

Absolutely hilarious. HT: MR.

There is no such thing as unlimited insurance

This is another point I’ve tried to make in other posts, but I’ll try to make by itself here for clarity. There are no examples, really, of unlimited insurance.

Life Insurance: you choose a policy level that pays out in case of death, say $1oo,ooo. That is the maximum the insurer will ever pay.

Homeowner’s Insurance: the insurer will never pay more than the value of the home. It may go up over time, but that is somewhat predicable and thus built in to your premium.

Mortgage Insurance: Similar. They are basically insuring the bank against you defaulting on your mortgage, again capped by the value of the mortgage.

Car Insurance: capped by the value of the car.

In all of these cases, the insurance company has a known worst-case scenario. The one place where this seems to be failing is in Health Care, because new medical procedures that cost more and more seem to be coming out every day. It costs almost a million dollars to do a transplant. A premature birth is well over a million – and rising as they find new and amazing ways to treat premature infants.

So, to me, we need to come to grips with the fact that there is, in fact, a limit to what we can spend on health care. Whether we have HSAs, or government vouchers, or government budgeting, or private health insurance, all must have some sort of cap. Thus, even at the end of life, and even if you have a very expensive condition, there is a limit as to what can be spent. The government cannot provide complete and unlimited insulation from health care costs without itself imposing limits.

So, then the question is: how is this scarce resource, this health care budget, to be spent and who is making the decision?

Excellent article on the problems and solutions for health care

By David Goldhill in the Atlantic Monthly.

An outline:

• Health Insurance isn’t Health Care: A brief history of how we got here. Quite good and informative. It is good for us to remember that undesigned systems with seemingly innocuous incentives (tax break for employer provided health benefits) can lead to very poor outcomes. It is also good to remember that what we have now is not remotely like a market-based system.
• Moral Hazard, or remembering why when something seems to be free or subsidized, we consume too much of it. Exhibit A pertinent right now is housing.
• There is no one else to pay the bill. Subsidized health care -> excessive consumption of health care -> higher costs of health care -> higher cost for subsidies -> which we all ultimately pay for.
• The Government is Not Good at Cost Reduction. The government has a huge monopoly on Defense spending, yet we’ve all heard the legend of the $300 screwdrivers for the Army. What makes us think that a monopoly on health care will reduce costs?
• Uncompetitive: When you look under the covers, our health care system is a highly regulated system which promote monopoly power. How else could you explain ever-increasing costs? In a market system, ever increasing costs would lead to other entrepreneurs entering the field because they can provide the same service at lower cost. This doesn’t happen in the US Health Care system due to a combination of the American Medical Association’s cartel-like determination of how many of each type of doctor to allow each year, Hospitals anti-competitive lobbying efforts, and government thousands of pages of regulation which makes it impossible for new, small firms to navigate all the red tape.
• You are Not the Consumer. The Hospital’s customer is the insurance company. The Insurance Company’s customer is your employer. Your employers customer is also your customer. Nowhere in this cycle are you the customer.
• Health Care Technology. Why, in every other industry, does technology lead to increased efficiencies and lower prices, but in health care it is the opposite? Well, in most industries, technology and automation of things like patient records lead to more efficient handling, better customer service, fewer mistakes and lower costs. Hospitals have no need for these things because they get paid to run CAT scans, not serve customers.
• Conclusion and Solution in the next post.