Tech Paladin

Yesterday I read a pretty ridiculous article on the Huffington Post that described the health insurers’ reaction to the Baucus bill. The gist of it was that health insurers were mean old Scrooges who were threatening congress by holding America hostage with the promise of raising premiums if the bill passed. Those big meanies! Why can’t we just bop them on the head and send them to time out?

The reality, though, was sadly hidden behind layers and layers of populist anger. Unlike real journalism the article didn’t ask any of the relevant questions: why were the insurers saying this? What would be the bill’s impact on their business from a profit-driven as well as a moral perspective? Without analyzing the economics behind the story, you can’t really understand what’s going on. Here’e my take:

Ever wondered why there’s no real equivalent of the “pre-existing condition” for car insurance? That’s because it’s not very expensive to insure someone’s car, so insurers don’t have to be all that choosy about who they cover. If all of the sudden crashes became 500% more expensive to recover from, insurers might indeed become more selective in the face of higher expenses, denying potential customers for things like unsafe cars, poor driving records, or just plain bad luck.

Health insurers are the same. They don’t deny people coverage because they’re mean, they do it because they have to: health care costs have risen so high that if they want to remain in the business of providing health insurance, it is their only other option besides raising everybody’s premiums, which nobody wants.

So when the report was released and they health insurers announced that everyone’s premiums would go up if they were forced to cover pre-existing conditions, they were just stating a fact. In an environment of high and ever-rising costs, one method of containing them is to deny coverage to those most likely to be financial liabilities. Another is to spread the financial burden of doing so onto everyone, resulting in rising costs for those who are healthy. Neither of these options is especially pleasant. There must be a better way.

Well okay mr. smartypants, so what’s your brilliant solution?

First off, we have to distinguish between health care and health insurance. Health care is a whole bucket of things including checkups, flu shots, nutrition, exercise, medicine, therapy, things like that. Health insurance is just a way of paying for it.

Insurance companies operate in an environment heavily constrained by the cost of the underlying good or service that they are insuring for. The cost of health insurance is therefore forever chained to the cost of health care. If health care itself becomes more expensive, the insurance that pays for it must become more expensive too so it can keep up with the rising costs of paying its policyholders’ claims.

This is why I think it’s so silly to blame everything on the insurance companies. They just have to react to the price of the product they cover, and they didn’t choose for health care to be unbelievably expensive! They would all love for health care to be cheap, because it would mean more money for them, because they wouldn’t have to deny customers at risk of filing a whole lot of claims for health care. Alas, they have no control whatsoever over that; they have to deal with the present reality.

The reality is that health care itself is too expensive and only getting moreso. If the price of it falls, then everybody wins! So we have to ask ourselves: why is health care so damn expensive?

Why is anything expensive? Not enough of it to go around, and everybody wants some. Health care is no different. There has been an explosion of demand for health care in the last 40 or 50 years due to rising standards of comfort, advances in medical technology, and prices previously falling into the reach of people who had gotten little of it before. So basically everybody wants more and more health care.

Unfortunately, the supply of health care remains very constricted. There aren’t enough doctors, and it’s just plain difficult to succeed in the medical profession. That’s really what this is all about. If we had more doctors who were able to spend more of their time on treating patients, then the price of care would fall due to the influx of supply, innovation and competition, just like it does for practically every other industry.

But right now doctors are hounded six ways to sunday. They’re crushed by student loans, they get sued even when it isn’t their fault and can’t apologize without it being interpreted as an admission of guilt, they have to spend truckloads on liability insurance to stay in business after getting sued, they’re forced to accept Medicare payments even when those payments don’t cover the cost of the procedures, they have to please regulatory boards that often deny licenses for silly reasons, and they still have to make enough money to pay their employees and purchase the expensive new equipment that their customers demand on top of all this!

it’s anticlimactic, but I don’t have a magic cure-all the way politicians claim to.¹ But I think that there’s a lot of obfuscation on this issue and that we have to focus on the core element: the cost of health care, and reasons why it has risen so dramatically.

Banning insurers from discriminating against pre-existing conditions sounds good because nobody likes the admittedly pretty vile practice, but doing so has financial consequences of its own for everybody else, including people who are already struggling to afford the cost and may be pushed over the edge. The bottom line is that if health care were cheaper, insurance companies wouldn’t have discriminate to begin with!

So rather than pointing fingers at boogymen and scapegoats, let’s ask tough questions. Why is the price so high? Why are more people not becoming doctors to fulfill the explosive demand? Why do doctors order so many unnecessary and expensive tests? Why can we not find clear and obvious prices for medical services like we can for others? Does insurance make sense for the health care expenses that are routine and predictable?

These questions are hard, but they’re the ones we have to be asking if we really want a world-class health care system instead of yet another 2,000-page bill that nobody reads, costs billions, and has only dubious real benefits and plenty of unintended consequences. As much as I’d like to believe we can band together and do it, I’m pessimistic. Hopefully we can salvage the resulting mess before it bankrupts the country.

1. To be precise, only one party makes this claim. The other one just stamps its feet and pouts and yells about how bad the other one’s plans are. [↩]

This entry was posted on Tuesday, October 13th, 2009 at 6:18 pm and is filed under Health care, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.