“Health insurance is a classic example of the Law of Subsidy in action”
April 25, 2017
Asking the Right Questions about Health Care
If I set out to accomplish a task, I have to start with the basics. What is the job? What steps are involved? The list goes on. The same concept applies to ObamaCare. It’s broken. Whether we repeal it or fix it, we have to start with foundations. In other words, as Herman Cain notes, we have to ask the Right Questions.
Paul Ryan didn’t ask any of the right questions. And the very first one is simple: “What is our objective? Do we want to make health insurance affordable, or do we want to make health care affordable?” Put differently, do we want to guarantee a subsidy for the health insurance companies, or will we put patients first?
Health insurance is a subsidy to health insurance companies, because it has preferred status in the tax code. Taxpayers get a tax break for supplying health insurance companies with profits. That means that insurance companies will spend breathtaking amounts of money to support legislators who protect their profits. Legislators will respond by creating bigger tax incentives to buy health insurance, and the cycle will continue. Health insurance is a classic example of the Law of Subsidy in action.
The Law of Subsidy: Every time you subsidize something, you get more of it, and it gets more expensive.
Nobody asked, “Does health insurance improve health?” Had they asked, they would have learned that for the general population, health insurance does notimprove health. The Oregon Health Insurance Experiment showed that:
“Medicaid coverage resulted in significantly more outpatient visits, hospitalizations, prescription medications, and emergency department visits. Coverage significantly lowered medical debt, and virtually eliminated the likelihood of having a catastrophic medical expenditure. Medicaid substantially reduced the prevalence of depression, but had no statistically significant effects on blood pressure, cholesterol, or cardiovascular risk. Medicaid coverage also had no statistically significant effect on employment status or earnings.”
Notice that there was essentially zero overall effect on health. Insurance did reduce individual financial risk, and that’s what insurance is supposed to do. But because of a 20 percent increase in use of medical resources, it substantially increased overall cost, suggesting that there may be better ways to protect individual finances.
Where did that excess money go? Providers! Insurance is a subsidy to the health care industry. Since this was Medicaid, it took taxpayers’ hard-earned money and gave it to insurance companies, doctors, and hospitals. We didn’t get to decide whether to use (and pay for) their services. The money was taken from us and given to them. And it did no good for poor patients.
What about the handful who have potentially catastrophic medical problems? There’s a different way to handle them called “high-risk pools.” Thirty-five states already have them, and they deal with the worst situations, including pre-existing conditions, at far lower cost to the state than ordinary Medicaid. So, with this very narrow exception, health insurance simply does not answer our most foundational question. That makes it the wrong approach to improving health. But it an effective way to take tax money from productive taxpayers in order to give it to large corporations and their stockholders.
The next question did get asked, but never in a serious way. “How do we reduce health care costs?”
The Oregon Health Insurance Experiment showed financial benefits for the insured since they didn’t have catastrophic losses. But that doesn’t require “full coverage” insurance. It only requires catastrophic coverage, which is the original purpose of health insurance. You pay the initial costs, and if your expenses get really large, they are covered. That kind of policy was (and would be) much less expensive, but is illegal under ObamaCare.
Health Savings Accounts are another way to save money. Properly structured, there is a block of money in a savings account that pays for basic medical expenses through the year. Any costs over that amount are covered by a catastrophic policy. If money is left at the end of the year, it belongs to the individual. The Rand Corporation says that HSAs will probably cut health costs, because HSAs lead to cost sharing. The windfall at year’s end for not using excess services is a strong incentive to save.
One reason that HSAs may not work as well as intended is that medical costs are not easy to determine up front. Insurance plans negotiate deals with providers that aren’t public information. That $100 aspirin tablet on your hospital bill is just one example. But life doesn’t have to be that complicated.
The Surgery Center of Oklahoma publishes up-front all-inclusive prices for its services. These are far lower than the typical hidden (and variable) prices at other centers and hospitals. Yet Surgery Center of Oklahoma makes money, and has made money for years. What they don’t do is take insurance. Subsidies for comapnies who don’t provide care is needless overhead they don’t bother with.
This model is often repeated by plastic surgery and Lasik centers. Since their services are not covered by insurance, they compete on price to attract patients/customers. Many cosmetic procedures have gotten cheaper. Lasik, which started out at thousands of dollars per eye, is now available as low as $250.
Mandates that force people to buy insurance they don’t need raise cost, and as we saw before, take money from workers and give it to insurers and health care providers. Of course, those mandates don’t improve health, either.
Obviously, there are other areas that can be addressed. The FDA imposes immense costs on drug companies that try to bring new drugs to market. Much of this cost is scientifically and medically unnecessary, and could be eliminated. Medical device regulations also inflate costs.
With all these known facts, what questions did the Republican lawmakers ask? They asked how to maintain insurance coverage. This question leads down the rabbit hole of increased cost, with no benefit
