Tuesday, June 17, 2008

Every Centralized Idea to Fix the Healthcare Will Fail, and Here's Why.

This sounds like it should be a long topic, but in fact, it's very short. Every central system will fail because any sort of involuntary insurance is effectively a forced redistribution of wealth. Without eliminating the entitlements, it doesn't matter if there is government insurance, a choice of private plans, a hybrid system, a system that involves the easter bunny, etc... The system will eventually bankrupt itself because it will progressively demand more and more money from the most productive members of society in order to pay for things that are largely the result of either poor life choices or inevitable old age. Insurance only works if everyone takes the risk voluntarily. Throwing oneself into a risk pool with people who are much higher risk than you is stupid. Forcing this stupid decision is the only purpose of central insurance.

19 Comments:

Anonymous Jose A. said...

According to this logic, wouldn't auto insurance have collapsed a long time ago? Perhaps what exactly you mean by 'centralized' is unclear, because the reasons you give for its inevitable failure seem related more to other policy details, such as lifestyle penalties and incentives, rather than centralization itself.

2:00 PM  
OpenID halfmd said...

Ah yes, but auto insurance does not pay for maintenance on a vehicle. Imagine if you got a flat tire and then used your insurance benefits to pay for the replacement. Essentially, health insurance does the same thing. If health insurance were to perfectly follow the auto insurance model, then it would only pay for catastrophes. People would be forced to pay for their own routine health maintenance and medications---which would be a much cheaper system.

2:39 PM  
Anonymous Jose A said...

Agreed, but what does this have to do with the inevitable failure of centralized health care? That's more a matter of how insurance coverage is structured, not the mechanism used to get people to purchase it, or how risk is handled. His argument is that spreading health risk across the population, rather than having individuals carry it themselves in the premiums they pay, is financially unsustainable. So far I don't really see why that is the case. The post really just seems to reflect how such a system violates his philosophical beliefs, which he is certainly entitled to have, but it says little about how forcing those unhealthy and sickly to carry their full health risk is the only financially sustainable option. Let's not confuse facts with perspectives.

4:04 PM  
Blogger MiamiMed said...

Ok, let me put it a different way. Auto insurance is completely different for the following reasons:

1. You are not forced to drive
2. If insurance became prohibitive, there are other options for transportation
3. The higher risk individuals are charged higher premiums and don't get insurance if they don't pay
4. There is no subsidy to those without the ability to pay
5. Buying the insurance is predicated on having enough money to buy a car
6. No one cries when someone can't afford their auto insurance
7. Auto insurance is for catastrophic problems only

Centralized in this particular case is referring to a system in which everyone is in some way thrown into the same risk pool, regardless of their desire to be in the pool. This can be accomplished either by forcing everyone to buy insurance that covers high risk individuals at fixed rates or being forced to pay taxes to fund the insurance.

Centralized health insurance is in this case the rough equivalent of a Marxist microcasm. It is my personal philosophy to not go down this road, but my philosophy is based on pragmatism, and the fact that every system like this falls apart everywhere.

4:12 PM  
Anonymous Jose A said...

First, you mention in the sub-heading of your blog that you approach things from a libertarian perspective. Libertarianism is based on liberty, not pragmatism; hence the name. To say you are a pragmatist on this issue is just to say, "I think that only my view works." It isn't to offer evidence why it does, nor why others don't. Putting that aside, it seems that you are lumping a lot of separate issues into one category. A few are:

A. Insurance mandates
B. Risk spreading/Premium structuring
C. Lifestyle incentives

A. Whether or not people are forced to buy health insurance in the first place has nothing to do with how risk is spread across the pool of people who have coverage.

B. Very few people argue that premiums would be fixed for everyone under a 'centralized' risk pool. For example, premiums would probably follow age, with the young paying lower premiums and the elderly paying more. That makes perfect sense. The elderly have more resources, more time to have saved, and also are more costly to cover.

C. A 'centralized' risk pool doesn't preclude lifestyle incentives. It makes perfect sense to charge higher premiums to those who engage in risky behavior, such as smoking, dangerous sports, etc. The real issue is whether it is ethical and (referencing your post) necessary to force people to fully carry the risk for conditions that they did not produce and didn't have the ability to foresee. Do I have to tell a medical student that nature often times trumps nurture?

Sure, you can say, "why should I have to carry someone else's health risk?" If you won out on genetic/life lottery then you should be able to enjoy it with extremely low insurance premiums, right? If that's your philosophy, that's great. It's libertarianism though, not pragmatism. I still see no evidence for why it is financially unsustainable to spread health risk in a 'centralized' fashion, as you call it.

4:44 PM  
Blogger MiamiMed said...

I'll say it for a final time, because there will be increasing inevitable demand from those that are receiving more than they are contributing. I have never argued that it is bad to help those that are in need. I have received aid of this nature in my own family. However, the concept that those at the bottom are entitled to that aid inevitably leads to decline.

To address what you said:

a)Insurance mandates may or may not be part of a centralized plan. In Canada for example, there is one government run plan. Period. Everyone contracts with them, and everyone is essentially forced to use them. Most plans in the US proposed to provide "universal coverage" involve insurance mandates. They are all however, controlled by a centralized source.

b and c) If you want to cover everyone, then some people will provide more risk than they can pay in premiums. Incentives or not.

However, it is all irrelevant, because all plans proposed to cover everyone in one central pool or from one central control structure will inevitably shift cost away from the highest risk onto the shoulders of the lowest risk against the will of the low risk group. Thus, the demands of the high risk group bankrupt the low risk group.

5:54 PM  
Anonymous Jose A said...

This shall be my last comment on this topic as well.

1. Insurance mandates are compatible with multiple pools, as in multiple insurance companies that differentiate themselves in a variety of ways. Canada is a lot different from the universal coverage schemes being discussed in the U.S. Very few people are seriously arguing for a single-payer system in the U.S., but risk pooling is a much more viable idea.

2. Yes, some people will provide more risk than they can pay for. That's the point of spreading risk across a population. It's not a flaw, its a definition. The healthy, young, and lucky partially subsidize the sick, old, and unlucky.

3. Once again, your "because I say so" argumentation remains unsubstantiated. As stated before, the purpose of risk spreading is, without a doubt, to shift some of the costs away from the people who can't afford it on their own and onto those who fare better. Even with age-rating premiums and lifestyle incentives, it is cost-shifting. A definition, not a flaw.

Cost-shifting --> Bankruptcy

That is your argument and you provide little to fill the gap.
Out of control costs are a huge issue, but they are the result of other variables, not the risk management structure of the insurance market.

Saying that a shared risk pool would lower premiums for high-risk patients and raise them for low-risk ones is fact. Saying that it will inevitably bankrupt the system is hyperbole.

7:03 PM  
Blogger MiamiMed said...

Except that it already is bankrupting the system and we haven't even thrown everyone into the pool yet. You're right in the sense that cost shifting doesn't inevitably bankrupt things (though it always makes them less efficient). In the case of medicine however, the sheer cost of trying to entitle everyone to complete coverage through cost shifting does. Perhaps I will expand on my original post when I've got the time to be more elegant.

4:00 PM  
Anonymous Jose A said...

Just checked to see if anyone else had commented. If you do end up expanding on it, be sure to discuss the difference between the risk structure and the level of coverage health insurance provides. I agree entirely that high-deductible plans and HSAs are very important to resolving some of the country's health problems. Most people treat insurance as cost-insulation rather than real insurance.

However, high-deductible health plans are perfectly compatible with risk-sharing that shifts some of the cost from the sick and elderly onto the young and healthy. The idea that I disagree with is that health insurance premiums must be based on individualized health risk; a system which leaves many of the chronically ill unable to obtain coverage. Risk-spreading would still work with high-deductible, consumer-driven health care.

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