Health Care Is NOT Insurable


(Dick Gayer,

There is much talk these days about providing medical insurance for the uninsured, but all such discussion misses the point: health care is simply not insurable. Insurance makes sense only for conduct under the control of an individual, where education and the exercise of reasonable care can avoid problems. Such conduct includes preventing fires, driving a car, practicing law and practicing medicine. Life insurance also makes sense, since longevity can be predicted from standard mortality tables.

Health, on the other hand, is largely determined by genetics and the environment. An individual can exercise only marginal control of health; good practices hardly guarantee health, and bad practices do not guarantee sickness. Avoiding athletic activities to avoid injury is certainly not a sensible or healthy alternative to avoiding the need for health care!

The free market provided the best system for delivering health care decades ago, but return to that system is not very likely today. Such a system provides no insurance at all for office visits. Fees are affordable, because there are not enough sick people who are also wealthy to keep doctors busy. Insurance is available only for in-patient surgery, with 20 % paid by the patient without any cap on a patient’s obligation.

To understand why caps are counter-productive, consider surgery with a stated “price” of $100,000. With an annual cap of (say) $5000, the patient is insulated from the full cost and a wealthy insurance company may consider $100,000 an appropriate price. Whether the insurance company will pay $50,000, $100,000 or any other amount is of no concern to the patient. Without a cap and in a 20% system, very few patients could even consider such expensive surgery. Doctors would have to reduce their prices so that a sufficient number of patients could afford their 20% obligation. With a stated price of (say) $25,000, the patient would pay “only” $5,000. While many patients might have to borrow money to pay $5,000, there would probably be enough patients to keep doctors busy, and total costs would be reduced by 75 percent. Doctors would simply have to learn to live with lower incomes. With alternatives like Canada, England or the Netherlands and Germany (where nearly everyone speaks English), the United States would remain the most attractive place financially to practice medicine.

The co-payment system further insulates patients from the true cost of health care, since they also are not based on a percentage of the price being charged. Co-payments for office visits are fixed for a particular insurance policy and seldom exceed $10 for primary care physicians or $40 for specialists. Co-payments for drugs are treated similarly, so the patient is effectively encouraged to fill a prescription at the nearest pharmacy, independent of price. The patient cannot save any money by shopping for the lowest price, since he or she will always pay (say) $10.

Insurance for health care, however, can never be efficient. Insurance companies profit by collecting huge amounts of money as premiums, investing this money at high interest, and holding onto both principal and interest as long as possible. Delaying payment of claims or denying claims altogether results in increased profits that please their shareholders. If doctors and hospitals demand increased payments for their services, the insurance company is likely to agree with such demands and simply increase premiums, since this will increase the principal which the company invests. It is as though the health care providers are the real customers of the insurance companies, and not the patients who depend on these companies for health care. If ordinary profit-making enterprises like the Safeway, General Motors or Microsoft operated in this manner they would go out of business, since their customers would reject the higher prices and take their business elsewhere.

To make a profit, a health insurer must either cherry pick its customers or charge such high premiums that few people can afford them. Applications from people with pre-existing conditions, even those which require very little care, are routinely rejected except under Obamacare (which is not generally affordable).  Insurance can be fair to both insurers and the insured only if each insurer serves a very large area of the country with a large and varied population. A single provider system for this country is therefore the fairest to all.

Employers should not be involved in providing health care. At best, they are interested in providing only short term care that enables their employees to return to work quickly. Since employer involvement insulates users of health care from its true costs, there is little incentive for employees to economize. The present system represents the worst case, since small employers are individually rated. They cannot associate with other small employers to spread risk and reduce premiums, and just one very sick employee can cause a large rate increase for a small firm. When employers first provided health care benefits to employees, costs were low to employers and negligible to employees, and benefits were substantial. As doctors and hospitals learned how to “game” the system, costs increased to the present astronomical heights and benefits have been cut to the bone (or even eliminated by many small employers). Clearly, employer based health care is no longer an economical option.

In the absence of a free market, national health carenot insurance — is the most efficient system. Under such a system, doctors will practice medicine without expenses for office personnel or insurance. (Most of the personnel in my own family doctor’s office deal with insurance and other non-medial matters.)  The government may or may not provide the offices, and lawsuits for malpractice will be prohibited by law. Doctors will work regular hours for regular paychecks, which will provide high but not outrageous salaries. (The German system of non-profit, highly regulated insurance companies does not substantially differ from a single payer system.) Hopefully, most doctors practice medicine to help their patients (in addition to making money). Doctors may still serve private patients at higher fee-for-service rates, but there will not be enough sick people who are also wealthy to support many such doctors. Therefore, most doctors will participate in a national health care system in the United States. Where else can they earn more money?

National health care is provided by most industrial democracies and should be provided by the government here. Most of these democracies also provide income protection in case of disability independent of causation, including the negligence of a patient or a doctor.  Obamacare will fail in a few years as more and more participants discover that they still cannot afford adequate health care, even when taxpayer dollars are used to pay for-profit insurance companies.  Bickering between Republicans, Democrats and with the Supreme Court will accelerate its demise.

The former president of China opined on “60 Minutes” years ago that the government of the United States is not sufficiently for the people. The adoption of a national health care system would prove him wrong by providing a valuable service that is truly for the people. Any tax increase will be offset by the money we will not be wasting on insurance.


One thought on “Health Care Is NOT Insurable

  1. Your economic analysis is spot-on. But to transition to a true system of national health care, there’s still the major obstacle of the for-profit insurance companies. And note that even with a single-payer national health care system, administration of claims payment (even if that just means paying salaries of providers and costs of medications and appliances, etc.) is most likely going to be handled not by any government agency, but rather by for-profit outside contractors.


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