Don Jones

Tech | Career | Musings

With one of our current national debates being healthcare, let’s take a moment to examine some of the “spin” and put to rest some of the more egregious myths.

Health Insurance

“Insurance” is a convenient word. People know what it means, basically, and it’s relatively easy to sell to most adults. The healthcare industry, however, doesn’t really have “insurance” per se. The financials of actual insurance only work when a large number of policyholders make a very small number of claims. Think homeowners insurance, for example, which most of us have and most of us will, hopefully, never need to use. Prices are reasonable mainly because the insurance companies make far more than they spend.

Healthcare does not work this way. For one, everyone should be receiving regular preventative healthcare – physicals and screenings – all the time in the first place. If a thorough physical costs $750 (a median number across the US for a basically healthy adult), and your employer pays $500/mo for your policy (not uncommon), then basically you’re blowing 2-3 months of insurance just on the physical.

What we call “health insurance” is in fact something novel in the world of finance. It’s partially an artificial discount program, in which insurance companies pay less for services than you would, which in reality means the providers jack up their “rack rate” prices to unreasonable levels so that the “negotiated” rates paid by insurers can cover the providers’ bills. This is a terrible idea, as it completely insulates you from the actual costs of things, entirely removing your ability to make reasonable financial decisions.

Free Market

Which brings us to the myth that our health care system is a “free market” in which consumers can “shop around.” This is fallacious for three core reasons:

  1. You have no idea what things cost.
  2. In most instances, your insurer tells you from whom you will purchase services, revealing little about actual costs.
  3. Unlike a car, you are deeply unlikely to “shop around” for health services and decide, “nah, I don’t need that.”

That last bit is important. You will deliberately bankrupt yourself over health care; you will not deliberately bankrupt yourself over nearly any other purchase in your life. You cannot have a “free market” where people have no idea what things cost, and where they are fundamentally unwilling to forgo a purchase. Demand for healthcare is essentially infinite.

This is really hard for the American cultural subconscious to swallow, because it flies in the face of our system of capitalism. Capitalism cannot work for healthcare (excepting things like elective cosmetic surgery, which we are definitely not talking about here). With infinite demand, no idea of cost, and no practical ability to have providers compete with each other, you are not looking at a capitalistic market, no matter how much you might wish it were otherwise.

Profits

Another thing we struggle with, due in large part to our inexorable attachment to capitalism, is profits.

Let’s get some terminology straight. Profits are not what a docto receives as a salary. Profits are what’s left over after some investor has paid all the bills – it’s what the investor, or company owner, takes home. Profits are awesome. The promise of profit – earning more than you could make by simply having a job – is what spurs people to invest in businesses. Investment is what allows businesses to exist and to grow, which is what creates jobs. Profits are wonderful. 

But – and I’m not taking a side on this – you have to decide if you’re comfortable with someone profiting from your illness. That is, someone is investing money, and hoping to get a good chunk of it back and then some, by hoping you get sick. Maybe you are comfortable with that idea, and maybe you are not – it’s important to know which side you’re on, because we don’t talk about this piece all that often. We get a good amount of media outrage when a company jacks the price of an EpiPen to $600 each (thus increasing their profits), but we rarely see politicians make any move to change the rules. So I wonder, sometimes, if people really understand the situation and the alternatives.

The alternative, of course, is to demand that healthcare providers be nonprofit. This doesn’t mean you can’t pay huge salaries, charge enormous prices, and everything else – it simply means that an investor – someone who doesn’t work for the provider – can’t take any money home. This could perhaps reduce the drive to jack prices unnecessarily – but it would doubtless reduce investment, too. Without civic-minded organizations willing to stake money with no hope of a profit (they can get their money back, and they can even make a small amount of interest on it, a la a loan, but they can’t make profits based on revenues), you get no investment.

Freeloaders

Any time one political party proposes setting up credits or other funds to help disadvantaged citizens, the other party invariably cries “handouts!” Both of our major political parties do this, and they do it all the time. The intent is to make you feel as if everyone who cannot afford their own, say, “health insurance,” must be freeloading, living entirely off State and Federal largesse. The intent is to make you feel as if your tax dollars are being wasted – being sent to people who should have jobs, and who should be able to pay their own way. Our deep, American sense of “hard work equals achievement” plays into this.

The problem is that there’s zero credible data supporting the fact that a majority of social programs support freeloaders. Sure, there are freeloaders, and the news media rarely has trouble locating a few, but there’s no data suggesting that even a significant percentage of most programs go to freeloaders. I’m not even suggesting that social programs aren’t 100% going to freeloaders – I’m saying there’s no proof. There are anecdotes, representing tiny portions of the population, but no aggregate proof. At least, none I’ve been able to find.

Access

One of the latest debates has included phrases like “access to health insurance.” This is a real thing, as in many US markets – insurance, remember, is regulated by States, not by the Feds – it has long been impossible to buy a policy for yourself. Your employer can buy one, but if you have a part-time job, or a job which did not offer insurance, then in about a third of the US it was physically impossible to buy a policy at any price. This is one thing that the Affordable Healthcare Act (ACA, “Obamacare”) initially fixed, although it’s been falling apart as insurers in many markets – seeing their profits fall – have withdrawn.

Access to health insurance is only part of the problem, though. We all, for example, have access to buy a Lamborghini, but few of us can afford to do so. Access to health insurance is useless if you cannot afford it. That’s why Federal programs like Medicare, Medicaid, and the ACA’s credits (“handouts”) have long been an important part of the system.

State Regulation

We talk a lot about Federal healthcare laws, but neglect the fact that health insurance is a product regulated by the states. This is important. It means that each insurer essentially has to set up a separate business in each state, meeting the regulatory requirements of each state. On the one hand, this provides each state with the ability to uniquely customize their situation to meet the unique needs and desires of their citizens. On the other hand, it means insurers can’t game the system as well.

States with a high population of poorer and/or older citizens, for example, cost a hell of a lot more to insure, and that can’t be easily offset by the lower costs of a younger, wealthier, healthier state. It is in those poorer/older states where you see insurers pulling out of the individual market, in fact, because they can’t make it profitable.

There’s no good answer here. America is built on a high degree of state autonomy, for some excellent reasons. However, this is a case where Federal clout could make positive impacts. For example, the Feds – but not the States – could tell insurers, “look, if you want to work in this country at all, you have to offer products in all 50 states.” That’s current impossible. A single regulatory framework could arguably reduce compliance costs, enable insurers to operate with a full 350 million-person pool of insured, and so on.

But Federal regulation would essentially require all Americans to agree on what it is we were doing with heathcare, something we will never do. We’re simply too diverse in our goals, our backgrounds, our basic values, and our ideas of what “government” should even be. And that isn’t a bad thing – the reason the States are autonomous is to deal with that diversity, and we typically only run into major political problems when we insist on dealing with things at a Federal level.

So it’s a quandary.

Values

Our Federal politicians like to speak as if we, the People, have a shared set of values about healthcare. This is ludicrous, because we clearly do not. If we did, we wouldn’t be having this national debate right now.

We do not all agree that insurance companies should be required to provide someone with coverage despite pre-existing conditions. Many (often healthy) people see that as raising prices for everyone, even healthier people (which, to be fair, is what happens).

We do not all agree that every American should have health insurance. Many of us, for a variety of ideological reasons, simply don’t feel that the government should be covering health costs for people who can’t afford it, or feel that the government should perhaps only cover a subset of potential health needs, such as major medical.

We do not all agree that the States should run health care regulation. We do not all agree that the Feds should. Some feel that States should run health care as a competitive thing – people will move to where the best services are available. This has largely been disproven, as variable Medicare coverage, for example, has not triggered any kind of major exodus from one State to another, but it’s still something many people believe to be true.

Again – it’s a quandary. There’s a third argument, which is basically, “look, if we’re all so far apart on this, we should probably do nothing until we can agree.”

Be on Guard

The point of this has not been to attempt to shift you from one position to another. Frankly, I’m kind of in the third camp – this health care debate clearly demonstrates that we do not have a lot of shared ground on this subject, and that being the case, it might be inappropriate for Federal regulation. All we end up doing is coming up with really weird compromises (“we won’t tax you for not having coverage, but insurers can triple your rate if you go without coverage for too long, because clearly that’s something you can afford”), and the end result feels like everyone is having something terrible forced down their throats.

The point of this as been to simply get you thinking. Don’t just accept the facile sound-bite spin that you hear on your favorite news channel. Think about the economics of health care, and maybe be a little open to recognizing the ludicrousness of some of our basic positions, like the fact that health care is some kind of “free market.” Whatever your position, evaluate what your representatives in government are doing based on a healthy dose of skepticism, and a recognition that a huge chunk of the country probably disagrees with you for reasons which are, for them, just as valid as your own.

%d bloggers like this: