The Problem With Health Insurance


Earlier today Ron Bailey pointed out a New York Times piece on the problems with the current employer-based insurance system. It's not the only high-profile piece to point out the myriad flaws of the current system: This month's Atlantic features an excellent cover story that similarly details the ways in which today's health insurance market, by insulating individuals from paying for care rather than actually insuring truly catastrophic events, fails to incentivize either quality care or financial responsibility— problems the author argues that the reform proposals now making their way through Congress won't fix.

I don't agree with all of the author's conclusions, but it's a great piece, and well worth the 40 minutes or so it'll take you to read it. One quibble, though, with this bit:

Some experts worry that requiring people to pay directly for routine care would cause some to put off regular checkups. So here's a solution: the government could provide vouchers to all Americans for a free checkup every two years. If everyone participated, the annual cost would be about $30 billion-a small fraction of the government's current spending on care.

I'm not sure this would be necessary. Why? There's reasonably good evidence that when consumers pay for more of their care out of pocket, they actually get more preventive care, not less. According to a recent review of high-quality research into consumer-driven care, which usually pairs catastrophic insurance coverage with an HSA or similar medical-savings account, patients in consumer-driven plans seem to increase demands for preventive care compared with those in traditional insurance plans. 

That's counter-intuitive in some ways, but it also makes sense: People tend to take better care of those things they have to pay for themselves.

Read Reason's health-care archive here.  

NEXT: Ted Kennedy, I.P.

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  1. Whoa what happened to that font?

    I think the checkups with a doctor are not nearly as important as getting regular lab work, which can catch a lot of problems early.

    Might be even cheaper.

  2. I think the checkups with a doctor are not nearly as important as getting regular lab work, which can catch a lot of problems early.

    A lot of plans that cover one free checkup a year cover one free routine lab workup with that checkup too. Mine does– it’s a CDHP high-deductible with HSA that has all preventative care 100% free, nothing coming out of deductible or HSA.

  3. That Atlantic story is the best piece I’ve seen yet on the health care wars. Well worth the read.

  4. Paying someone else to pay your nominal expenses is monumentally stupid. It will always cost you more than if you paid out of your own pocket. Always. It is truly depressing how many people can’t do the math on that.

  5. I don’t think that whether people go to the doctor for checkups has much to do with having insurance or not. I never go to the doctor and I have insurance that covers it. I do go to the dental hygienist every six months even though I have no dental plan. Why? Because the dentist does something for me that provides a noticeable benefit.

  6. the dentist does something for me that provides a noticeable benefit.

    Makes you look not British?

    1. ROFL. That is all.

  7. Pace Warren and Peter Suderman, insurance (in its current form) can do a fair job of “collective bargaining” on behalf of the insured, to obtain better rates for medical goods and services.

    That is, of course, at least partially a result of the current not-very-free market in the medical sector. I don’t normally need a middleman to get me better rates on, e.g., groceries; I just go to the local store that has what I judge to be the best value for my money. However, medical expenses in the current environment are not transparent and seem to be set quasi-monopolistically.

    Healthcare reform should unleash more private-sector competition and make getting treatment or medicine more like buying groceries. Failing that, people will continue to need their insurance to perform middleman bargaining.

  8. nice font, h&r!

    Yet another infuriating aspect of the health care debate is that liberals repeat ad nauseum that “we spend twice as much” on health care as other countries but “we’re ranked 37!” which I guess is supposed to be some kind of slam dunk argument, but then when you suggest that people buy their own freaking health care and get a better deal, they conjure up scare stories about people getting ripped off and dying in the streets.

    It’s almost like Morpheus letting you choose between the red and blue pill, except he wants you to stay in the matrix. “You’re an idiot if you don’t choose the blue pill. How dare you even suggest that the red pill might be better? That’s not even a choice, can you imagine the death and destruction it would cause? In fact there’s not even a red pill. In fact, we’re already on the red pill, it’s called the free market!”

  9. Here’s an interesting story from Business Insurance about “domestic medical tourism.”

    Apparently employers have found that they can contract with out-of-state US hospitals to perform certain expensive procedures much cheaper by paying money upfront and not going through the middleman.

  10. The Problem With Health Insurance?

    What, are you kiddin’ me? Health? There’s nothin’ healthy about it! The only time you use it is when you’re sick! [rimshot]

    Thank you. You’re a wonderful audience. Try the veal!

  11. And some experts believe people to be idiots.

    I like to see the attributed quote stating that some people would put off regular check-ups if they had to pay for it themselves. (Sounds like the writer is interjecting a personal opinion.)

    Where is the track record of experience that even tangentially proves the point? Most people manage to bumble through life keeping up the upkeep on their cars and computers, homes and hobbies without a free voucher from the government. Why should health be any different? I missed that part of the Bill of Rights…

  12. The Problem with Health Insurance is that it is a Pyramid Scheme:

    If a significant number benefactors demanded benefits at once, insurance companies would not be able to make good on their entitlements.

    One may even call it a Ponzi Scheme: a Pyramid Scheme in which the operator of the Scheme (Insurance companies, Ponzi, Maydoff, government, etc…) squander the TRUST FUNDs.

    That is


    Ponzi and Maydoff squandered their funds by merely keeping it and using it for themselves.

    The Government squanders it by using the TRUST FUNDS for IRAQ, war on Drugs, donations to needy countries like Israel, and (in all fairness) katrina and welfare.

    Insurance companies squander it via profits and denying as many claims as they can.

    I’m for free markets. None then less, health insurance is useless in the long run. We’re better off without it.

    I’m not saying that we should OUTLAW health insurance. I just wish people woke up and simply stopped paying their premiums and just pay for the cost. That will TRUELY bring down the cost of healthcare

  13. It’s amazing how decent tooth brushing habits allowed me to avoid a dentist for fourteen years. I eventually went because the wife insisted. She was pissed when I had no cavities and no follow-up visits. Plaque removal, tooth poking and gum gouging are rackets dentists use to buy their third vacation home.

  14. There’s reasonably good evidence that when consumers pay for more of their care out of pocket, they actually get more preventive care, not less.

    Agreed. When you lack health insurance, you become MORE worried about developing a long-term illness, not less. Health insurance kinda gives you a false sense of security. “If anything happens, the insurance will pay for it.” So you don’t pay as much attention to getting regular checkups.

    But if you don’t have insurance you’re kinda thinking: “I better make sure that it’s not a serious problem now, before it gets worse.”

  15. Somebody check Suderman’s meds. 7 point type is a classic sign of clinical depression.

    You have so much to live for, Pete! Don’t do it!

  16. I will also vouch for the Atlantic cover story being awesome and informative; people should definitely check that out.

    Paul (d)^@&*bag) Krugman has written half a dozen nonsense pieces about how ‘market economics dont work with healthcare’ in the NYT… both Leonhardt’s piece and this thing in the Atlantic do a good job clarifying how wrong he is and why.

  17. Ha… I just finished reading The Atlantic piece. It is always refreshing to find, whether I agree with it or not, such a well-written and well-argued piece of journalism.

    For once, ordering magazines, with soon-to-expire frequent flyer miles, pays off.

  18. Another thing that health insurance does is to insulate the consumer from the actual cost versus the co-pay, which is not even close to representative of actual costs.

    Preventative care, as astutely pointed out, is the what the consumer does to maintain their health and well being. The other aspects, such as the yearly (I recommend every six months) physical and blood work is something most people can afford. I am convinced HMO’s (Thanks Uncle Teddy) have contributed GREATLY to this consumer misnomer; catastrophic policies with high deductables would expose consumers to what the actual cost of care, i. e. more out of pocket payments. Of course, cost of living whereever you reside should be commensurate with your health care costs, not artificially high or low.

    Another is a less complex billing system (varies by health provider). Hell, the last time my mother was hospitalized, she gave me the billing asking me to interpret for her (best lesson she taught me is to always request an itemized bill; she is a retired accountant). And more than a few itemizations I could not explain. And she had a general surgical procedure (herniaplasty, multiple with mesh), procedures I perform.

    Like this administration, a bit more transparency by providers would also greatly help improve the current system.

  19. The problem is we have health “care” not health “insurance.” I would prefer cheap catastrophic insurance with a deductible of $5000 to expensive health care with $10 co-pay.

    When I was a contractor, I had catastrophic insurance that cost around $250 a month for a family of 4. Now my company pays almost $1000 per month.

  20. “I think the checkups with a doctor are not nearly as important as getting regular lab work, which can catch a lot of problems early.”

    Ahh, nope. Not very sagacious, there, Sage.

    Diagnostic testing is properly done to test a hypothesis: a judgment of the likelihood that, for a given patient, a given symptom complex = disease X. Example: a thyroid-hormone level obtained on a female patient presenting with weight loss, heat intolerance, palpitations, and tremor is a test of the hypothesis that this complex represents hyperthyroidism. The hypothesis stems from knowledge of the prevalence of the hypothesized disease (thyroid disorders are not uncommon, and more so in women than in men) and of the list of possible causes of certain symptom complexes (differential diagnosis.)

    Blindly “shotgunning” labs and tests is a very costly and dangerous way of screening for health problems. Much of the “routine” labwork done blindly in this country is useless in detecting disease, and it costs a shitload of money. Its main purpose is to enable the ordering physician to build a more credible defense when some malpractice-attorney dust mite comes sniffing around after the funeral.

    For instance, I could do thyroid hormone levels on the next hundred people through the door, and be lucky to discover one who’s hyperthyroid. If I did the same thing on the next hundred female patients who present like the one above, I’m likely to pick up a decent number of hyperthyroid patients.

    We could draw chem panels and do CT’s and MRI’s on everyone every year, month, or day. We’d probably pick up on a few early-stage cancers or calcified bacon-clogged coronary arteries, and thereby increase the actual health of a few people. But for certain—because every diagnostic test results in false-positive and false-negative results—we’d discover a huge number of vague shadows, lumps, and anomalies, each of which would require further (and more expensive, invasive, and riskier) testing to delineate, though the vast number of them would be harmless ditzels. With all this angio-gramming, biopsying, and exploratory-laparotomy-ing, we’d hurt or kill quite a few folks who have nothing actually wrong with them except that some dumb schmuck subjected them to a needless CT scan.

    So, no, this is not much of a strategy. But hey, we’re Americans. No amount of (someone else’s) money is too much for (all of you) to spend to keep my ol’ granny going another few weeks.

    1. “So, no, this is not much of a strategy. But hey, we’re Americans. No amount of (someone else’s) money is too much for (all of you) to spend to keep my ol’ granny going another few weeks.”

      I think that sentence highlights a major problem with the American healthcare system. We spend a disproportionate amount of our healthcare dollars in the last 2 weeks of life, blindly struggling to keep dying people alive. We do this possibly against their wishes, which could be avoided if end-of-life options were discussed with doctor and family beforehand. Unfortunately, Sarah Palin and her ilk decided to brand a *paid for* conversation with your doctor regarding end-of-life care “death panels”.
      Really, it’s quite unfortunate that modern politics can boil something as necessary as end-of-life care discussions to something as crass as “death panels” and people will believe it.
      Sad, really.

  21. Ah Mike, welcome to the world of “defensive medicine”. And patients wonder why the cost of medical care is so expensive. Your argument explains precisiely why “preventative care” gone awry is artifically raises the overall cost of care.

    Which is why I have mixed feelings about WebMD and other patient education websites. They are an excellent resource for personal edification, but do not substitute for the opinion of a licensed physician.

  22. Amazing, the “research” you reference on preventive care is done by the American Academy of Actuaries, an Insurance Industry lobbying and public relations group.

    For someone called “reason” you didn’t use much examining your evidence.

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