The Health Insurance Crisis

The NYTimes would have us believe that health insurance is in a "crisis" because about 15% of the population do not have health insurance. Their proposed solution is for the government to step in and provide that insurance. Let's apply some reason to this proposition.

First, we must ask, why are people uninsured? There are a number of reasons, but they mostly boil down to cost; the government provides insurance for those extremely poor, private employers sometimes provide insurance, and those who are left are expected to buy insurance privately rather than through an employer. Some do, and others prefer not to.

I said "expected" because, clearly, the left-wing politicians and advocates can't imagine anyone choosing to go without health insurance. And yet, providing health insurance is a profit-making proposition if managed correctly (like other forms of insurance); that is, the insurance companies charge you more than you might expect to pay "normally" in order to have a reserve to cover your costs -- or someone else's -- when something especially expensive happens.

What does that mean? Simply that for someone to whom "something especially expensive" rarely happens, buying health insurance amounts to supporting someone else's injuries!

Now, choosing to go without coverage in the hopes that something drastic won't happen to you, personally, is a bit of a risk. But like anything else, it's a risk that can be mitigated. Most people, for example, have coverage through driver/car insurance for injuries caused to others, or injuries caused to themselves by an uninsured driver. That's the major cause of "something drastic" right there -- most people already have coverage for that eventuality.

And the other major risk factors aren't hidden; if you're young, healthy, don't have a history of any major problems in your family, and aren't an expectant mother, then your risk level is fairly low for non-traumatic problems.

For these people, NOT having health insurance is arguably a reasonable financial proposition. Many choose to have it anyway, because the cost is fairly low when provided through a typical employer-supported program -- low enough to warrant the investment as a risk-mitigator. But some don't.

And this reveals the invalid assumption behind the NYTimes' position. They believe everyone should have health insurance. And everyone should be forced to pay for it. Whether they want it, or not.

Now let's take a step back and ask, why are the costs of medical care so high that medical insurance is considered necessary? This is a more complicated proposition, but there are three driving factors.

First, human life and health are so highly valued that no doctor wants to provide second-rate, bargain-basement medical care (and even if they did, would be bankrupted by malpractice suits, malpractice insurance, or both). So doctors typically provide the most expensive services they can even for basic care.

Second, 85% of the population have health insurance, and neither see nor pay the true cost of care. In other words, the free market has been bypassed for those individuals; the famous "invisible hand" can no longer act to lower prices. In place of a free market, we have a market of insurers and providers.

Third, doctors typically operate and charge on the expert principle -- that is, "I'm the expert, do what I tell you and pay what I say you owe". The patient has no ability to know the cost in advance and little ability to bargain or dispute a recommendation. In theory, a patient with health insurance would have the insurer to play a role in keeping costs low and unnecessary procedures down; but the expert on the scene is the local doctor (who will usually be able to produce justification for what he wants to charge).

Fourth, doctors have the ability to price-discriminate based on the patient's insurance company. Since the insurance companies typically negotiate pricing with the doctors, some will get a better price, and others worse. That's not necessarily so bad -- until you realize that the 800-pound gorilla in health insurance is the government's medicare program, which sets its own prices, often as a matter of law.

So what happens? Patients with insurance get lots of health care, because they don't see the price. Government programs set the prices they are willing to pay as low as possible yet demand high-quality care (with punishment in the form of malpractice lawsuits), forcing doctors to price-discriminate in favor of government insurance while making up the cost in charges to privately insured individuals. This increases the cost of medical care to privately insured people, but they do not see the cost increase, and continue to get the same level of care. This forces private insurance companies to raise costs to employers (some of whom drop coverage), make efforts to insure only those who are already healthy (leaving the relatively unhealthy without coverage), and raise costs even more to those with little bargaining power (private individuals).

And all of this raises the cost of health care, which makes it harder to get by without health insurance, which produces NYTimes editorials demanding more government health insurance.