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The premise of this post is straightforward once you remember how insurance works from an economic standpoint. One thing that people often overlook when talkin

The premise of this post is straightforward once you remember how insurance works from an economic standpoint. One thing that people often overlook when talking about health insurance is that, economically, "health insurance" is really the combination of two completely separate products, only one of which is actually insurance. Insurance is about pooling risk. It smooths risk across states of the world (e.g. the universe in which your house burned down, and the universe in which it didn't but your neighbor's house did instead). It reduces the variance between those states, and in exchange, it charges a premium for making the outcome more predictable. It is not there to save you money. The expected value of all insurance is negative, and that's intentional. By a true insurance model, routine care and elective surgery would be priced the same with insurance as it would without, because there is no risk involved. The reason it isn't it because we want to subsidize these, to enable people to obtain care they otherwise wouldn't be able to afford. We use "insurance" as a vehicle for this, but really, that's not insurance at all. It's a redistribution. So it's perfectly understandable that a primary physician who is dealing with routine care and doesn't accept insurance would be able to charge patients less (and still walk away with more money) than one who uses insurance. The reason you don't see this everywhere, though, is that policies are making it harder and harder for physicians to run private practices entirely (whether they accept insurance or not). The majority of physicians are now employed, largely by hospital networks which are required to accept insurance (in some cases legally, and in others by virtue of the fact that they need to cover their Medicare losses[0]). So, the place you are most likely to see the direct care model are with physicians who are catered to the incredibly wealthy. That's not to say that a direct care model couldn't work for people who aren't, but the way our system is set up doesn't facilitate it. [0] https://news.ycombinator.com/item?id=13356442 https://news.ycombinator.com/item?id=13356442

pdonis 10y ago
> The expected value of all insurance is negative Only if you ignore non-monetary costs and benefits. Risk reduction/mitigation is a benefit and has a value. If it had no value, people would not bother buying insurance. When that benefit is taken into account, the net expected value of insurance is positive for both parties: the insurer makes money (assuming it has done its actuarial statistics properly) and the insured buys risk reduction/mitigation at a cost that is less than its value. Your point about "health insurance" combining two separate products, only one of which is actually insurance, is valid, though, and very important.
- Ntrails 10y ago
  I'm not sure it holds for all health insurance products though - you're very specifically talking about the US model. For the first part you're assigning a value to a thing beyond it's market cost and saying everyone is in fact a winner, and that's a little strange. Risk pooling via a private insurance company is negative sum because someone makes a profit beyond their costs. That should not then be taken to mean it's a bad deal (it isn't).
  - pdonis 10y ago
    > you're assigning a value to a thing beyond it's market cost and saying everyone is in fact a winner Of course. If that weren't true, people would not buy insurance. > Risk pooling via a private insurance company is negative sum If you only consider monetary costs and benefits, yes. But this ignores the (non-monetary) value to the insured of not being exposed to the risk (because that risk exposure has been transferred to the insurer). > That should not then be taken to mean it's a bad deal (it isn't). I agree that it's not a bad deal; I'm just saying that the reason it's not a bad deal is that people consider more than just monetary costs and benefits.
- CreepGin 10y ago
  Pretty sure when he said "the expected value" he meant monetary value. See the context: > It is not there to save you money. The expected value of all insurance is negative, and that's intentional.
  - pdonis 10y ago
    > Pretty sure when he said "the expected value" he meant monetary value. You might well be right. But I wasn't trying to tell him what he meant; I was pointing out that viewing "expected value" solely in terms of monetary value does not explain why people buy insurance in the first place. To explain that, you have to take into account non-monetary costs and benefits. The same is true for any economic transaction that involves anything other than pure financial instruments. For example, I go to the grocery store and buy various items for money. If I only consider monetary value, the "expected value" of this transaction is negative. Does this seem like a useful way to explain the economics of grocery stores? Contrast this, for example, with trading stocks. Here there is no non-monetary value involved; people don't eat stocks, or get any other non-monetary benefits from them. So when analyzing the stock market, it is appropriate to use "expected value" to mean monetary value.
fgimenez 10y ago
I have seen a lot of startups coming out to "re-invent the clinic" essentially by re-inventing DPC. They generally focus on on a wealthy clientelle with the (tesla-like) promise of moving down market. They aren't small concierge physicians, though. It ends up looking a lot more like one medical on steroids. Not sure if it is a reasonable model yet, since these firms are incentivized to minimize patient contact. In the positive view, it means they want to focus on preventative care. In the negative view, they will get suffocated with hypocondriacs and have to institute limits to care that invalidates the allure of an unlimited insurance-free provider. Plus, these places effectively have to underwrite like insurers to remain profitable which is not easy when competing woth sophisticated giants. Not to mention the risk pf dealing with a very unstable ACA that will likely change the landscape.
jmde 10y ago
I think direct care models, in all but name, are probably coming. I might be wrong, but the way federal governance in the US is headed it seems increasingly rather than decreasingly likely. In our region there are already hospital systems that are owned as subsidiaries by corporations that also own insurance companies. These corporations are gobbling up smaller hospitals as those merge and then subsequently get purchased by regional systems. The monopoly in the provision is problematic enough, but it reaches new levels of problems when they are also merging with insurance companies. So for some people, even if they aren't getting direct care technically, they are, because their choices are limited geographically for all intents and purposes to one provider, and their insurance is coming from the same provider. The challenge these direct care models faced, as alluded to by other posters, is in competing with conglomerates that offer a complete spectrum of care. You either cater to people who can afford it, or have to lower costs enough to make it reasonable for people who might not otherwise. The first option limits your customer base; the second is not really currently feasible given government regulation and how it inhibits competition in delivery models. I worry about the future of health care in the US, only because I don't see the GOP implementing anything other than the not-too distant status quo, which was broken. I sympathize with their stated ideal of reducing costs and increasing competition, but it seems like doublepeak for reducing costs and decreasing competition for established financial interests and increasing competition for everyone else. The net effect will just be squeezing more and more money out of the common individual.

pdonis 10y ago

> The expected value of all insurance is negative Only if you ignore non-monetary costs and benefits. Risk reduction/mitigation is a benefit and has a value. If it had no value, people would not bother buying insurance. When that benefit is taken into account, the net expected value of insurance is positive for both parties: the insurer makes money (assuming it has done its actuarial statistics properly) and the insured buys risk reduction/mitigation at a cost that is less than its value. Your point about "health insurance" combining two separate products, only one of which is actually insurance, is valid, though, and very important.

Ntrails 10y ago
I'm not sure it holds for all health insurance products though - you're very specifically talking about the US model. For the first part you're assigning a value to a thing beyond it's market cost and saying everyone is in fact a winner, and that's a little strange. Risk pooling via a private insurance company is negative sum because someone makes a profit beyond their costs. That should not then be taken to mean it's a bad deal (it isn't).
- pdonis 10y ago
  > you're assigning a value to a thing beyond it's market cost and saying everyone is in fact a winner Of course. If that weren't true, people would not buy insurance. > Risk pooling via a private insurance company is negative sum If you only consider monetary costs and benefits, yes. But this ignores the (non-monetary) value to the insured of not being exposed to the risk (because that risk exposure has been transferred to the insurer). > That should not then be taken to mean it's a bad deal (it isn't). I agree that it's not a bad deal; I'm just saying that the reason it's not a bad deal is that people consider more than just monetary costs and benefits.
CreepGin 10y ago
Pretty sure when he said "the expected value" he meant monetary value. See the context: > It is not there to save you money. The expected value of all insurance is negative, and that's intentional.
- pdonis 10y ago
  > Pretty sure when he said "the expected value" he meant monetary value. You might well be right. But I wasn't trying to tell him what he meant; I was pointing out that viewing "expected value" solely in terms of monetary value does not explain why people buy insurance in the first place. To explain that, you have to take into account non-monetary costs and benefits. The same is true for any economic transaction that involves anything other than pure financial instruments. For example, I go to the grocery store and buy various items for money. If I only consider monetary value, the "expected value" of this transaction is negative. Does this seem like a useful way to explain the economics of grocery stores? Contrast this, for example, with trading stocks. Here there is no non-monetary value involved; people don't eat stocks, or get any other non-monetary benefits from them. So when analyzing the stock market, it is appropriate to use "expected value" to mean monetary value.

fgimenez 10y ago

I have seen a lot of startups coming out to "re-invent the clinic" essentially by re-inventing DPC. They generally focus on on a wealthy clientelle with the (tesla-like) promise of moving down market. They aren't small concierge physicians, though. It ends up looking a lot more like one medical on steroids. Not sure if it is a reasonable model yet, since these firms are incentivized to minimize patient contact. In the positive view, it means they want to focus on preventative care. In the negative view, they will get suffocated with hypocondriacs and have to institute limits to care that invalidates the allure of an unlimited insurance-free provider. Plus, these places effectively have to underwrite like insurers to remain profitable which is not easy when competing woth sophisticated giants. Not to mention the risk pf dealing with a very unstable ACA that will likely change the landscape.

jmde 10y ago

I think direct care models, in all but name, are probably coming. I might be wrong, but the way federal governance in the US is headed it seems increasingly rather than decreasingly likely. In our region there are already hospital systems that are owned as subsidiaries by corporations that also own insurance companies. These corporations are gobbling up smaller hospitals as those merge and then subsequently get purchased by regional systems. The monopoly in the provision is problematic enough, but it reaches new levels of problems when they are also merging with insurance companies. So for some people, even if they aren't getting direct care technically, they are, because their choices are limited geographically for all intents and purposes to one provider, and their insurance is coming from the same provider. The challenge these direct care models faced, as alluded to by other posters, is in competing with conglomerates that offer a complete spectrum of care. You either cater to people who can afford it, or have to lower costs enough to make it reasonable for people who might not otherwise. The first option limits your customer base; the second is not really currently feasible given government regulation and how it inhibits competition in delivery models. I worry about the future of health care in the US, only because I don't see the GOP implementing anything other than the not-too distant status quo, which was broken. I sympathize with their stated ideal of reducing costs and increasing competition, but it seems like doublepeak for reducing costs and decreasing competition for established financial interests and increasing competition for everyone else. The net effect will just be squeezing more and more money out of the common individual.