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One question that no one asks: why do we insist on paying for healthcare with insurance in the first place? Imagine a world where everyone paid for health expe

One question that no one asks: why do we insist on paying for healthcare with insurance in the first place? Imagine a world where everyone paid for health expenses out of pocket, where there was competition and price transparency for all procedures which means much lower prices (instead of prices being driven up by government-subsidized plans), and most importantly, doctors had to answer to us as consumers instead of insurance companies?

raganwald 14y ago
I think you need to first state what you're trying to accomplish. Is lower prices an end unto itself? if so, I doubt that you will get it from the "free market." It's too inefficient. When you slip and break your leg, you can't take your time shopping around for the lowest price care. You can't buy a lung transplant when it's cheap, save it, and use it when you need it. Some people simply want people to pay their own way for ideological reasons. I can understand that without agreeing with it.
- bmmayer1 14y ago
  Insurance is a really terrible way to pay for any commodity. If I paid a fixed price to go to the grocery store every month and get everything I needed off the shelves, the grocery store would go bankrupt. Obviously, insurance works for event that are unlikely, as a way to mitigate risk. But everyone dies eventually. Everyone will need healthcare. Because of the nature of insurance, it drives up prices, it misaligns incentives, and our particular mode of insurance--subsidized employer-provided insurance--has the added injury of forcing people to stay in their jobs for the sake of their health and limiting mobility. Yet, not only do we accept insurance as the best way to pay for healthcare today, we just doubled down on it with Obamacare, requiring people who previously weren't in the insurance market to participate. My solution is to let healthcare be another commodity, like food, where there is widespread competition and choice, and thus lower prices and more transparency. With your example, it's not like someone makes a choice in emergency care right now either. But at least you could establish a relationship with a hospital ahead of time. How about an app that lets you join a hospital network for emergencies? What about an annuity plan that lets you save up for a lung transplant ahead of time if/when you need it? I don't know what health entrepreneurs would come up with. But there are solutions out there that will never be tried as long as insurance companies have a stranglehold on the health industry.
- jacoblyles 14y ago
  You seem to know a lot about the US health insurance market. What percentage of US health spending is driven by this sort of emergency care? Or is this all theoretical hot wind?
  - raganwald 14y ago
    What is theoretical about an article describing how health insurance actually works in an actual country from someone who has actually lived there for nearly all of his actual life? And I didn't mention the word "US." You did.
- DigitalJack 14y ago
  Calling the "free market" inefficient is the most absurd thing I've heard in at least a week. "Free Markets" clearly aren't the answer for everything, but they are when efficiency is the primary goal. Laws and regulations aren't there to promote efficiency. They are there, ideally, to promote safety. In my experience, the overlap of safety and efficiency is vanishingly small. Would that it were not. In every situation, we need some balance of efficiency and safety. Yes, it's true, when you are having a heart attack, you probably don't want to spend time shopping around. That is exactly what "insurance" is for. When you have a cold and you go to the doctor, that is a waste of a limited resource (the doctor's time specifically). If you as a consumer had to bear the full brunt of the cost of seeing a doctor for non-catastrophic issues, you'd think twice about going over a cold. That doctor would then be able to take on more patients because their time wouldn't be wasted on trivial things. This is more efficient. The flip side, is that the expense of the doctor's office dealing with insurance companies would absolutely be reduced. That's an immediate cost reduction. The demand for arbitrary doctor services would be reduced (by virtue of everyone with a sniffle not immediately heading to the doctor). Simultaneously, doctor's would be able to reach more patients at a lower cost. Prices for everyday type treatment would go down. When you disconnect the scarcity of a resource from its price, you wreak havoc on the system. The way we (in the US) use health insurance, it's more like "prepaid medical services" than what insurance was meant for. The problem is that you have disconnected the scarcity of the doctor's time and service with the price of that service. It artificially inflates demand on that doctor's time, because hell, you've already paid the premium this month, if you don't go see the doctor for a cold, you are wasting money. And that's true. You have wasted money, but going to the doctor for that cold just wastes their time, so now you've doubled down on waste and inefficiency.
  - sets13 14y ago
    I wont respond to the rest of your response, but it has been pretty clearly demonstrated by people smarter than you or I (at least in their respective professions) that free markets aren't always the most efficient solution to a problem, particularly when the desired solution is not just to come up with a price that is profitable for for the seller. http://www.basiceconomics.info/market-failures-and-externalities.php http://www.basiceconomics.info/market-failures-and-externali...
aqme28 14y ago
Because people are risk-averse. People would rather pay a little more for a lot less risk. Paying for healthcare out of pocket is incredibly risky. You never know if you're going to be diagnosed with cancer and have to drop $200,000 a year for treatments that will last the rest of your life.
- deleted 14y ago
  [deleted]
- bmmayer1 14y ago
  But health isn't a question of if, it's a question of when. Insurance is a fundamentally broken system with which to pay for healthcare or any other commodity. As this article says, no one would ever sell me flood insurance if I live on a flood plain. The fact that I can buy health insurance at all, given my inevitable demise, is a miracle. But it doesn't make it a good system.
Spooky23 14y ago
Simple. I go to the GP and complain about my chronic backaches. Physical therapy doesn't work, so I need to talk to a neurosurgeon, whose time is worth about $500/hr. After getting an MRI for $1,000 and paying a radiologist $1,250 to interpret it, it turns out that one of my disks are ruptured, and I am going to require a spinal fusion. That's a 6-hour surgery that costs about $100k. I make $50k per year. Now what? Do I bankrupt my family, or persevere until I'm rendered paralyzed and on the dole, or buy insurance to cover this sort of event?
- bmmayer1 14y ago
  I think you're missing the point. The reason why it would cost you $100k is twofold: right now out of pocket expenses are deliberately much, much higher to compensate doctors and medical professionals for nonpayments, and medical professionals have no problem gouging their prices for the insurance companies, or using more-expensive-than necessary procedures for the benefit of patients (because after all, we have a massive principal agent problem). Not to mention that insurance encourages wasteful consumption, decimates competition, and misaligns incentives. And the fact that most people get insurance through their place of work such that they are less mobile and less able to negotiate higher pay just makes the situation more bitter. My solution is to let the price of medicine float with demand and supply, like any other commodity, where it would lower in price with competition and neuter the influence of health insurance lobbyists. Also, health is always going to be the sort of profession where the best treatment is too expensive for more people to afford. That's just a natural result of innovation. Every new technology--even those we take for granted today--were too expensive for most people to afford when they were introduced. The way that prices come down for these things is through demand and competition, not through government mandates, which provide no incentive to lower prices (another principal agent problem).
  - Cowen 14y ago
    If medicine floated with the cost of supply and demand, then outbreaks and epidemics would be an ethical nightmare and a commercial blessing. Medical supplies during epidemics always fail to match the huge spike in demand, so the price would rise exponentially. Medication providers would make a fortune while only the rich would receive medication. Depending how much you want to bend toward conspiracy theories, it would almost be like incentivizing medication providers to cause huge outbreaks.
NateDad 14y ago
Because then anyone who gets unlucky dies from not being able to afford the exorbitant prices of catastrophic health care, which will never go down enough to be "affordable" to anyone who isn't rich.
- bmmayer1 14y ago
  Just like the price of cars and computers and telephones never went down?
  - NateDad 14y ago
    We've had medical technology for longer than we've had either of those, and health care has gotten more expensive, not less. What does the price of commodity items have to do with the price of life saving services?
    - bmmayer1 14y ago
      That's my point! Because we put so much effort into "fixing" healthcare we drive the price up instead of when we leave commodities like technology largely alone and happily watch the prices go down.
krapp 14y ago
I would worry that a fair market value for healthcare would still be more than most people could afford. The question is, would it be less out of pocket or more than with insurance, which is probably a vague question and one I have no ability to attempt answering. Anecdotally, though, I've found that while the squeeze of my employer's health plan was difficult, having to pay the entire cost of my appendectomy would've been nigh impossible. I can only imagine how much my mother with COPD would have to pay out of pocket.
- bmmayer1 14y ago
  Everyone thinks that the market value of something will be more than they can afford. So they implement policies that are guaranteed to make the price higher. Every commodity costs something. The best way to distribute a limited number of goods to a maximum number of people is a free market with a free price system. There will always be the poor who require charity to be taken care of. There will always be the rich who can afford the million-dollar life-saving procedure (but of course in time that procedure will get cheaper).
lutusp 14y ago
> Imagine a world where everyone paid for health expenses out of pocket ... Very good points. The argument can be made that the existence of health insurance is a major factor in the increase in medical costs over the years. After all, it's not Jane Doe who has to pay for the procedure, it's a large, anonymous insurance company. This reduces the motive to shop for the best deal or ask whether a procedure is actually worth it. It reduces the role of personal responsibility.

raganwald 14y ago

I think you need to first state what you're trying to accomplish. Is lower prices an end unto itself? if so, I doubt that you will get it from the "free market." It's too inefficient. When you slip and break your leg, you can't take your time shopping around for the lowest price care. You can't buy a lung transplant when it's cheap, save it, and use it when you need it. Some people simply want people to pay their own way for ideological reasons. I can understand that without agreeing with it.

bmmayer1 14y ago
Insurance is a really terrible way to pay for any commodity. If I paid a fixed price to go to the grocery store every month and get everything I needed off the shelves, the grocery store would go bankrupt. Obviously, insurance works for event that are unlikely, as a way to mitigate risk. But everyone dies eventually. Everyone will need healthcare. Because of the nature of insurance, it drives up prices, it misaligns incentives, and our particular mode of insurance--subsidized employer-provided insurance--has the added injury of forcing people to stay in their jobs for the sake of their health and limiting mobility. Yet, not only do we accept insurance as the best way to pay for healthcare today, we just doubled down on it with Obamacare, requiring people who previously weren't in the insurance market to participate. My solution is to let healthcare be another commodity, like food, where there is widespread competition and choice, and thus lower prices and more transparency. With your example, it's not like someone makes a choice in emergency care right now either. But at least you could establish a relationship with a hospital ahead of time. How about an app that lets you join a hospital network for emergencies? What about an annuity plan that lets you save up for a lung transplant ahead of time if/when you need it? I don't know what health entrepreneurs would come up with. But there are solutions out there that will never be tried as long as insurance companies have a stranglehold on the health industry.
jacoblyles 14y ago
You seem to know a lot about the US health insurance market. What percentage of US health spending is driven by this sort of emergency care? Or is this all theoretical hot wind?
- raganwald 14y ago
  What is theoretical about an article describing how health insurance actually works in an actual country from someone who has actually lived there for nearly all of his actual life? And I didn't mention the word "US." You did.
DigitalJack 14y ago
Calling the "free market" inefficient is the most absurd thing I've heard in at least a week. "Free Markets" clearly aren't the answer for everything, but they are when efficiency is the primary goal. Laws and regulations aren't there to promote efficiency. They are there, ideally, to promote safety. In my experience, the overlap of safety and efficiency is vanishingly small. Would that it were not. In every situation, we need some balance of efficiency and safety. Yes, it's true, when you are having a heart attack, you probably don't want to spend time shopping around. That is exactly what "insurance" is for. When you have a cold and you go to the doctor, that is a waste of a limited resource (the doctor's time specifically). If you as a consumer had to bear the full brunt of the cost of seeing a doctor for non-catastrophic issues, you'd think twice about going over a cold. That doctor would then be able to take on more patients because their time wouldn't be wasted on trivial things. This is more efficient. The flip side, is that the expense of the doctor's office dealing with insurance companies would absolutely be reduced. That's an immediate cost reduction. The demand for arbitrary doctor services would be reduced (by virtue of everyone with a sniffle not immediately heading to the doctor). Simultaneously, doctor's would be able to reach more patients at a lower cost. Prices for everyday type treatment would go down. When you disconnect the scarcity of a resource from its price, you wreak havoc on the system. The way we (in the US) use health insurance, it's more like "prepaid medical services" than what insurance was meant for. The problem is that you have disconnected the scarcity of the doctor's time and service with the price of that service. It artificially inflates demand on that doctor's time, because hell, you've already paid the premium this month, if you don't go see the doctor for a cold, you are wasting money. And that's true. You have wasted money, but going to the doctor for that cold just wastes their time, so now you've doubled down on waste and inefficiency.
- sets13 14y ago
  I wont respond to the rest of your response, but it has been pretty clearly demonstrated by people smarter than you or I (at least in their respective professions) that free markets aren't always the most efficient solution to a problem, particularly when the desired solution is not just to come up with a price that is profitable for for the seller. http://www.basiceconomics.info/market-failures-and-externalities.php http://www.basiceconomics.info/market-failures-and-externali...

aqme28 14y ago

Because people are risk-averse. People would rather pay a little more for a lot less risk. Paying for healthcare out of pocket is incredibly risky. You never know if you're going to be diagnosed with cancer and have to drop $200,000 a year for treatments that will last the rest of your life.

deleted 14y ago
[deleted]
bmmayer1 14y ago
But health isn't a question of if, it's a question of when. Insurance is a fundamentally broken system with which to pay for healthcare or any other commodity. As this article says, no one would ever sell me flood insurance if I live on a flood plain. The fact that I can buy health insurance at all, given my inevitable demise, is a miracle. But it doesn't make it a good system.

Spooky23 14y ago

Simple. I go to the GP and complain about my chronic backaches. Physical therapy doesn't work, so I need to talk to a neurosurgeon, whose time is worth about $500/hr. After getting an MRI for $1,000 and paying a radiologist $1,250 to interpret it, it turns out that one of my disks are ruptured, and I am going to require a spinal fusion. That's a 6-hour surgery that costs about $100k. I make $50k per year. Now what? Do I bankrupt my family, or persevere until I'm rendered paralyzed and on the dole, or buy insurance to cover this sort of event?

bmmayer1 14y ago
I think you're missing the point. The reason why it would cost you $100k is twofold: right now out of pocket expenses are deliberately much, much higher to compensate doctors and medical professionals for nonpayments, and medical professionals have no problem gouging their prices for the insurance companies, or using more-expensive-than necessary procedures for the benefit of patients (because after all, we have a massive principal agent problem). Not to mention that insurance encourages wasteful consumption, decimates competition, and misaligns incentives. And the fact that most people get insurance through their place of work such that they are less mobile and less able to negotiate higher pay just makes the situation more bitter. My solution is to let the price of medicine float with demand and supply, like any other commodity, where it would lower in price with competition and neuter the influence of health insurance lobbyists. Also, health is always going to be the sort of profession where the best treatment is too expensive for more people to afford. That's just a natural result of innovation. Every new technology--even those we take for granted today--were too expensive for most people to afford when they were introduced. The way that prices come down for these things is through demand and competition, not through government mandates, which provide no incentive to lower prices (another principal agent problem).
- Cowen 14y ago
  If medicine floated with the cost of supply and demand, then outbreaks and epidemics would be an ethical nightmare and a commercial blessing. Medical supplies during epidemics always fail to match the huge spike in demand, so the price would rise exponentially. Medication providers would make a fortune while only the rich would receive medication. Depending how much you want to bend toward conspiracy theories, it would almost be like incentivizing medication providers to cause huge outbreaks.

NateDad 14y ago

Because then anyone who gets unlucky dies from not being able to afford the exorbitant prices of catastrophic health care, which will never go down enough to be "affordable" to anyone who isn't rich.

bmmayer1 14y ago
Just like the price of cars and computers and telephones never went down?
- NateDad 14y ago
  We've had medical technology for longer than we've had either of those, and health care has gotten more expensive, not less. What does the price of commodity items have to do with the price of life saving services?
  - bmmayer1 14y ago
    That's my point! Because we put so much effort into "fixing" healthcare we drive the price up instead of when we leave commodities like technology largely alone and happily watch the prices go down.

krapp 14y ago

I would worry that a fair market value for healthcare would still be more than most people could afford. The question is, would it be less out of pocket or more than with insurance, which is probably a vague question and one I have no ability to attempt answering. Anecdotally, though, I've found that while the squeeze of my employer's health plan was difficult, having to pay the entire cost of my appendectomy would've been nigh impossible. I can only imagine how much my mother with COPD would have to pay out of pocket.

bmmayer1 14y ago
Everyone thinks that the market value of something will be more than they can afford. So they implement policies that are guaranteed to make the price higher. Every commodity costs something. The best way to distribute a limited number of goods to a maximum number of people is a free market with a free price system. There will always be the poor who require charity to be taken care of. There will always be the rich who can afford the million-dollar life-saving procedure (but of course in time that procedure will get cheaper).

lutusp 14y ago

> Imagine a world where everyone paid for health expenses out of pocket ... Very good points. The argument can be made that the existence of health insurance is a major factor in the increase in medical costs over the years. After all, it's not Jane Doe who has to pay for the procedure, it's a large, anonymous insurance company. This reduces the motive to shop for the best deal or ask whether a procedure is actually worth it. It reduces the role of personal responsibility.