Comments on: The fundamental problems with health insurance http://davidschrag.com/schrug/2009/07/27/the-fundamental-problems-with-health-insurance/ David Schrag examines his navel and the world around it Sun, 22 Aug 2010 01:57:02 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: david http://davidschrag.com/schrug/2009/07/27/the-fundamental-problems-with-health-insurance/comment-page-1/#comment-1542 david Wed, 29 Jul 2009 21:50:29 +0000 http://davidschrag.com/schrug/2009/07/27/the-fundamental-problems-with-health-insurance/#comment-1542 Thomas, we are in agreement about most things, but I think that the days of acute episodes and chronic illnesses affecting only a small percentage of the population under 65 are long gone. How many people our age do you know who have made it even this far without encountering either? Injuries and illnesses are common today that couldn't even be diagnosed 50 years ago, much less treated. As for risk adjusting, that's a completely different but equally troubling kettle of fish. Do we want our monthly health care payments to be based on the DNA samples we provide? Thomas, we are in agreement about most things, but I think that the days of acute episodes and chronic illnesses affecting only a small percentage of the population under 65 are long gone. How many people our age do you know who have made it even this far without encountering either? Injuries and illnesses are common today that couldn’t even be diagnosed 50 years ago, much less treated.

As for risk adjusting, that’s a completely different but equally troubling kettle of fish. Do we want our monthly health care payments to be based on the DNA samples we provide?

]]> By: Thomas Moran http://davidschrag.com/schrug/2009/07/27/the-fundamental-problems-with-health-insurance/comment-page-1/#comment-1541 Thomas Moran Wed, 29 Jul 2009 20:47:44 +0000 http://davidschrag.com/schrug/2009/07/27/the-fundamental-problems-with-health-insurance/#comment-1541 My understanding is that any insurance is designed to mitigate risk. Insurance can be applied wherever risk is widely shared but where a relatively small percentage of the population experiences the adverse event or condition. Properly constructed there should be no winners and/or losers among the insured population. Those who don't experience the adverse event are better off for that, and those who do are compensated just to the extent of their loss. This is the model, the actual implementation may, of course, depart somewhat; where it departs widely fraud is typically involved. This understanding should be applicable to all forms of insurance. homeowners and auto insurance are cited as paradigm cases. The other cases come under this understanding as well: In the case of life insurance what is insured against is the premature loss of one's life. A certain small percent of the population lose their lives early. The payout is not set at a given value because there is no way to properly value life. The premium is set based on the desired payout vs. the likelihood that the person will die within the premium cycle. The desired payout is determined by the insured based on the desire to provide for heirs, etc. Likewise disability insurance insures against the relatively small probability that a person will not be able to earn their expected income over the course of their working years due to some defined cause, sickness, injury, etc. The premium is set by the likelihood of disability and the expected payout, often based on the salary of the individual. Health insurance may differ from this model in the end of life period, where a much higher percentage of the target population is subject to adverse events or conditions. So it may not make sense to speak of health insurance for people above a certain age, but rather to speak of providing health care coverage for that population. Restricting the discussion to the population under 65 years of age, say, it seems that the standard insurance model can be applied. If health insurance departs from this model, it is not because health care and health risks differ from other risks. It has to do with the marketing of health insurance and health care in our society. As Harold Luft points out in his book 'Total Cure' the routine parts of health care do not conform to the insurance model. If everyone should visit the doctor periodically and if everyone should have screening for various medical conditions and indicators, then it makes no sense to insure for these. It might make sense to incentivize them, but that would not be an insurance function. What can properly be insured medically in Luft's terms are 'acute episode', which is to say 'hospital care' and 'chronic illness', such as diabetes. In these cases the classic insurance model obtains: a small percentage of the population actually experiencing the adverse effect. Insurers can adjust rates for members of the population whose behavior increases their risk, just as is done for auto insurance. There is a further condition that an individual experiencing a chronic condition not be dropped from the insurance rolls., this is part of the set of assumptions required in setting up the risk pool. Chronic conditions that reach epidemic proportions, as it is sometimes suggested diabetes and obesity are doing, may then move outside the domain of insurable risks and into the domain of public health risks. This seems to me to be a sensible way to think about such cases. My understanding is that any insurance is designed to mitigate risk. Insurance can be applied wherever risk is widely shared but where a relatively small percentage of the population experiences the adverse event or condition. Properly constructed there should be no winners and/or losers among the insured population. Those who don’t experience the adverse event are better off for that, and those who do are compensated just to the extent of their loss. This is the model, the actual implementation may, of course, depart somewhat; where it departs widely fraud is typically involved.
This understanding should be applicable to all forms of insurance. homeowners and auto insurance are cited as paradigm cases. The other cases come under this understanding as well:
In the case of life insurance what is insured against is the premature loss of one’s life. A certain small percent of the population lose their lives early. The payout is not set at a given value because there is no way to properly value life. The premium is set based on the desired payout vs. the likelihood that the person will die within the premium cycle. The desired payout is determined by the insured based on the desire to provide for heirs, etc.
Likewise disability insurance insures against the relatively small probability that a person will not be able to earn their expected income over the course of their working years due to some defined cause, sickness, injury, etc. The premium is set by the likelihood of disability and the expected payout, often based on the salary of the individual.
Health insurance may differ from this model in the end of life period, where a much higher percentage of the target population is subject to adverse events or conditions. So it may not make sense to speak of health insurance for people above a certain age, but rather to speak of providing health care coverage for that population. Restricting the discussion to the population under 65 years of age, say, it seems that the standard insurance model can be applied.
If health insurance departs from this model, it is not because health care and health risks differ from other risks. It has to do with the marketing of health insurance and health care in our society.
As Harold Luft points out in his book ‘Total Cure’ the routine parts of health care do not conform to the insurance model. If everyone should visit the doctor periodically and if everyone should have screening for various medical conditions and indicators, then it makes no sense to insure for these. It might make sense to incentivize them, but that would not be an insurance function.
What can properly be insured medically in Luft’s terms are ‘acute episode’, which is to say ‘hospital care’ and ‘chronic illness’, such as diabetes. In these cases the classic insurance model obtains: a small percentage of the population actually experiencing the adverse effect. Insurers can adjust rates for members of the population whose behavior increases their risk, just as is done for auto insurance. There is a further condition that an individual experiencing a chronic condition not be dropped from the insurance rolls., this is part of the set of assumptions required in setting up the risk pool.
Chronic conditions that reach epidemic proportions, as it is sometimes suggested diabetes and obesity are doing, may then move outside the domain of insurable risks and into the domain of public health risks. This seems to me to be a sensible way to think about such cases.

]]> By: Michael Pahre http://davidschrag.com/schrug/2009/07/27/the-fundamental-problems-with-health-insurance/comment-page-1/#comment-1534 Michael Pahre Tue, 28 Jul 2009 16:02:11 +0000 http://davidschrag.com/schrug/2009/07/27/the-fundamental-problems-with-health-insurance/#comment-1534 My understanding is that your proposal for core, guaranteed, nation-wide health services with optional, privately-purchased supplemental packages is similar to that in France. My understanding is that your proposal for core, guaranteed, nation-wide health services with optional, privately-purchased supplemental packages is similar to that in France.

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