from Insurance May Not Save Lives, But It Saves Money by Megan McArdle in Bloomberg View:
We shouldn’t minimize the financial benefit, however. Medical bankruptcy is nowhere near half of all bankruptcies, but it is not trivial, either. And the addition of financial stress to a serious illness is certainly not trivial. Medical expenses really are different from other kinds of public policy programs, because they can be so wildly variable; 99 families out of 100 would be better off if you gave them cash instead of insurance, but the 100th will be hit by an expense that they could never realistically pay.
And that is what insurance is really for. As a health-care economist pointed out to me when the Oregon results came out, they were not actually all that surprising. Insurance is a financial product. It handles financial problems very well. We don’t expect car insurance to make us better drivers, or homeowner’s insurance to keep our house from burning down. Sure, insurance may change some behavior on the margins. But the direction of that change is not necessarily clear: Do you drive more safely to keep your rates down, or take more chances, because someone else will pay the bill if you damage another car? And whatever changes insurance produces are probably pretty marginal. Mostly what insurance does is protect us from financial ruin … and thereby, let us sleep a little easier at night.
You will call me immodest, but I’d suggest that the best model is exactly the one I suggested when health-care reform was being debated: Get rid of all of our government’s existing health insurance programs and make the government the insurer of last resort for all medical expenses above 15-20 percent of adjusted gross income. Allow very generous tax-free savings in health savings accounts that can be passed on to heirs, but spent only on medical expenses. Make the deductible percentage lower, or provide some sort of subsidized gap insurance, for people with very low incomes.
It’s absolutely progressive: Warren Buffet pays his full medical bills, while low-income families pay very little, and folks in between can choose to self-insure out of savings. It creates something like a normal market to exert pressure on health costs, because people are spending their own money on treatment, not someone else’s. It obviates the need for a massive government price-setting apparatus, which means we can put our regulatory muscle into researching comparative effectiveness of treatments and transparency efforts to inform consumers about which providers and treatments offer better outcomes. And I think it might even be politically attractive because it’s largely voluntary. No one’s forced to get rid of their employer health benefit; it’s just that there’s now a more attractive option that will encourage employees to demand cash or health savings account contributions instead of insurance coverage. Insurers can continue to sell insurance, if anyone wants to buy, or insure the gaps, safe in the knowledge that their losses are limited. It will be expensive, of course. But the government already spends a fantastic amount providing health insurance and subsidizing employer policies; we’ve got a big pot of cash to move into a more rational, market-oriented system.
An excellent plan- that relieves the burden of a financial catastrophe yet uses real market forces to bend the costs curve down, rather than government edict with perverse incentives and hidden- and often not so hidden- costs.
There may still need to be some rules on pre-existing conditions, but nothing close to the micromanagement and mandates of the ACA mess.