How are folic acid tablets and post-auto accident emergency care the same? If you said both are signs of an awesome weekend, you should probably reevaluate your social life. However, if you said both will be covered by every law-abiding American health insurer within the next six years, then you are absolutely correct (though regardless, it never hurts to give your weekend habits a good once-over).
Emergency services have long been covered by almost every insurance provider. Low-likelihood, high-cost care is the kind of risk insurance is supposed to manage. But what about vitamin tablets? The Patient Protection and Affordable Care Act, popularly known as Obamacare, will mandate that by January 1, 2018, every insurance plan sold to US citizens in this country will cover the costs of those supplements and other preventative procedures such as mammograms and screenings.
Preventative care is a good thing, and screening procedures do help lower health care costs in the long run. But just because a procedure is “good” or “cost-effective,” does that mean it should be covered by insurance?
Insurance is a risk-mitigating mechanism. In layman’s terms: You pay a lower monthly price for the assurance that you will get any higher costs paid for in the future. Typically, insurance companies arise in many industries (auto care, for instance) to cover catastrophic events (like car accidents). Other services in that industry (oil changes and body shop visits) are paid for out of pocket and don’t necessarily involve a third party “insurer” to intervene between the “buyer” and “seller.”
In the past half-century, the role of health insurance has shifted from a risk-mitigating mechanism to a form of social welfare, as if we went from covering auto accidents to providing oil changes to the disadvantaged for a lower cost. The problem here is not the idea of the government subsidizing the livelihood of the poor. The problem is using insurance for this purpose, which leads to higher health care costs for everyone.
Consider the clothes you are wearing now. How can you afford them? If you had them tailored by a local artisan in Italy, it might be because you’re rich. But for most of us, it’s because the clothes were cheap. Cheap shirts could be bought at Target, WalMart, JCPenney, Macy’s, American Apparel, or even online on Amazon. But customers choose which retailers give them the highest quality for the lowest price. These stores then have an incentive to undercut each other for business, lowering prices for customers. By this process, even the American poor wear clothes of higher quality than those worn by the aristocracy several centuries ago.
What would happen if there were a mandate for clothing insurance? For Brown students, the difference of $13.20 between a shirt at J. Crew and the one at Urban Outfitters means two meal credits. This will influence our purchases, encouraging the store with the higher price to lower it.
But let’s say for a low monthly fee, an insurance company would cover all clothing costs. For the company, $13.20 is a rounding error. What the company cares more about is that I have the option to shop at Urban and J. Crew. In that model, there’s no incentive for the more expensive retailer to lower its price. The retailer only needs to keep its price below a level where the insurance company still profits from including the retailer in its plan. In this scenario, there is no real consumer choice. The consumer is separated from the seller by a behemoth that makes more money from expanding coverage than it loses in insuring overpriced goods. There’s no real competition, so prices rise, and we’re right back to Abercrombie and Fitch being only for extremely rich, eight-packed male models.
If you apply this logic to health care, it is no wonder that health care costs rise as consumers pay less out of pocket and more with insurance. State and federal mandates require insurance companies to cover non-catastrophic events. This takes consumer choice and competition out of a for-profit system, and prices inevitably rise. Once you force companies to mitigate the risk of someone’s folic acid tablets, you know you’re going down the wrong path.
So what’s the solution? There are two. You can either get the profit out of the system with a single-payer or national health service or the government out of the system with a free market system. Both would lower costs because either there wouldn’t be an incentive for insurance companies to raise prices, or there would be an incentive for health care providers (such as folic acid sellers and mammogram technicians) to lower them.
The free market system is the better option because of its ability to lower costs. But people have reservations about free markets in health care because health care and auto care are not the same thing. You only get one body, and it’s your right to have it maintained in good health, regardless of your economic status, they say. But even if we accept that health care is a right, it still doesn’t mean that insurance companies have to been the ones to secure that right.
Food and housing are “rights,” but we provide them to our poorest not through an insurance mechanism, but by direct welfare such as food stamps and public housing. I am proposing the same approach for health care.
This can be accomplished with a voucher system. In such a system, a means-tested group of the poorest and most disabled among us would receive a stipend to spend on whatever health care and insurance they need to secure their right to a healthy body. We wouldn’t try to mandate coverage of hair prosthesis in everyone’s insurance. We would give poor cancer patients the money to live with a decent head of hair, allow balding people to pay for it if they could afford it, and not force everyone else to live with the higher cost of insuring these ever more expensive, non-catastrophic procedures.
Under this system, people would still seek preventative care, and more people could afford it because the procedures would be competitively priced. A huge amount of health care capital would be freed from the burden of insurance paperwork that doctors and patients must fill out for even the most basic procedures. Insurance’s purpose would be to mitigate risk, as it was in the good old days when health care costs were declining.
Besides this voucher system, other reforms, such as allowing insurance to be sold across state lines, would reduce health care costs and increase quality. But the voucher system alone would guarantee lower costs and increased quality, including for the poorest among us.
This voucher system is the compromise we’ve been looking for. Let us take a moderate, meaningful approach towards this polemic debate, and embrace a solution that’s a win-win for all.