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Different forms of financing for different sorts of health care

David Goldhill’s Atlantic article on the U.S. health care system is one of the best things I’ve read on the subject in a while. He’s a business executive, and his interest is in setting up the right sorts of financial incentives for innovation in the sector, but from my reading he’s able to approach the subject in a way that’s ultimately pragmatic, and free of excessive free-market idolatry.

As he points out, the way we expect insurance to cover almost every sort of health care interaction is absurd and hugely inefficient:

Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. We’ve become so used to health insurance that we don’t realize how absurd that is. We can’t imagine paying for gas with our auto-insurance policy, or for our electric bills with our homeowners insurance, but we all assume that our regular checkups and dental cleanings will be covered at least partially by insurance. Most pregnancies are planned, and deliveries are predictable many months in advance, yet they’re financed the same way we finance fixing a car after a wreck—through an insurance claim.

... Insurance is probably the most complex, costly, and distortional method of financing any activity; that’s why it is otherwise used to fund only rare, unexpected, and large costs. Imagine sending your weekly grocery bill to an insurance clerk for review, and having the grocer reimbursed by the insurer to whom you’ve paid your share. An expensive and wasteful absurdity, no?

Is this really a big problem for our health-care system? Well, for every two doctors in the U.S., there is now one health-insurance employee—more than 470,000 in total.

As for single-payer systems, he notes that they might not be able to discover the necessary savings as the demographics of those countries tilt towards the aged:

Whatever their histories, nearly all developed countries are now struggling with rapidly rising health-care costs, including those with single-payer systems. From 2000 to 2005, per capita health-care spending in Canada grew by 33 percent, in France by 37 percent, in the U.K. by 47 percent—all comparable to the 40 percent growth experienced by the U.S. in that period. Cost control by way of bureaucratic price controls has its limits.

This seems right to me: Demographic pressures are real. Perversely enough, if we’d actually improved our health care system 20 or 30 years ago, we might’ve settled on a model like the NHS and got a good few decades out of it. Now that we’re finally getting around to it, it might be too late to adopt that model.

His recommendation is ambitious, and would require a long, continuous transition process, but it’s also quite thought-provoking:

A more consumer-centered health-care system would not rely on a single form of financing for health-care purchases; it would make use of different sorts of financing for different elements of care—with routine care funded largely out of our incomes; major, predictable expenses (including much end-of-life care) funded by savings and credit; and massive, unpredictable expenses funded by insurance.

Whether or not we could ever get such a system, of course, is another question entirely.

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Tagged: health, economics

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