I feel like this point sometimes gets obscured in the debate about health insurance. And it's this: technology has reached the point where a health insurance market is a bad way to allocate health care resources.
I know that sounds (to most conservatives, anyway) like 'well, you just don't believe in the power of the free market'. But I do. I just identify a problem that I would love to solve, but don't think there's a solution to. If you already agree, that’s great; if you don’t, please hear me out.
(This is a long essay about insurance. It leaves out a big part of the issue - that a free market in health care, as opposed to health insurance, is ultimately a brutal eugenics-based society. But that's for another time. Just know I don't attempt to address the question here of "well, what about just paying for health care directly and forget about insuring it?")
Let's first review risk. Insurance is a perfectly fine consumer product in that it is a way to purchase someone else's assumption of your risk.
That sounds complicated when I say it. But you all know what I mean. We know there's some specific misfortune that happens to a few people and we don't know who it will happen to. If ten thousand people each own a house for twenty years, five of those houses will burn down - randomly. Without insurance, those five people would lose everything. That seems unfair and bad.
We'd like to prevent them from losing everything - because when fires happen, it probably wasn't the owner's fault, because we figure everybody's in the same boat. Nobody knew whose house was going to burn down ahead of time. Even if it was technically the owner's fault, you kinda figure everybody's stupid once in a while and it was just bad luck that this particular time the poor guy left a candle burning - which we all do, or something else similar, once in a while - and it was his house that burned down.
Right. So. We invented the concept of insurance. A guy goes into business and offers to take on risk, in exchange for money. He gets a bunch of people to give him a hundred dollars every year, and he signs an agreement that if any of their houses burn down, he pays them for the house and everything in it, so they get to build a new house and go on with their lives.
He's taking on the risk. But because that hundred dollars every year from each of ten thousand people winds up being a huge ton of money, it's no longer a risk to him - he can afford to pay out whenever somebody needs it.
But what if one guy always leaves candles burning in his house, and over the last ten years his house has burned down three times and insurance has already paid out three times? Here we get to concepts like moral hazard - he's doing something stupid and getting rewarded instead of punished - and that gets into why insurers have actuarial tables. We all figure it's reasonable for the insurance guy to refuse to do business with him, or at the very least to start charging him more than he charges other people, because now he represents more risk.
Insurance companies spend most of their time and effort trying to figure out exactly how much risk each policy represents - how much risk protection they're actually selling you. If they're selling you protection from more risk - because your situation represents more risk - it should cost more, right? Whether it's life, auto, fire, malpractice, or whatever, insurance companies pretty much get to do some invasion of your privacy, snoop around in your history and learn your reputation, because we figure that's fair. It's a free market; people should be able to figure out whether someone's hiding a bad deal from them before they make it. Somebody should get to decide to do business with you only if you give them the information they need in order to make an informed decision.
But here's an important part of that: it's fair because most of the risk factors tend to be behavior and choice related. If you're a smoker, you're going to die sooner; you pay more for life insurance - but you could just quit smoking. If you've been in a couple of car accidents, you're probably a bit of a sloppy driver and you will pay more for auto insurance - but you could go take a class and learn to drive better. If you chose to buy a house in a flood plain, you're going to pay a lot more for flood insurance - but you chose that house, it's your own fault. And so on.
But the thing is, for this to work there has to be actual risk involved - a veil of ignorance over the situation, on both sides - otherwise what's being covered isn't risk at all. While the insurance policy payments are being made, up until the payout, neither party knows whether the insurance payout will be triggered; the insurer has just figured out the statistical probability. But the dice haven't been rolled yet.
And then once it's triggered - once the bad event has happened - it's one payment, one event, and it's over. And if that event was your fault you will find it more expensive or more difficult to get insurance afterwards, and if it was not your fault then you shouldn't represent any greater risk, and you should be able to prove that to the insurance company, that there was nothing you could have done differently, and that ought to mean you're still the same as everybody else and don't represent any greater risk than you did before, and if you can prove that then they shouldn't raise your rate. That's what we all think of as fair.
But now we have the problem of health care and technology.
Back when we started doing health insurance, medical care was a lot like home repair. Something happens, you need work done, you get the work done, it's over. Medical insurance could handle things like broken arms. Or acute illnesses - you get a treatment and you get better. A treatment. One. One event.
Chronic conditions happened but we mostly couldn't do much about them, until relatively recently, except hope your body could heal itself. Or you could change your habits (like with diabetes).
But we have over time developed better and better methods - technology, tools, medications, therapies - for chronic conditions. And that is where the model of paying for it with insurance starts to have a problem.
Insurance is based on making payments while nobody knows whether an event might happen. Neither you nor the insurance company should know whether you're going to need medical care. And for stuff like broken arms or meningitis or other acute problems, that's fine.
But it's not how it works anymore.
We want, we need, and we do know more now. And a lot of what we know about projecting future health is not based on personal choice. I'll get to that in a bit. But let's just start with the fact that now we can do a really good job of projecting future costs..
As soon as you're diagnosed with a chronic health issue, whatever that issue is, you're a bad risk for the insurer. He no longer wants you to hold the policy you have, because now you're suddenly not a good risk, you're a bad risk - and often a certain loss - to the insurer.
Payment for your first instance of therapy for a chronic condition is fine. Everyone was ignorant until then. But once the diagnosis hits, it’s not just a risk but a certainty that there's going to be more payout. For as long as you hold the policy.
And that's part of the problem. The payment doesn't happen all at once. It happens in drips and drabs. Of course, one could theoretically write insurance contracts to be unbreakable, so the insurer agrees he'll never adjust your policy no matter what new information comes up. But that leads to a whole slew of problems… for example, if there was evidence of the possibility of this chronic condition at some point in your past, which you didn't disclose, it could be fraudulent. And what constitutes "evidence of a possibility"? Well, that's for lawyers to decide. Really persuasive lawyers cost a lot of money. Who has money to hire really good lawyers? You, or the insurance company? I do hope you see this is a problem. And you, meanwhile, after your diagnosis, have to go on with your life. You might move or change jobs. (You might lose your job, and your access to your insurance policy, or even your ability to pay for insurance, because of your chronic condition.) Your situation might change and you might find you need to switch your policy to some other insurance company. Free markets, remember, are like that.
Who's going to agree to take on a fresh policy to insure you, now that you're not even just a bad risk but a certain expense? Nobody. They'd be fools. They'd go broke.
Obamacare - the PPACA - deals with this problem by hacking the market - by drawing an artificial veil of ignorance over the deal. It says insurers have to ignore most of what they can learn about you, and offer everybody the same sets of policies at the same price structure. But that by itself would actually produce a much worse problem: since chronic care doesn't have huge costs all at once, if insurers have to take you regardless of what level of risk and what certain expense you represent, you wouldn't have to buy insurance to cover chronic conditions until you were diagnosed with a chronic condition. Insurers would then never make any money; the only people holding policies would be the ones whose houses had already burned down. So the PPACA draws an artificial veil the other way too - it says everyone has to buy insurance, and the insurance has to cover a ton of different things. It's to prevent the market from collapsing, which it's easy to see it would otherwise do if you didn't let insurers make preexisting conditions unaffordable to cover.
That's why we have the PPACA and why taking away only part of it doesn't work.
So that's part of the problem with free-market health insurance, but I want to address one other piece of this, and it's the existentially terrifying piece. Not to people who are facing this problem already, but to healthy people - the ones who think the whole issue of government getting involved is a bad idea. The ones who think they're grownups and can make their own decisions. The ones who don't want all this complexity.
See, risk assessment for insurance - any insurance - carries with it the implicit idea that when you, as an insurance customer, are revealed as a bad risk, it's your fault. That you could do something about your risk level if you wanted to. That underlies almost everything about how we think about insurance.
If you have high auto insurance rates, it's because you're an unsafe driver, and that's because of how you drive. If you bought a house in a flood plain, that was your choice. If you regularly get sued for malpractice, you're probably sloppier than the average doctor. We all know random things can happen, but we also have a moral sense that people who are bad risks are at fault in some way - that they're bad at the thing they're insuring themselves against, and if they wanted to enough, they could just get better.
The idea that the Universe treats some people unfairly for no reason is terrifying. And it is especially terrifying to people who are not currently being treated unfairly. Because we all want to imagine we're masters of our domain; we have control over what happens to us in our lives, that for as long as we're good, hard-working people, mostly good things will happen to us.
That's not how it works. Not when it comes to the genetic and morphic behaviors of our own bodies. And that fact is a primal and existential terror - the primal and existential terror. It is our own mortality.
Oh, we have some control. We can eat healthy and exercise. Sure. And we can follow every single kale-based fad that comes along and imagine to ourselves that we're effectively managing our risk of cancer, of heart disease, of psoriasis, of whatever thing the fad promises. But at some level we also realize we don't really have control. And that's terrifying. We'd rather not admit it.
That is, I think, at the core of why healthy and able-bodied people sometimes fight so ferociously against a health system that isn't market-based. Because otherwise they'd have to admit to themselves that it's mostly luck. That their health isn't something they control or earn. That their own bodies could have turned on them and it wouldn't have been something they could have prevented. That makes anyone who thinks about it for very long want to run and hide.
Your body could betray you at any moment. It might have done so already. For some people it has already happened - sometimes at birth. And you can't do anything about it. It's not because God is punishing bad people for sin, or that people just suffer some natural consequence of some risky behavior - it's because some people just get screwed by biology.
Today we have the resources to unscrew a lot of that screwing. That's the amazing and exhilarating thing.
But the people who get screwed aren't the ones with the resources to afford to get unscrewed. So just offering solutions for sale doesn't work. That's why we do things like have insurance.
But chronic problems aren't a risk you can offset with free market insurance once you know about it, because it's an ongoing certain cost. Insurance only works before you roll the dice. With a chronic health problem, the dice already got rolled. You can't make a bet covering a snake-eyes result when the dice are already showing snake-eyes. When you're twenty-five and the oncologist tells you that your testicles have been replaced with a pair of dice showing snake-eyes. When some infants come out of the uterus holding a pair of dice showing snake-eyes.
Free markets are based on the universe being fair. We want, deep down, to believe the universe is fair. It's not.
I noticed something a long time ago. The people who say "Life is unfair, get over it" are never the ones life is currently being unfair to. They think it's being fair to them, and that you only think it's unfair because it's your fault. Every time. They say it because they don't really believe it. Which is ironic, because life really is unfair. But "get over it" is the wrong response.
The whole point of technology and civilization and human advancement is that we found some things that were unfair and worked to make things less unfair. Medicine helps make things less unfair. So does insurance, when it works; that's the point of it.
But insurance doesn't work for delivering medicine.
