Lost in the details of the health insurance debate—in the weeds of opiate addiction, preexisting conditions, penalties for noncontinuous coverage, and essential health benefits—are two big questions: What, exactly, is health insurance? And what is health insurance supposed to do?
As the definition and purpose of health insurance have evolved well past their original meaning and intent, the challenges in reforming the U.S. health insurance system into something useful for patients have grown more difficult.
Compounding these challenges, President Donald Trump, much like former president Barack Obama, has promised to deliver an economic impossibility: health insurance that is cheap, high-quality, and easily available to all. Consequently, Congress and the American people are chasing a mirage.
The Nature of Insurance
In pure form, health insurance does not even pretend to do what most Americans, Trump, and Obama say it should. Its nature is not to provide access to a doctor or other health care professional. It is not meant to be provided by your employer with no consideration of your health status. It is not meant to cover diseases you already have. It is not meant to cover routine checkups. It is not meant to cover largely planned or elective events, such as pregnancies. It is not meant to be priced the same regardless of your health status.
Health insurance do is supposed to allow you to pay a small amount on a regular basis while you are healthy in order to limit your total expenses in the event of a new, catastrophic medical event. The sole natural purpose of health insurance is to save you from unexpected financial ruin. No more, no less.
True health insurance is purely a financial instrument useful to pay for unforeseen catastrophes. It should resemble auto insurance, which prevents a total loss in the event of a car accident, and homeowner’s insurance, which does the same after a house fire. As merely a financial mechanism, health insurance is incapable of improving your health care, and it should not influence employment decisions or serve as a prepaid health care plan.
Good Intentions Gone Bad
Today’s intertwining of health insurance and health care merely compounds prior policy accidents piled on top of one another. It started with a decision under the administration of President Franklin Delano Roosevelt to allow companies to offer health insurance benefits to attract employees when wages were frozen during World War II. The intermingling continued with the creation and vast expansion of Medicare and Medicaid.
Obama and Congress codified the conflation of health insurance and health care in 2010. Under the Affordable Care Act, routine checkups, federalized minimums, no individual underwriting, and no refusal of payments for conditions occurring pre-insurance, among other features, were enshrined into law as the sphere of health insurance. More devastatingly, ACA further, and possibly forever, distorted the very concept of health insurance in the public psyche.
Fundamentally Transforming Health Care
The federal government’s accumulation of market distortions ruined the simple and very viable idea of what insurance is—protection from financial ruin—and turned it into something it cannot effectively be: a guarantee of cheap, abundant, high-quality health care access for all. That’s a fine idea, but it is not health insurance.
ACA tried to make health insurance into something it is not. That is why the federal government had to, for the first time, mandate its citizens buy insurance or pay fines. That is why federal officials had to transfer taxpayer dollars directly to insurance companies to subsidize their products, ACA having destroyed the actuarial tables that make insurance sustainable. That is why insurance companies are stampeding away from the individual markets.
And that is why the imposition of federal health insurance in this country has failed so badly in providing access to all (if you liked your doctor, you could not keep him or her), lowering prices on policies (ACA did not save $2,500 per family), and allowing us all to enjoy high-quality plans (if you liked your plan, you couldn’t keep it).
Economic Reality Bites
People argue health insurance is different from other consumer products because it is cruel to deny health care to others, or because anyone can get an expensive illness or injury at any time, or because everyone will need health care at some point in their lives. This emotional perspective does not overrule economic reality.
No product or service can remain cheap, abundant, and high-quality. If something is cheap and high-quality, it will not remain available for long, as people will rush to take advantage of it. If it is cheap and abundant, there cannot be a sufficient supply of excellent service providers to keep it high-quality. If it is high-quality and abundant, it can’t remain cheap and attract enough suppliers to meet demand.
Health care may be unique emotionally, but economically it is no different from anything else. Most people only think they want insurance. What they really want is health care. Conflating the two at the federal government level got us into this mess. Further intertwining them will not get us out.
Scott Ehrlich ([email protected]) is chief operating officer of the health care marketing company DTC Perspectives, host of the podcast Debating Health, and a policy advisor for The Heartland Institute.
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