Health Care: Strategies and Realities

tl;dr: Health Care isn’t “complicated”, it’s hard: there’s no way it can be fair.

The recent collapse of the Republican health care initiative is instructive. As are the excuses offered. Back in February, President Trump called it complex (“complicated”):

(He also outlined his fall-back plan, which is to let it fail, then pick up the pieces (1:40). But “that’s not the fair thing to do for the people” (1:47).)

But what’s “complicated” isn’t really health care, it’s the network of delusions and self-deceptions people use to hide a simple fact about health care: there’s no “fair” way to pay for it.

The fundamental issue has to do with what the term “fair” actually means, but before I get to that let me briefly describe what health-care insurance is all about:

Insurance, in general, is about one party paying another to assume some risk. Properly set up, there’s a contract that describes exactly what risk is being assumed (“coverage”) by the insurer, and what will be paid (“premiums”) by the insured.

In the theoretically “free-market” system espoused in the US, there are many competing insurers, mostly public-stock corporations (“insurance companies”). Each such insurance company makes its own evaluation of the risk it will be assuming, and determines a premium amount that will, en masse, produce a reasonable profit.

If they set their premiums too high, they won’t get much (or any) business, because customers will choose companies with lower premiums. If they set their premiums too low, they will go out of business as total premiums fail to support their total payments in claims.

In the US, tradition includes a large amount of regulation of the insurance business, nominally to prevent fraud and large-scale errors, as well as to supposedly impose some notion of “fairness” (see below). Much of that regulation is at the State level, although there is considerable Federal and lower-level regulation as well.

Now let’s focus on medical insurance.

For individual coverage (single or family), insurance companies look at various factors such as age, general health, etc., and classify potential customers into premium categories to determine how much to charge for what classes of coverage. Customers can then choose among a number of different policies from different companies, depending on how they like the benefits for what they are prepared to pay.

Although regulation substantially interferes with the market process, let’s assume just for the sake of discussion that market competition allows various companies to set up various plans for coverage and premiums according to their underwriters’ best guesses of risks vs benefits.

So you, as a customer, get a series of quotes for the coverage you want, and end up paying a certain premium. Your neighbor, who has an unfortunate inherited condition, will have to pay considerably more for the same coverage.

This is where “fairness” comes into it.

Is it “fair” that one person should have to pay much more than another for the same coverage? Insurance regulators could “fix” this by requiring insurance companies to group people into the same categories without looking at your neighbor’s conditions. Then you and your neighbor will have similar premiums.

But this raises another issue: is it “fair” that you should have to pay higher premiums to cover the added cost of your neighbor’s condition? Because when the company groups you together, the net premium will be higher for you so it can be lower for your neighbor.

Here we can see the simple semantic issue with “fairness”: what people usually mean by “fair” is some sort of equal treatment according to a certain perspective. But change the perspective, and the “equality” changes as well.

Should each person (or family) have to pay only for its own medical issues? Should different people, with different health risks, have to pay different amounts for similar coverage? Can you have it both ways?

(A traditional system is “group insurance”, where many people with different risk factors are classed together. Most often by employer, where laws often require(d) employers to contribute. The employer contributions help to hide the fact that premiums are still “unfair” one way or the other. This has declined in recent decades as employment has shifted from full-time employees to “contractors” and part-time to avoid the cost of such contributions.)

A simplistic, and socialistic, “answer” is “single-payer”, in which the “gubmint”, or some agency thereof, does it all. But this doesn’t solve the “fairness” problem, it just hides it under a cloak of bureaucratic obfuscation.

The primary issue with “single-payer” is that without market competition there’s no control to keep the insurance bureaucracy honest. Of course, similar could be said about the network of complex regulations imposed on the insurance market by various government agencies today.

It (“single-payer”) isn’t really about “fairness”, and can only hide the essential issue: depending on your perspective, it isn’t “fair” to make different customers pay different premiums, but it also isn’t “fair” to make you pay higher premiums to cover your neighbor’s condition. (Of course, if you’re the one with the condition, you may feel otherwise.)

There’s another way to bring the “gubmint” into it: have it pay subsidies to cover conditions most people don’t suffer from, so you pay a fair premium for your health, while your neighbor pays a similar premium once the subsidy is applied.

But this doesn’t solve the problem.

All it does is shift it to the taxpayers, in proportion to how many taxes they pay. Is it “fair” that taxpayers should have to cover the higher premiums for people with health conditions?

Most of the “complexity” in the health-care issue(s) involves efforts to hide this simple but hard problem: it can’t be made “fair”.

So is it hopeless?

Certainly not. If the goal is that every American should be covered, the first thing should be to decide how much emphasis should be placed on which type of “fairness”. This means that it isn’t “fair” that somebody should not have coverage just because they can’t afford it, whether due to low income or expensive conditions.

Either the taxpayers or those who can afford coverage (or both) are going to have to pay. Either way, preserving a working market competition will be desirable to Conservatives and Libertarians. Note that even “single-payer” will have to solve this problem of who pays. It just won’t have the help of market competition to spur innovation and efficiency.

But if market competition is going to be preserved, a system of subsidy that does so will have to be set up for tax-supported contributions.

And a system of regulation will have to be set up to impose higher premiums on healthier/wealthier people for their contribution.

The key is simple: stop trying to hide the fact that somebody’s going to have to pay for those who can’t pay for their own. Then it’ll be much easier to negotiate how those payments are arranged.

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store