Saturday, September 24, 2011

Donorcycles and the Medico-Insurance Complex

Since everything your mother told you about motorcycles is true, it follows that motorcyclists should have a particular interest in the ongoing debate about the state of American health care and insurance (aka Obamacare, Romneycare, creeping socialism, Nazism...)

Opponents to a public option for Americans' health insurance love to begin their arguments with, "We've got the world's best health care system..."

And in truth, if you're rich and or very well covered by your work plan, you may well have access to the best, or at least world-class health care. But it comes at an enormous price, which you'll be well aware of if you pay for the premiums on your own. And it's not a high-price/high-quality/high-value system. Americans spend far, far more in both absolute and per-capita terms for health care than do the citizens of any other nation. And yet, Americans' health and life expectancy are no better than Lithuanians'.

It turns out that if you are administered a $40 aspirin in an American hospital, it's not any more effective than the four cent one given to a Lithuanian.

This cost affects the entire economy. If you've got a job which provides health coverage, the huge premiums you share with your employer amount to a payroll tax by another name. Over the last 30 years, the percentage of the U.S. GDP devoted to health care has doubled, to nearly 20%. While that growth in the Medico-Insurance Complex has enriched a few people, it's not really a productive use of resources (nor is it really making the people being treated more productive; for starters, about a quarter of all those expenditures are made in the final year of patients' lives.)

You want to talk about a jobs program in an election year in which the economy's in the toilet? The single biggest impediment to job creation is the cost of adding employees to group health plans.

One solution would be to just reduce the amount of care given. That's politically unpalatable. That leaves reducing costs.

You may be thinking, Surely the insurance companies are trying to reduce costs; after all, they're the ones paying the bills.

Wrong-o. In fact, the insurance companies will never, ever, bring America's spiraling health care costs to heel. Why? Because there's simply no incentive at all to do so. There's not even a feedback mechanism in place to encourage them to try.

As a private, uninsured individual, you've got a huge incentive to control costs, because any trip to the hospital is a personal financial catastrophe. (Half of all bankruptcies are caused by medical expenses.) But insurance companies don't hate big payouts. They only hate big unanticipated payouts. So if the levees break in New Orleans and a hurricane does far more damage than the insurance companies expect, that's a problem for them.

Your crash in turn four, that causes you to need $60,000 dollars in orthopedic surgery, probably comes a surprise to you. After all, if you'd known you were going to crash that day, you wouldn't have ridden. And while the health care problems of any one insured person are hard to predict, the health care problems that will occur over a huge population are extremely predictable, and insurance companies have hordes of actuaries to carefully calculate such probabilities.

Once the probabilities are known, insurance companies decide how much they'll pay for related medical services, and set premiums at a level that guarantee profitability. Obviously, health care providers have every incentive to increase costs, and perversely the insurance companies actually benefit from high costs, too.

Insurance companies benefit from high costs? First of all, if you had access to much more affordable health care -- say, you were racing your motorcycle in India, which is where your U.S. emergency-room doctor was trained anyway -- that $60,000 treatment might cost $6,000. In that setting, you might well choose to self-insure. The fact that in the U.S. virtually any treatment is bankruptcy inducing is, in fact, the strongest argument in favor of having insurance. And, since eventually even insurance companies would run afoul of the few remaining regulators if they operated at higher and higher margins, it's only by increasing the gross costs of health care delivery that they can be sure of increasing their net.

So you see, decreasing the cost of health care in the U.S. would actually hurt insurance companies financially. By contrast, denying coverage; that goes straight to the bottom line.

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