by Harry Jarvis
There is currently much debate over health insurance, health care and medical care. To have a rational discussion about these things we must first define them.
Insurance is a system by which individuals share risk. For example, most of us could never afford to replace a home and all its contents in the event of a fire. Therefore we choose to participate in an insurance program (or the mortgage holder insists on this) whereby the insurance company collects affordable amounts of money from many homeowners and pays out large, unaffordable amounts of money to the few homeowners who lose their homes to fire. If the risks are small and nearly equal this works out quite well. Of course there is compensation for the insurance company built into this plan.
Medical care is what you get from doctors, nurses, EMTs etc. It is the people, medicine, tests, hospitals, and devices that fix you up when you are sick or injured. Medical care costs money. Few people provide this for free, nor should they.
Health care is all the stuff that goes into keeping you healthy. It includes medical care, but it goes well beyond that. Much of your health care is in your own hands. You can eat well, get exercise, reduce your exposure to germs, and avoid risky behavior. This is not only free but may actually cost less than an unhealthy lifestyle.
Let’s take a look at health insurance. Like other kinds of insurance, the idea is to spread the risk over a large group. Theoretically everybody in the group pays a little, so that the unlucky ones can cover their medical costs without being bankrupted. But does it really work that way? Consider two people who twist their ankles. One puts it up, throws some ice on it and waits until morning to see if it gets better. The other goes to the emergency room for x-rays, but the x-rays are inconclusive, and the doctor wants to be sure, so she orders an MRI. The patient is not very tolerant of pain, so the doc prescribes a painkiller as well. It turns out that both ankles were just sprained, but one cost the insurance company nothing while the other cost them thousands. The point is not that one person is strong while the other is weak. The point is that the insurance premiums have to account for both sets of behavior. In this case the wait-and-see patient is helping to pay the costs for the fix-it-now patient. The opposite is also true. Sometimes the wait-and-see people end up with advanced cases of something that would have been less costly to treat earlier.
Obviously the ideal behavior is to seek medical care only when it is really needed, and at the lowest cost. But whose cost? If you have to make multiple trips to the doc, taking up your time, or perhaps taking time off from work or hiring a babysitter for each visit, your cost will be high, even if it reduces the total bill that is paid by the insurance company. And when is it really needed? You don’t want to over-react, but neither should you ignore a serious condition.
Keep in mind that insurance companies are in business to make money. They sell a product, just like a shoe store. What you buy from an insurance company is risk reduction. For an affordable amount of money now, they will pay an unaffordable medical bill you might incur later. Like a shoe store, an insurance company must take in more money than it pays out.
In order to keep their costs low, the insurance company would like to give you the minimum amount of care. But, like the shoe store, they have to provide you a decent product for the money, or risk losing you to the competition.
In contrast, most doctors will err on the side of doing something rather than nothing; on the side of more care rather than less care.
Who should get to decide how much care you get? The insurance company? The doctor? You? The insurance company and the doc? You and the doc? You and the insurance company? There are conflicting interests at work.
How are conflicting interests resolved at the shoe store? You buy the least expensive shoes that meet your needs. What if someone else was paying for your shoes? To answer that question let’s think about whether you would drink more or less at a function with an open bar, as opposed to one with a cash bar; or whether you would eat more or less if you paid for the buffet at a restaurant. I think it is obvious; people want more of things that cost less and less of things that cost more. This is in fact one of the basic tenets of economics. It stands to reason that if your medical care seems to be free, either because you pre-paid through insurance (like the buffet) or because someone else pays for it (like an open bar), you will want the best there is and more of it. The problem is that you can’t escape the underlying reality: medical care costs money, and money is never limitless. Somebody has to decide how much care you get. The insurance companies will come up with a one-size-fits all solution. The government will ration care and attempt to price-control it, resulting in lower standards of care.
You, the patient, are in the best position to decide how much care you need, but only if you pay for at least a percentage of it. Your cost must rise with the level of care you receive. Maybe the percentage could be tailored to the financial circumstances of the insured, or some other plan implemented to take care of the poor. That will have to be the subject of another article. But one thing is certain: sharing the cost is the only way to keep the guests from going back to the bar for free refills; the only way to keep the customers from leaving the shoe store with expensive handmade loafers when all they need are basic walking shoes.