Can Private Health Insurance Work?

Efforts to fix our health insurance system have found no found shortage of critical flaws in the “market”. I have yet to hear a coherent argument for the continued existence of private health insurance. Health care differs in three critical ways from traditional markets. Taken together I doubt that it is even conceivable for a private market to exist for health insurance.

In a true free market those who got sick and couldn’t afford care would be left to die or suffer the consequences of their conditions. This is a rational, yet morally abhorrent policy. Even the most die hard free marketers don’t advocate this. The unwillingness to condemn the poor to preventable death is the first significant obstacle to a functioning private health insurance market.

The second critical obstacle is the great variation in expected health care costs. Insurance markets are designed to protect individuals from significant deviations from expected costs. Consider auto insurance, every driver faces some risk or an accident, but few expect to total their car in a given year. By pooling risk, the small percentage of drivers that do suffer serious crashes can avoid financial ruin.

But this logic in no way applies to health insurance. Many people suffer conditions that have high known costs. If you are HIV positive or have Diabetes or are paraplegic medical costs are not an unexpected catastrophe, they are a known expense of life. Only the richest individuals can cover these costs out of pocket. Insurance can’t solve this problem only subsidies can.

Timing is the third critical difference between health insurance and traditional health markets. For insurance to function a claim must be tied to a specific instance. A fire, a car accident, a death are all discrete events that can be placed at a specific moment in time. The bulk of health care spending is spent treating chronic conditions. Who’s to say exactly when a person developed high blood pressure or depression. Furthermore, health conditions incur costs that continue long beyond the length of an insurance contract.

Efforts to twist private insurance around these three restraints are destined to produce warped markets and twisted incentives. The regulations currently oozing through congress will make life better for many people, but they do not address the fundamental incoherence of private health insurance.

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4 comments to Can Private Health Insurance Work?

  • raymond

    Where should the government stand regarding personal suffering since no one deserves to starve or die?

    Regarding health plans,
    Congress members know that having more consumer choices is the way to go, at least for themselves.

    They have some 13 health plans they can choose from. If they are unhappy with the one they currently own, they can purchase another for the next year.

    If the free market is good enough for them, it’s good enough for every American. Sell that planned crap to someone else.

  • In order to have a coherent discussion, you must first show where free markets in health care in America have failed. That is not possible because there have been no free markets in America for decades. There is not a single area in the health care industry that has not been warped beyond recognition by massive government intervention.

    As far as people being left to die, have you not heard of the human invention called charity? Most hospitals began as charitable religious organizations 100+years ago, long before government decided tmo solve everyone’s problems. The current manpulations have killed charitable organizations in health care and made people dependent on big brother, just as the father of progressiveism, Otto Von Bismark, planned. He was not interested in charity, but only making citizens dependent.

    You are utilizing the most basic of economic fallacies, the idea that it is free if govenment provides it. Your entire train of thought is incoherent because you start from propositions that are grossly false.

  • Raymond, I completely agree that extending the coverage that congress gets to the general population would be the ideal solution. You do realize that you are advocating a single payer system?

    Dan, you challenge me to find an example of the free market failing in health care. I challenge you to find an affordable health insurance plan for a 50 year earning $30,000 a year.

    There is a reason that no modern developed country relies on a pure market system to provide health care. There is simply no way that private charity could provide for the millions of Americans who have conditions which require expensive treatment.

    Furthermore, without government programs like Medicare, VA and Medicaid there would not be a large enough customer pool to justify developing expensive treatments for diseases like cancer and HIV as few people could afford those treatments.

    Competitive insurance markets work can work for young and healthy people, but there is no way that a private company will insure someone with diabetes that for anything less than the cost of treating diabetes. If your proposed system does not address this problem it will certainly leave people to die from treatable conditions.

    My challenge to you is to find an example of another rich country that gets worse value for their money than US.

  • Raymond

    If there are limited choices in the market, the government is probably involved.

    http://mises.org/story/3657

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