Why we need (at least) ObamaCare
February 20, 2011
This is NOT NEWS. 20-some years ago, just married, my wife was taking a graduate-level microeconomics class, I was helping with the math and enjoying all the pathological examples. One of the examples of market anomalies was the asymmetrical information problem in health insurance purchase. You know more about your health than the insurer; if you are sick or expect that you will be soon, you are unusually motivated to purchase health insurance. Healthy people (or people who think they are healthy, and the Lake Wobegon Effect says that people will overestimate their future health) will be less motivated to buy insurance.
Insurers know this, so it drives up the price of health insurance. They’re only interested in selling health insurance to people who don’t think they need it. That’s some catch, that Catch-22. And the higher the rates, the more “healthy” people are dissuaded from buying, which drives up costs (drives down revenues) for insurers.
Group insurance (what many employed people have) dodges this problem by (1) only insuring people healthy enough to apply for and get a job, and (2) by demanding that everyone in the group, buy insurance. The tax break helps, but the mandatory nature is key. Universal care (single-payer/single-provider) works because the insurance is already paid for (by taxes). ObamaCare (Germany-Care, Swiss-Care) works (once fully enacted) by requiring that insurance companies take all applicants, by regulating rates, and by making insurance mandatory. By removing the difference in behavior between sick and not-sick people, it removes the information asymmetry problem. Eventually, this turns insurance companies into something like regulated utilities.
It’s probably more efficient (better care for less money) to do away with the insurance companies and go directly to single-payer (like Canada), but many of our Representatives and about half of our Senators care more about the continued existence of the health insurance industry, than they do about saving money and keeping us healthy. They’ll deny it, but the data from all the other countries suggests that is the effect of the choice that they made, and actions speak louder than words.
As an example, MassHealth (state-run Medicaid) has administrative costs of just 1.5%, compared to 9.5% for private insurers.
Economists all know this, too. Any “economist” who says otherwise is an idiot, or corrupt, or a liar. Watch your wallet, take names, hold a grudge.