This is an open discussion about health insurance. I don’t pretend to be an expert, so please add your thoughts and/or tell me how wrong I am. The discussion comes in three parts, and this is part 2.
Despite the obvious societal benefits of health insurance, there are a lot of obstacles that prevent it from functioning properly. Mostly focusing on the US, I list some possible challenges below.
- Adverse selection – Generally, when people have greater risk of health problems, they have an inkling of it, and are more willing to buy insurance. This raises costs to the insurance company, which raises costs to customers, which blocks out people with lower risk, and creates a vicious cycle. One solution is for insurance companies to charge different rates for different risk groups. However, separating people into risk groups can be expensive, and adverse selection still occurs within each risk group. For some risk groups, the market collapses, and many people (including my robot boyfriend) could not buy insurance prior to the ACA.
- Insurance tied to employment – Another way to deal with adverse selection is to sell insurance on the company level. A typical company will have a mix of employees in different risk groups and it all gets averaged out. This also leads to redistribution of wealth, as mentioned in “Why health insurance?”. However, this leaves unemployed people out, even though it seems that unemployed people stand to benefit the most.
- Denying insurance claims – When you file an insurance claim, insurance companies are incented to deny claims as much as possible. While a friendlier insurance company might attract more customers, there’s no way from the outset to distinguish a friendly insurance company from one that simply claims to be friendly. As a result, they’re all unfriendly.
- Bad payment models – Obama mentioned in his paper that most health insurance companies use a “fee-for-service” model, meaning that health care providers are paid by the quantity of service, rather than quality. Under this model, doctors encourage patients to make many visits, even if inefficient. But it’s hard to find an alternative, since quality of service isn’t easily measurable.
- Redistribution through emergency – In the US we have the Emergency Medical Treatment and Active Labor Act, which requires that hospitals give people emergency care even if the patients can’t pay for it. Hospitals make up the loss by charging more to wealthier patients. Redistribution is great, except that this is a particularly inefficient way to do it. Waiting until people have health emergencies is expensive and has worse outcomes for patients.
Of these five challenges, which do you think are most important? Least important? Are there other challenges that I’ve missed?