Map of life expectancy at birth from Global Education Project.

Monday, October 12, 2020

My periodic health care 101 post

One of the most important issues in the upcoming election -- as it has been now really for decades, to some degree -- is of course health care. (I prefer to say "medical services," for a couple of good reasons, but I'll have that fight another day.) Conservative politicians like to extol the so-called free market™, and tout "market solutions" to health care. The libertarian fantasy free market™ does not in fact exist, never has existed, and never can exist.

It is true that markets of one kind or another are effective ways of organizing production and distribution of goods and services, and allocating resources, in many instances. But markets are always regulated, and structured by law, policy, and government intervention. They are not forces of nature, they are socio-political constructions, and in complex modern societies that construction is and must be done by government. I won't go into this at greater length here, but if you want to argue with it as a general assertion you'll be in trouble. 

It is also true that we learned in the 20th Century that societies that have substantial sectors in which private enterprises operate within these structured and regulated markets, have been more prosperous and sustainable that societies in which state-owned industries dominate the economy. Whether someone might be able to come up with a model for state dominance that works better than actually existing communism is imponderable, but it hasn't happened. However, every successful society with a large private economic sector also has a large public sector. Road and bridges, ports, most of education, law enforcement, fire protection, national defense (and offense), and more, are government enterprises. Where they are absent, you have Somalia, the libertarian paradise.

But in the case of health care, the model of a structured and regulated private market does not work at all. This is because of fundamental, immutable properties of the service in question. The first, which is largely decisive in itself, is that any individual's need for it is unpredictable. You need a certain amount of groceries every month, you need housing, you need clothing. Rich people will have bigger and fancier stuff, but we can determine what a basic minimum income is that will provide enough calories and shelter for people, and allocate all that in markets.

That doesn't work for health care, because you might need none at all this year and $100,000 worth next year. That's largely out of your control. Sure, don't smoke, don't drink too much, wear your seat belt, don't have a gun in the house -- but even if you do all those smart behaviors you still might just be unlucky. 

So okay, maybe it's like homeowner's insurance. Your house might burn down so you pay the premium, and we can tell people to do that and if they don't, tough luck. But there are a couple of problems here. If the house burns down, the insurance company pays off, you build a new house, and you can still get insurance. It might cost you a bit more but the assumption in most cases is that it wasn't your fault and your risk is not that much higher than anybody else's. On the other hand you can't get insurance in a flood zone, for obvious reasons, unless the government subsidizes it, which (unfortunately) they do.

However, if you develop a chronic illness it won't just cost money once, it will be costly year after year after year. That's what we call the dread "pre-existing condition." Insurance companies compete with each other on price so if they want to be able to sell insurance cheaply, they will kick you off. If they knew your house was going to burn down every year, they wouldn't sell you homeowner's insurance either, but that situation does not occur.

To be continued . . .

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