The problem with health insurance

Journal Ironica's Journal: The problem with health insurance 4

Journal by Ironica on Monday November 10, 2003 @04:50PM

Not that this has anything to do with technology, but whatever.

So the health insurance thing has been nagging me a bit lately, as I walk 1.5 miles to connect from the Santa Monica bus to the LA Department of Transportation DASH service, which are both unaffected by the transit strike, and also as I pay 20% more for the same products at Gelson's that I would normally buy from Von's. Whose responsibility is it to make sure that people get good health care? Why is the cost of health insurance skyrocketing? What can be done to stabilize the situation?

Well, it's obvious that health care is in several ways a market failure. It's an industry with a very distorted demand curve, because the demand for health, for *life*, is extremely inelastic. People will pay what it costs, to the extent that they have the money. This means that the price at which total revenue starts to decrease due to drop in demand is much higher than for other types of goods.

Further distorting the demand curve is the disconnect between prices and consumers created by the insurance industry. I was on a particular medication for a year and a half before I learned that the $10 I paid every other month for my bottle was less than 1/50th of the cost to my provider. I found this out entirely by accident; one day, a computer glitch left me without coverage, and I happened to go refill my perscription that day. When I got to the counter and they said "That'll be $558" I nearly had a heart attack.

If I had had to pay for that medication out of pocket, would I still have gone on it? It's hard to say. At the time I started on it, I probably could have afforded it, if I lived in a cheaper apartment and cut other expenses. Would I have stayed on it as long? I don't know. But what is certain is that the price never entered into my decision as a consumer, because I didn't have to pay for it.

So as we gain new technologies that allow us to live longer, healthier lives, and to survive or completely avoid an increasing array of diseases (my kids will be vaccinated against chicken pox... seems like they're missing out on a rite of passage), the insurance system leaves those who are covered feeling entitled to the best medical care money can buy... so long as it's not *their* money. So why is this?

We come to our second big problem... the value of life. Though civil courts every day put dollar figures on the lives of children and parents and community leaders and gang members, we all admit that life, generally speaking, is priceless. When I insure a house, two things go into calculating the premium: risk, and value. A $1 million house in the same environment as a $500k house will have a higher premium, because it will cost more to replace. A $500k house in a wildfire zone will cost more to insure than the same house in a boring urban area.

But when it comes to insuring our health, only risk can be taken into account, because there is no replacement for health. If we could value lives in the same manner as other goods, we might take into account the number of years the person can normally expect to live, the amount of education and natural talent they have, the number of people who depend on them, and so on. This would mean that my mother, a retired 60-year-old breast-cancer survivor and former smoker (38 years), with only one 29-year-old daughter, is less "valuable" than myself, a relatively healthy youngish person who will, if all goes well, have a master's degree and a heck of a career in transportation planning, along with a very young child in the next year or so. Yet it costs *more* to insure people who, in the most callous sense, are "less valuable," because the very things that make one valuable lower their risk of disease.

There is no simple resolution to the issue, as far as I can tell. We will not suddenly start "valuing" people's lives differently, nor will individuals stop demanding the best health care available at a price they can afford. But we can recognize that health care *is* a market failure, and regulate prices in new ways. Perscription drugs are a good place to start. It's true that it costs a great deal of money to develop these drugs, and there is a certain amount of risk involved. But how much of the resulting price does it take to repay that investment, with appropriate interest? Drug companies should be accountable for their pricing. Part of the FDA screening process should include an accounting of what the company's costs to develop the drug were, and a pricing system based on expected demand, production costs, initial investment, and appropriate profit should be devised. Sure, they should make money, even good money. But there should be a limit to how much they can make. The market won't limit it naturally, so this limit has to be imposed.

This model could potentially be extended to doctor's fees, lab tests, and many other areas, but in all cases would require careful analysis to ensure that the prices still yield quality coverage with low potential for fraud.

It's not enough to say that people should have access to good health care. Something has to be done to actually ensure that access. While 60,000 low-income children are wait-listed for health insurance in Florida, 700 retired MTA mechanics hold the entire transit system hostage with a strike that doesn't affect them, so that they can retain their practically free health coverage. The cheapest and potentially most rewarding people to keep healthy are left by the wayside over those who are the most expensive and offer the lowest return on investment. It's clear that something has failed, and we need to fix this soon.

This discussion has been archived. No new comments can be posted.