Health insurance, without the "insulation"

When we build a home, or buy one that has been previously owned, one of the major concerns is about how well insulated it is, as well as with what materials. Keeping out the cold in the winter, or extreme heat in the summer, is essential, unless we wish to pay exorbitant heating and cooling bills year-round. However, the same does not necessary go for paying to maintain our physical well-being; sometimes paying for services at the point of service can actually save us money, and sometimes too much "insulation" can be a bad thing.

The lead commentary on this page this week (at least at the beginning of it) appears to coin a phrase this editor has been groping at for some time now. In his Cato Unbound piece, Arnold Kling poses the confrontation of Insulation vs. Insurance, thereby concisely defining the real battleground upon which healthcare reform must be fought. As he notes quite correctly, the biggest obstacle to true reform in the system is tied to how quickly we can wean people off the viewpoint that "health insurance" should be a first-dollar-spent process, covering every minor incidental expense, and how rapidly they can adjust to it as the emergency-brake on catastrophic expenditures it was initially intended to be.

Kling's take on the matter is simple: He terms current American health coverage "insulation, not insurance. Rather than insuring them against risk, most families' health plans insulate them from paying for most health care bills, large and small." Real insurance, he notes, "such as fire insurance, provides protection against rare, severe risk . [and] is characterized by: low premiums, infrequent claims and large claims." He contrasts this with most employer-provided insurance and Medicare, and policies written for the vast majority of Americans: "Families typically are paid claims several times per year, often for small amounts. Premiums are high - often exceed[ing] $10,000 per year per family."

The problem is, since most families only pay those premiums via the reduced take-home pay their employers might be giving them instead, they have no idea how much the services are costing, except in the often trivial co-payments they may be making. As Kling notes, "Real insurance would pay for treatments that are unavoidable, prohibitively expensive, or for illnesses that occur relatively rarely. Instead, insulation reimburses even relatively low-cost services, such as a test for strep throat or a new pair of eyeglasses."

As noted above, this editor has been trying to make this point for some time now: Until the concept of "health insurance" becomes about ensuring against huge financial calamities, instead of covering every sniffle and headache, we can hardly expect that "reform" is remotely possible. If there is to be any chance of shifting the paradigm, it must begin with the self-responsible among us taking charge: opting out of full coverage policies for catastrophic-only coverage, switching our primary healthcare allocations into medical savings accounts, and relying on continued wellness as the goal, not perfect insulation from the vagaries of life.

By focusing our attentions on the relatively low cost of annual checkups and screenings, and paying out of our own pockets at the time of service, we not only minimize the amount that goes out for "insurance," but we also may save considerably over the actual cost of such services, through discounts offered by beleaguered healthcare providers who get to save on all the paperwork and bureaucracy being sidestepped.

But what about those situations where there truly is a major ailment and expense involved. Kling again offers a scenario. Citing his own book, Crisis of Abundance, as reference, he notes that "Real health insurance would pay claims to people who come down with expensive illnesses. Typically, these expenses accumulate over a period of years." He postulates "a health insurance policy that you buy this year, but reimburses you in five years, based on cumulative expenses. Such a policy might pay nothing if your total expenses over the next five years are less than $30,000. It might pay 100 percent of expenses thereafter." Buying a string of such policies, overlapping by a year or so, would, in Kling's view, "provide a better safety net than the annual policies that we have today. The typical catastrophic illness does not stop requiring treatment on December 31."

Another option he presents is a policy that only kicks in with specific payments for specific major ailments: "First-stage breast cancer might result in a $25,000 payment. A heart condition requiring major surgery might result in a $40,000 payment. And so on. Only major medical problems would trigger claims, and payments would be for fixed amounts, not for reimbursement for procedures."

Once again, a prescription for a pathway out of this morass is presented. The question now is, what can we do to perpetuate this free-choice meme throughout the culture, so that the current outcries from all across the political spectrum for nationalizing the problem may be turned aside? It's not going to be easy, but it is going to be necessary.

Source

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For greatest efficiency, lowest cost and maximum choice, ALL hospitals and health insurance schemes should be privately owned and run -- with government-paid vouchers for the very poor and minimal regulation. Both Australia and Sweden have large private sector health systems with government reimbursement for privately-provided services so can a purely private system with some level of government reimbursement or insurance for the poor be so hard to do?

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