It’s explained here:
Let’s start with basics: Insurance protects against the risk of something bad happening. When your house is on fire you no longer need protection against risk. You need a fireman and cash to rebuild your home. But suppose the government requires insurers to sell you fire “insurance” while your house is on fire and says you can pay the same premium as people whose houses are not on fire. The result would be that few homeowners would buy insurance until their houses were on fire.
The same could happen under health insurance reform. Here’s how: President Obama proposes to require insurers to sell policies to everyone no matter what their health status. By itself this requirement, called “guaranteed issue,” would just mean that insurers would charge predictably sick people the extremely high insurance premiums that reflect their future expected costs. But if Congress adds another requirement, called “community rating,” insurers’ ability to charge higher premiums for higher risks will be sharply limited.
Thus a healthy 25-year-old and a 55-year-old with cancer would pay nearly the same premium for a health policy. Mr. Obama and his allies emphasize the benefits for the 55-year old. But the 25-year-old, who may also have a lower income, would pay significantly more than needed to cover his expected costs.
Like the homeowner who waits until his house is on fire to buy insurance, younger, poorer, healthier workers will rationally choose to avoid paying high premiums now to subsidize insurance for someone else. After all, they can always get a policy if they get sick.
To avoid this outcome, most congressional Democrats and some Republicans would combine guaranteed issue and community rating with the requirement that all workers buy health insurance—that is, an “individual mandate.” This solves the incentive problem, and guarantees that both the healthy poor 25-year-old and the sick higher-income 55-year-old have heath insurance.
But the combination of a guaranteed issue, community rating and an individual mandate means that younger, healthier, lower-income earners would be forced to subsidize older, sicker, higher-income earners. And because these subsidies are buried within health-insurance premiums, the massive income redistribution is hidden from public view and not debated.
The full article can be found here.
What’s amazing is that Canada and Britain accomplish full coverage for everyone and still manage to pay half of what we do on our system that still leaves millions without coverage.
Not that I’m into Obama Care, but I still want to emphasize that if it passes it’s nothing more than a change from one awful system to another, not from a good system to an awful system.
But that is the point you are missing Jon, ObamaCare would take whats bad with our healthcare system and make it worse. Especially if cost, innovation and service are your primary concern.
A better analogy would be to say that Obama is making a bad system awful.
To me taking 40 million or so people that lack coverage and providing them with something has value.
What’s also nice is that you no longer work your job out of fear. For instance in Britain if you are laid off it’s unfortunate, but you can recover. If I lose my job I run out of money quickly and have no coverage. If me or anyone in my family develops an illness that can be regarded as a pre-existing condition by a future employer I’m pretty much screwed. So there’s this sword of Damacles hanging over my head. It’s much more serious when you have dependents, as I know you do.
Did you see my close to ideal healthcare plan?
The problem with the US healthcare system vs others is that we cover everything, for too many people. It would be like car insurance companies also covering gas and basic wear and tear. It’s what drives the costs up.
Obama isn’t changing any of that. In fact, Obama is making that worse. He is covering even more people. That takes the worst of our healthcare system and expands it.
I sympathize with your worries, but the way to address that is to do the exact opposite of what Obama proposes: create catastrophic health insurance companies that people could buy and make everything under some fixed value paid for by out of pocket expenses. Those who have less income would be covered by more of the government. That way those who can afford it pay for it themselves, those who cant, have government. Costs slow and innovation continues.
I was all fired up to argue with you on this point, because I’m a liberal and you’re a conservative, and that’s what we’re supposed to do.
But then I remember: The most liberal person I know agrees with you. She says American healthcare insurance is crappy, and Obamacare would force American citizens at gunpoint to buy that crappy insurance.
Good to see you’re still blogging.
My two favorite choices for healthcare: Either the model you describe, which I’ve seen written up in (I think) Atlantic Monthly, or all the way in the other direction: Government-run healthcare, which seems to work well in Britain and France. Half-measures are for weaklings.
Hey Mitch! Long time no talk. Glad you stopped by!
Regarding your two plans: The reason I prefer my plan over the “government-run healthcare” is that with only my plan do you get the benefit of innovations. All other government run healthcare, whether fully run or single payer, impose price controls which significantly reduces innovation - my system would not do that.
On the other hand, if you were referring to a bare bones, high-deductible national health care with a free market for all add-ons, then Id agree…but that is not so much different from the plan I proposed.
Anyway, glad to have you back..do stop by more often.
I question your assertion that government-run healthcare stifles innovation. Seems to me that I have read about significant innovation coming out of countries with government-run healthcare. I’d like to learn more about that, though; do you have any cites?
I wouldn’t want to have just bare-bones healthcare–I’d want it to be comprehensive–but neither would I want to eliminate the free market. I’d like to see the government provide comprehensive healthcare, but also leave people free to pursue private-sector options. And the government would not provide elective and experimental treatments.
In other words, childbirth, appendectomies, eye exams, and open-heart surgery would be paid for out of taxes. But if you want a boob job, Lasik surgery, or experimental cancer treatments, you can–and have to–pay out of your own pocket. And if you don’t like the government-funded obstetrician or surgeon, you’re free to pay for your own (but if the government-funded service is well-run, you won’t want to).
In other words, childbirth, appendectomies, eye exams, and open-heart surgery would be paid for out of taxes.
I can understand having the government pay for this for the poor but why for everybody? I think the more decision making you put in the consumers hands, the more you help drive down costs.
Regarding innovation: see here, here, here, here, here, here and here.
HP, the experiences of countries that have government-run healthcare programs show it delivers good, affordable healthcare for everyone. Why not do it?
Atlantic Monthly article looks interesting–I’ve bookmarked it for later reading. Thanks.
The Economist piece is just an angry rant. He states as fact that the best drugs are invented in America, as a result of our free-market system, but he nowhere points to evidence that it’s true. (Based on its headline and deck, the Atlantic Monthly article doesn’t have that problem–it has the kind of specificity that indicates that somebody did his research.)
I’ve bookmarked the other pieces for later reading. Thanks again.
HP, the experiences of countries that have government-run healthcare programs show it delivers good, affordable healthcare for everyone. Why not do it?
Again, because of innovation. It really doesn’t matter where the drugs are invented, what matters is where pharmaceutical drugs recoup their profits. The United States is by far the largest source. Why? Again, because all other countries use price controls.
What’s worse, is the way the system operates now, the United States basically subsidizes the quality of other countries government-run healthcare.
When a pharmaceutical company invents a new drug (average R&D costs for a new drug are around $800 million) it can recoup most of its cost by charging a super high price in the United States. But because manufacturing costs are low, another country can come and offer the pharmaceutical company pennies on the dollar per pill. Because these countries have a large customer base, and some money is better than no money, most pharmaceutical companies accept the offer. And so other countries get to benefit off of our expensive healthcare system.
But what happens when you kill the last goose that lays the golden egg?
Let me know when you’ve finished reading the links. I’d be curious to see what you think.
But HP, a lot of these techniques and drugs that these other healthcare systems are using are *old.* Penicillin, antibiotics, standard anesthetics were all invented a while ago.
Right, but alot of them are cutting edge. The Atlantic article gives an example of just one.
Also, remember, innovation works slowly, through baby steps…but in the long run, produces a dramatic change. Healthcare is no different.
Just re-read this post.
The problem with the fire-insurance analogy is that you’ll probably never need the fire department but you will almost certainly need healthcare–and lots of it!–over the course of your life.
This is something that’s lost, I think, in much of the libertarian discussion of healthcare reform: Only a lucky few of us will die abruptly. A friend’s father just fell over from a heart attack while playing poker with his buddies. He was past 70. Maybe a bit young, but otherwise a great way to go, I think.
The rest of us - the overwhelming majority — will face long, debilitating, and expensive illnesses before we finally shuffle off the mortal coil.
Note that I’m not arguing in favor of the Obama health insurance mandate. I’m not. I don’t like it at all. As I agree with the language quoted on this blog–it’s a government mandate for insurance companies to pick our pockets.
But neither do I agree with the conservative worldview that the world is divided into a smaller group of the old and sick, and the larger group of young and healthy. In fact, the larger group is merely temporarily-not-sick. Sorry to be downer.
Fine…dont use fire-insurance…car insurance works just as well, and most of us will experience a car accident at some point in our life.
Regarding the old and the young: remember, there is another important distinction than just the ones I gave (wealth, health, etc)…the old, unlike the young, atleast made it to old age. Many of the young will not be so lucky. Yet they were forced to subsidize the healthcare of those who did. Talk about a double hit.
Do you, then, favor an a la carte system of government spending? Nobody should be required to pay for services they do not use?
Not necessarily. Im in favor of some government programs (medicaid, some type of social security etc).