Tag Archive for 'health insurance'

Using public health care to realign incentives for the private sector

Over at the Archimedes Movement’s blog, a few of us have been sharing stories and talking about the failings and the future of health insurance in the US. Many people have flat out said that insurance needs to go. I recently posted about insurance generally, what it’s good for, and how we can improve it.

I think the the pertinent idea behind insurance is pooled resources to protect against a shared risk. In that sense, I think the government, which we all pay for and which protects us all (or should) is a kind of insurance. Considering how often I feel it fails us, I like having a government really well!

What we need to consider changing is the private management of health insurance. A lot of people think private ownership, and the competition that can result, is necessary to bring down costs, which is an interesting myth because in reality private ownership of health care has made costs skyrocket. Here’s why. When private companies compete, they don’t actually compete to lower costs, they compete to increase profits. In some cases companies compete to increase value, which includes developing a better product and lowering costs to attract more customers, and thereby more profits (profits are still the only real goal here). HMO’s and Private Health insurers haven’t been doing this.

Rather than competing to increase value, the standard has been to sign up as many paying customers as possible, and then hire fancy lawyers to convince as many as possible that they don’t actually deserve what they payed for. The profit incentive is no longer aligned with the better product incentive – more refused care = more profit when you’re just competing to trick the customer. Why has everyone been getting away with tricking the customer?

If every ipod you purchased broke after 3 days, you would teach Apple a lesson by buying a different brand. If all mp3 players of all kinds broke right when you needed them most, everyone would teach the whole industry a lesson by not buying any more mp3 players until producers realized they needed to start competing for value again. The problem in health care is that we can’t decide to stop purchasing health care because it’s not a luxury, it’s a necessity.

So how do we get private companies to start competing for value again? I’ve heard the book Redefining Health Care has some good ideas, though I haven’t read it myself. In my opinion, we use public money, which we already have enough of, to provide for health necessities and let the free market optimize everything else. This would give customers the power to resist purchasing from shoddy providers and realign the sector from an economics of exclusion to an economics of value and price optimization. The basic care must always be sufficient that people feel empowered to stop purchasing from private companies if every single HMO and private insurer in town is just waiting to rip them off.

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