...Because We Can't Afford "Health Insurance"

Arnold Kling wrote You Call This Health Insurance?, where he claims that

One of the most serious impediments to rational debate on health care is the misuse of the term "health insurance." What we call health "insurance" in this country was never designed to insure the consumer. Instead, its purpose is to insure steady, reliable incomes for health care providers...

What Blue Cross and Blue Shield pioneered was a "split-the-check" approach to health care. An equivalent plan for restaurant meals would be that instead of paying for your meal, you would pay an annual premium to "Blue Eats," which would in turn reimburse restaurants for their costs, plus a profit margin. Every individual member of "Blue Eats" would have an incentive to eat out a lot and order the most expensive items on the menu, because the cost is shared among all of the members of "Blue Eats."

The other approach he mentions is where a consumer gets someone else to cover the cost. What we think of as insurance is not really insurance.

One of the most important things to understand about insurance is that it is necessarily related to the concept of risk. A pool of people get together and share the risk of a rare event that affects one person at a time.

Insurance is only possible when the event that triggers a claim is highly improbable. The more likely the event is to occur, the less insurable it becomes.

A commenter on Kling's blog links to Why Health Care Costs Too Much by Stan Liebowitz, which explains

The excessive costs of our current medical system can be classified into three major categories:

• The first, and by far the largest excess cost, is due to the current overuse of medical resources by patients. Overuse is the rational response of consumers who do not have to pay the entire cost of the medical services they use. The causes of those excess costs are Medicaid, Medicare, and tax laws that provide incentives for individuals to have their employers purchase their medical care in the form of private health insurance.

• The second category of excess cost consists of administrative and paperwork costs that are unnecessary for the provision of health care, but that have come into existence because of the current patchwork of third-party payers and their attempts to control their increasing costs by closely monitoring the behavior of doctors and patients. Even worse is the fact that those cost-containment activities do not seem to have contained costs very well.

• The third excess cost is associated with the fear of malpractice suits. Administering medically unnecessary tests and procedures helps to insulate doctors and hospitals from the potential wrath of patients or their families when inevitable accidents occur in medical treatment or when treatments just do not work.