04 September 2009

US Health Insurance Myths

As we go along debating health insurance reform, I am constantly amazed by the myths people believe about US health insurance. As I run across these myths, I'll try to note them here.

1. Preexisting conditions: People seem to think that this limitation is some sort of trick. Instead, it is a fundamental part of insurance. You can't insure your car after the accident or your life after you die. But so long as you have insurance, a preexisting condition does not stop you from changing your insurance. You cannot get trapped in a job and you can't lose your insurance because your employer changes plans; so long as you have insurance, you can't be excluded from a new group plan. Under federal law (lots of states have more generous laws), preexisting condition exclusions only apply if you have been uninsured for at least 63 days, apply only to conditions for which you have sought treatment and only allow a look-back of one year. A nice primer on preexisting conditions and federal law is here.

2. What we have is "insurance": As implied above, insurance policies are basically bets we make against catastrophe. I bet that my house will burn down, the insurance company bets that it won't. I bet that I'm going to die in the next year, the insurance company bets that I won't. I bet that my car is going to get stolen, the insurance company bets that it won't. If I lose the bet, there I am with my life, my house and my car. If my car explodes when I plow into my house, my wife and kids have a big pot of money to sit up at family dinners and call "Daddy."

There are things I can do to adjust my odds in these bets. I can get an alarm for my car and garage it in Northampton Massachusetts rather than the Bronx. I can get an alarm for my house. I can stop smoking and flying airplanes. For each of these, my premiums go down. But note that I the insurance company doesn't take my higher premium and then pay for alarms. Because that would be nuts.

But my health insurance pays for costs that are entirely predictable. It pays towards my annual physical. It pays towards medicine for chronic conditions that are very common among men my age. There's no sense betting on my having an annual physical, so why am I insured against it? I'm sure that all of you know the answer, but note that, when it comes to paying for relatively small, foreseeable expenses, all of the carping about wasteful spending is entirely correct. It makes no sense for me to pay my employer (think about it) to pay the health insurer to pay my doctor for an annual physical. I should just pay for it directly.

3. People are dying because they don't have health insurance: OK, that's not exactly a myth, but the general conception of how people are dying from lack of insurance is wrong. People with acute conditions -- heart attacks, trauma, etc. -- don't die from lack of insurance. They get treatment regardless of insurance. Someone falls down clutching their chest, you call the ambulance, the paramedics start treatment and get him to an emergency room and they get to a hospital bed before anyone even starts to try to figure out if they have insurance. Outcomes from acute treatment are pretty much invariant by income status.

People die -- more exactly, their life-span is shortened -- because of chronic conditions. High blood pressure isn't treated, cancers aren't caught as early, high cholesterol isn't treated, diabetes isn't caught as early, etc. This is what people mean when they say that we substitute treatment for prevention.

The problem here is that "prevention" is of questionable value and is incredibly expensive. For every heart attack delayed (and delay is basically all that can be accomplished) by blood pressure or cholesterol drugs, a large number of potential victims have to be treated. It is that "unnecessary" but unavoidable treatment that will make reform incredibly costly -- and the costliness of reform will lead, in turn, to government guidelines that avoid new expensive drugs. But can the government really prohibit people with government insurance from getting access to the newest and best drugs available to people with private insurance? Isn't avoiding that the whole point of reform? So, in the end we either end up with incredibly expensive government insurance (the most likely result) or no new drugs (an even worse result).

4. Reform is meant to benefit the uninsured. For reasons we've discussed, the uninsured tend to be middle-class and young. Forty percent are between 18 and 34, as opposed to 23% of the population. Generally, the uninsured young are making a good bet; the average health insurance premium for an individual in the states is $4000 and the young -- barring acute need, for which they'll get care and then have to worry about paying -- never spend that much. Far from giving health insurance to these people, which seems to be what they assume is going to happen, the reform plans on offer now mandate that they buy insurance or pay a penalty for non-insurance. These premiums or penalties will be at "community rate," which is (more or less, we don't know the details yet) the average cost of health insurance in their county/state/region/nation. In other words, the purpose of reform isn't to provide free health care to the young uninsured as it is to force the young uninsured to subsidize health insurance for those who already get government funded health insurance.

16 comments:

Peter Burnet said...

David, I'm trying to follow this debate without losing my day job or my brain circuits shutting down, but I have a question. Is there some unstated understanding among the Dems and their supporters to avoid the word "universality" at all costs and to keep pitching the scheme as a cost-saving measure that will make everything more effcient? They certainly use the word when talking amongt themselves, but I don't see it often in public speeches, etc. But is this not what is at the bottom of all this? That the left can't bear the thought of one uninsured citizen under any circumstances, never mind forty million?

As an aside, your debate has given us up here another opportunity to engage in our second most favourite sport, which is preaching at you. It seems to have spawned a little cottage industry of YouTube testimonials from Canadians on our healthcare, which I'm told are speeding around the Net and are all designed to give you folks the "facts" by both sides. Just call us Good Neighbour Sam. Really, your dispassionate, rigourous analyses are interesting for those into reading 'n thinking 'n stuff, but what more does the average American need to know than these kinds of holistic perspectives?:

"One day I severed my leg with a power saw. My husband put it in ice and rushed me to the hospital, where the intake nurse who could hardly speak English told me there was a four month wait for operations to sew limbs back on. Losing blood fast, I screamed at her that I was a free citizen who new my rights and my lawyer was on his way. She was taken aback by this very un-Canadian assertion of individual rights and liberties and agreed to put me in the emergency ward. Lying on a gurney for what seems like ages, I looked down to see cockroaches crawling all over me. When the doctor finally showed up with a needle and thread and a bottle of chloroform, my husband said that was enough. Fortunately we had the means to divert a Lear jet on an emergency basis and fly me to Mt. Sinai, where they fixed everything with marvellous efficiency--real profesionals--, but I hate to think where I would be now if I had to rely on Canadian healthcare."

vs.

"Our little four year old girl had a bobo that didn't seem to be healing, so we called the family doctor, who agreed to see us right away. No wait at all. She reassured our nervous daughter with her professional care and compassion, and then applied polysporin and a bandaid, which solved the whole problem. What a relief that was! She was so nice and even took a minute to ask our daughter what her teddy's name was. No bill, it was all free. An American friend had a similar experience and they charged her a gazillion dollars, which her HMO declined to pay, thus leading to her bankruptcy, family break-up and eventual suicide. I can't imagine where I would be without my Canadian healthcare. I just don't get what the problem is with the Americans."

Ladies and Gentlemen, time to cast cast your votes.

Susan's Husband said...

Because the American Street has at least a vague idea of what universality would cost. The American Street doesn't mind universality, but it hates taxes. That's why the Levelers stress the "cost curve" so much.

I don't think it's so much that the MAL (Modern American Left) can't stand the thought of one uninsured person. I think it's much more of a cargo cult kind of thing, centered on the government, which intrisinically makes things better and more fair. What MALists ultimate can't stand is anything outside the scope of government control. The uninsured are simply a prop, to be discarded or ignored once nationalization has been achieved. If you think "no, that's way too cynical", I invite you to peruse the history of the welfare state in the USA and just how concerned the MALists were about the recipients after their programs were institutionalized.

Harry Eagar said...

'The uninsured are a simply a prop.'

And that, my friends, sums up the gap between one side and the other.

I coulda sworn they were people.

Susan's Husband said...

They are, but try explaining that to a MAList.

Harry Eagar said...

David says they don't even exist. The Republicans say we don't need to concern ourselves about them, or should not concern ourselves about them.

I'd say the left at least acknowledges that they are people who exist.

Susan's Husband said...

You clearly didn't ready point (4) in his post.

David said...

Harry: I have no idea where you think I said that.

Peter: The Dems have been beating to death the question of whether to argue for national health insurance based on "security" or "bending the cost curve down." Basically, Clinton failed arguing universality and morality so Obama decided to go on efficiency and cost savings. He immediately ran into the buzz saw of "death panels." Now he's being second-guessed all over the left and people expect this week's relaunch to focus on security.

I suspect that Americans just might not want national health insurance.

David said...

Peter: Kausfiles is an excellent blog to follow for this sort of inside baseball stuff.

Harry Eagar said...

You started out, way back when, by saying that people didn't lack treatment even if uninsured.

Lately you have pulled back a bit on that, suggesting that this de facto system works only for emergencies.

(It is not true, by the way, that prevention is not cost-effective. Both clean water and vaccines are cheap and effective.)

Why don't you go talk to a practicing physician? I have. Many.

Hey Skipper said...

David:

Intrinsic to insurance is the notion of risk, as you say in point two (as brilliant a para as I have ever read, BTW). However, even if you ignore the notion of insurance paying for things that are entirely predictable, the notion of risk is still hard to deal with.

With car insurance, it is possible to price the risk of an accident -- age, sex, driving record, type of car, etc. The populations of some combinations of those things have higher loss rates than others. Those that do not have accidents pay for those who do. Same with fire insurance: those that do not have fires pay for those who do.

Health insurance is different. Everyone is born. Everyone has a life-cycle cost to the health care system. Everyone dies. Almost everyone consumes the majority of their life-cycle health care in the last six months of life.

Therefore, it is hard to say that any particular sub-group presents a higher loss risk than the rest. For instance, do smokers, on average, really cost the health care system more than non-smokers? How about a woman who has a pronounced familial history of breast cancer? If one dies of lung or breast cancer, one is not dying of something else. And dying sooner is cheaper, on average, than dying later.

So, really, there is nothing you can do to adjust your odds. You may be able to adjust the odds of premature death, but there is nothing -- short of suicide, that is -- you can do to adjust the odds of life-cycle health care consumption. Indeed,

Taking this line of reasoning one step further, perhaps it doesn't make sense for health insurance to pay for annual physicals. If they show anything, wonderful. That might allow you to live longer, but certainly not more cheaply (from the health care system's perspective).

Anyway, health insurance is not quite insurance. Some is. Not everyone takes, say, a moose through the windshield. Pooling the risk of health care consumption due to accident qualifies. However, I'll bet that the portion of health care consumed by accidents is less than half, maybe far less. As for the rest, it amounts to something like social security: those who are healthy are paying for the dying, with the expectation that in the healthies' unavoidable future, their dying will be paid for, as well.

4. Reform is meant to benefit the uninsured.

In part. Additionally, it is meant to bring the healthcare proportion of GDP to be more in line with other advanced countries; i.e., ultimately reduce its cost by half. (Yes, I know that other countries free-ride on the US.)

Of course, since the uninsured present an unavoidable life-cycle cost to the health care system, then they should be forced to buy "insurance".

Harry:

(It is not true, by the way, that prevention is not cost-effective. Both clean water and vaccines are cheap and effective.)

Any others?

Most prevention, particularly for chronic conditions -- which more or less excludes clean water and vaccines -- is not cost effective for two reasons. First, the proportion of "false positives" (i.e., the percentage of those people who appear to need the preventive effort, but would have ultimately had no problems in its absence) can be very high. Prevention is insufficiently specific.

Second, successful prevention costs more than not bothering. Now, as a moral matter, people arguing for not bothering are going to be very thin on the ground.

However, as an economic matter, the notion that prevention saves money is nonsense.

David said...

Skipper: True. I've got to find a way to deal with the entire life cycle. But in any given underwriting year, my health insurer just needs to deal with the risk that members of the group will suffer various ills during that year. If they can just get us to 65, the government takes the whole problem off their hands.

David said...

Harry: Clean water isn't health care. Vaccines are more a question of public health (getting a vaccine is more of a favor you do for me rather than yourself). In any event, vaccines are available to everyone.

Harry Eagar said...

Vaccines are available to everyone with money.

I am not going into the confusion about health insurance, but the short answer is hidden in Skipper's insight into the life-cycle. We are not talking about insuring risk, we are (or should be) talking about managing costs.

(Well, maybe at RtO I will find time to relate a story about how health 'insurance' really isn't insurance at all. Warning: It will be a real-world example.)

I disagree that clean water isn't health care. It's public health care.

Other cheap and effective preventions?

Sure. Pure food and drug laws. Epidemiological monitoring agencies. Blood glucose screens. Elementary school nurses. Enriched flour. Maybe even sunscreen. Mosquito control.

See my review of Margaret Humphreys 'Yellow Fever and the South' at Amazon.

I think you guys live in advanced societies and don't realize how many diseases you have never seen, like yellow fever or malaria. There's a reason you haven't seen them.

Hey Skipper said...

If they can just get us to 65, the government takes the whole problem off their hands.

Who is the government?

David said...

It's us, but not the insurance companies.

joe shropshire said...

Without much further comment:

Wait ‘Til All The Young People Who Supported Obama Find Out That They Are The Ones Who’ll Be Funding Health Care Reform.

I did take the time the other day to thank one of our new college hires, on account of her being such a good sport about paying for my catheterization and stents and whatnot.