By JOHN H. COCHRANE
Mr. Cochrane is professor of finance at the University of Chicago Booth School of Business, and author of "Health Status Insurance" (Cato, 2009)
Even if you don't like the massive health-care package being considered in Congress, you have to admit that health insurance and health care in this country are not working well. There are two basic problems:
First, if you get sick and then lose your job or get divorced, you lose your health insurance. With a pre-existing condition, new insurance will be ruinously expensive, if you can get it at all. This, the central defect of American health insurance, explains why most Americans are happy with their current coverage yet also support reform.
Second, health care costs too much. Yes, we get better treatment, but the cost-cutting revolution has not touched health care.
The problems are real, but the remedy— more government intervention—is counterproductive. A market-based, reform is possible, and it will work.
Health care and insurance are service-oriented, retail businesses. The only way to reduce costs in such a business is intense competition for every customer. The idea that the federal government can reduce costs is a triumph of hope over centuries of experience.
The cost-cutting revolutions didn't settle questions like these with acts of Congress, That approach has never spurred efficiency, and for good reasons. Cost-cutting is painful. Patients might have to get tests at inconvenient times and locations. They will do this when their money is at stake—what people will put up with from airlines for a few dollars is truly amazing—but they will never accept it from the government.
But what about pre-existing conditions?
A truly effective insurance policy would combine coverage for this year's expenses with the right to buy insurance in the future at a set price. UnitedHealth now lets you buy the right to future insurance—insurance against developing a pre-existing condition.
These market solutions can be refined. Insurance policies could separate current insurance and the right to buy future insurance. Then, if you are temporarily covered by an employer, you could keep the pre-existing-condition protection.
Some insurers avoid their guaranteed-renewable obligations by assigning people to pools and raising rates as healthy people leave the pools. Health insurers, like life insurers, could write contracts that treat all of their customers equally.
The right to future insurance could be transferrable to another company, for example, if you move. You could have the right that your company will pay a lump sum, so that a new insurer will take you, with no change in your premiums. Better, this sum could be occasionally placed in a custodial account. If you got sick but had something like a health-savings account to pay high premiums, you could always get new insurance. Insurers would then compete for sick people too.
Innovations like these would catch on quickly in a vibrant, deregulated individual insurance market.
How do we know insurers will honor such contracts? A car insurer that doesn't pay claims quickly loses customers and goes out of business. And courts do still enforce contracts.
More importantly, health care and insurance are overly protected and regulated businesses. We need to remove regulations such as the ban on cross-state insurance. Think about it. What else aren't we allowed to purchase in another state?
Private, competitive insurance markets are a superior way to solve the pre-existing-conditions problem, and the only hope to lower costs.
No comments:
Post a Comment