I think a lot about health insurance because on more than one occasion I had to shop for coverage on the individual market.
I don't necessarily support government provided health care or a fully privatized market. What I do support is a society where health insurance is a feasible option for everyone. And, yup, "feasible option for everyone" is where the sticky-gray-area is. But I think there are some basic principles that can underpin a constructive debate about health insurance. So when the debate gets heated, I stop to ask which principle are we arguing over.
Before I get to the principles, let me start with two basic questions:
- How does insurance work? A large group of customers buys protection each year. In any given year just a small portion of customers needs to claim the protection. Car insurance or flood insurance is a good example.
- How much to charge for insurance? Typically individuals with a higher risk pay more. For example, reckless drivers pay more. In some instances, insurance companies will assess the risk for larger categories, like a geographic area instead of individual characteristics.
Basic principles for an insurance system1.
Build an insurance program that enrolls a large group of individuals. Large enough so the number of accidents (or claim-inducing-events) in a given year is a small portion of the membership.2. Minimize the uninsurable cases. Already pregnant women find it nearly impossible to purchase health insurance because insurance companies typically do not want to accept a known high-cost case, especially since the person has not paid into the system. One extreme solution is to require health insurance be purchased at birth.3.
Make payments transparent. Whether it is employer provided insurance or medicare, individuals should be cost sensitive. Why? because most people will consume more than is needed if they don't have to pay for it.4. Maximize the presence of "trustworthy" insurance sellers. Salespeople are often most interested in making a sale. So things that protect the consumer will minimize fraud/dishonesty (on the part of insurance sellers). This is one advantage of employer provided insurance. Employers negotiate with insurers to get the best deal for their company.