Private insurance only works if there is risk. If the risk is eliminated, profitable insurance is impossible. This holds for health insurance as it holds for credit default swaps. When risk vanishes, insurance turns into redistribution. That’s a task for the state, whether through the tax payer or by mandated pooling in quasi-private insurance schemes of individuals with known heterogeneous health profiles.
The rise of genomics - the branch of genetics that studies organisms in terms of their full DNA sequences or genomes – will in the not too distant future kill off most private health insurance. That’s probably a good thing, for two reasons. First, because of asymmetric information, when there is risk and uncertainty about a person’s future health, health insurance markets are badly affected by adverse selection and moral hazard. Second, because the private health insurance industry is a monument to inefficiency everywhere and, especially in the US, a rent-seeking Leviathan whose ruthless lobbying efforts corrupt all it touches.
When it becomes possible early in life to map out a person’s future infirmities, illnesses, disabilities and eventual cause(s) of death (other than those due to accidents or violence), it becomes impossible to have health insurance based on market principles and the profit motive. With profitable health insurance impossible because you cannot insure a sure thing, there are but two options left. Either you leave those with poor health prospects to their own devices (the ‘tough luck’ approach) or you turn health insurance into interpersonal redistribution of income, that is, you socialise health care funding. This redistribution is from those with above-average health prospects to those with below-average health prospects.
Such a redistribution policy can either use general tax revenues (the way the British National Health Service is financed) or can involve subsidised health ‘insurance’ in a world with mandatory health insurance where those with below-average health prospects are pooled with the rest of the population and where individual health insurance premia do not reflect an individual’s health prospects – like the assigned-risk pool for car insurance in the US. Under either system there would be a minimum guaranteed quality of health care that everyone is entitled to, regardless of ability to pay, and that would be paid for either out of general tax revenues or out of the premia contributed by those with above-average health prospects.
I start from the proposition that health care, up to a collectively decided minimum standard, should be available to everyone. That is, it should be universal and mandatory. Obama’s plan does not include the provision that everyone has to have health insurance up to a minimum standard.
If health care is to be universal, it should be de-coupled from employment completely. The availability of health care should be a function of the condition of being alive, not of the condition of being employed. Here too, Obama’s health care plans, which retain tax advantages for employer-provided health insurance, fall down badly.
With socialised healthcare financing, health care will be rationed for most people. If you include price rationing among the rationing mechanisms, health care will be rationed for everyone. Jones can get dialysis; Smith cannot. There is a liver for Blogs but not for Blags. Drug X (which costs thousands of dollars for a year’s supply) will be made available to persons with early stage breast cancer but not to those with late stage breast cancer. No hip replacements for those over 95, unless you are a member of the royal family etc. etc. With heroic, high-tech health care capable of absorbing most of GDP unless rationed by quantity or price, health care rationing – involving involuntary euthanasia by committee or market for those rationed out of access – will be part of all our futures.
The details of the health care rationing mechanism will be a matter of life and death – literally. It has always been thus when ability to pay was used to select those who would gain access to scarce and costly treatments in the market for health services. Rationing of life-saving and comfort-enhancing costly treatments in the British National Health Service has been achieved through various forms of administrative discretion, sometimes involving the (professional or unprofessional) judgments of physicians. Education, influence and connections – the trademarks of the ‘aristocracy of pull’ everywhere – have been key drivers of who gets what quality health care in the NHS since its inception.
It is essential that the health care rationing mechanism be transparent; it should also be contestable – in real time – by those excluded from a treatment they desire. New forms of discrimination will become politically important and old forms of discrimination (e.g. age-based, as in “why give a new kidney to 95-year old?” or “do we assign this incubator to the premature baby most likely to benefit from it or the one most in need of it?”) will take on greater political significance. At work, people and committees will be playing God on an ever-growing scale. I wonder how they behave when they come home.
Note that nothing I have said sheds any light on the best way to provide medical care – on whether health services should be supplied privately, cooperatively, by the state, with or without regulation etc. It only concerns who pays, and there the answer is clear: you and I as tax payers or you and I as mandated providers of subsidies in large assigned-risk pools.