Here's a nice devil's advocate reason: because now that we're doing it, stopping would be disastrous for the economy. If the usual numbers are correct, we're currently spending $500 billion a year on administering the health care "system". Cutting that cost to the levels seen in sane countries would mean $250 billion less in spending, which conservatively would translate to throwing several million white-collar workers on the street. People whose only skill at this point is translating a doctor's description of some diagnosis or treatment into six or seven-character codes, or shuffling the pieces of paper with those codes and putting them into a database somewhere.

We must think of the economic impact, and preserve these jobs at all costs, just as in prior decades we preserved the jobs of the manufacturing workers who were the backbone of the middle class...

Oh, wait. Nevermind.

Ezra,

I think the broader point that health coverage currently serves different purposes is a good one. However, I'd suggest this is as much as a challenge for government-driven health care as it is for the private sector. Almost the same exact criticisms/challenges could be made for Medicare. In other words, your title isn't exactly fair-- this isn't about how insurance doesn't work, its about a broader challenge with health reform.

On a related but different note-- while everyone claims that Obama and Clinton's plans are the same minus the difference on mandates, it isn't actually true. And related to this post-- Obama made a point of government provided reinsurance to cover the catastrophic care element of insurance. An interesting idea, simplifying the insurance model to a degree. He's gone further than others on this element, IIRC. How about a deserved feather in his cap?

This is dead-on. Some comments:

First, the reason that the four different things are conflated is because of the the tax benefits offered to employers for providing kitchen-sink "insurance" to their employees. The tax policy has been warping the market for decades.

Second, given that we all think conflating these four things is at best slightly loopy, why would we want a federal healthcare plan that's going to do exactly the same thing?

You can address catastrophic insurance through the insurance system. You can encourage the segregation of insurance and routine services through tax policy (you get a tax credit one and no better than a deduction for the other). And you can deal with chronic care cost redistribution by appropriating subsidies for it. (Actually paying for the subsidies with increased taxes would be nice. What are the odds?)

wisewon--

How does reinsurance help? Typically, you reinsure to spread the risk individual insurers incur if systemic events hit them. Catastrophic care for an individual is not a systemic event--unless you get a pandemic, of course. Reinsurance does no good.

I suspect that "resinsurance" in Obama's plan is a euphemism for "subsidy." No problem with that but why not just call it what it is?

Wisewon: Not a challenge if you have a voucher-based system, as in most of Western Europe.

The vouchers give you enough money to buy insurance that meets No. 4, even if you're not totally healthy, and No. 1.

You then choose, essentially, how much more you want to pay out of your own pocket for Nos 2 and 3.

Vouchers free you not just from rack rate hospital costs, but from rack rate one-size-fits-all insurance coverage.

Insurers don't want to do that because then they can't be lazy; they'll have to actually sell you plans that fit your needs.

Paul:
Some huge percentage of that $500B goes to back office operations -- processing claims. Somebody is still going to have to do that even under a single payor system, so not all the employment would disappear. It would be concentrated in the sales/marketing end. Medicare currently outsources it's claims work to private insurers.
Besides -- that extra $8 we're paying Aetna would pay for a damn lot of job retraining.

Wisewon:
John Kerry's plan four years ago featured reinsurance as the centerpiece. It's not a breakthrough idea on Obama's part.

TRM:
Reinsurance works because it's the cost of the catastrophic and chronic cases that keeps premiums up for the not-so-sick. It is a subsidy, but it works to keep the price down.

Reinsurance helps for the reason stated at the top of the post-- when an individual or an employer is buying a policy, the premium actually covers multiple elements: 1) risk of catastrophic care 2) routine care 3) bulk purchaser of services. Insurance companies currently provide these services as a bundled package-- one price (premium) gets you all of them. Obama's plan aims to cut out #1-- if the government picks up the tab on catastrophic care, than insurance can then focus on #2 and #3. Accordingly, premiums should fall by a proportional amount-- his plan actually requires that to be the case-- so it isn't a subsidy, its getting insurance companies out of the business of insuring catastrophic care. Which as the post suggests, simplification would be good for the industry.

I'd have to say that if a plan didn't appear to do all of these things, it would probably fail. It's not like people just said 'Hey! you know what would be fun? Lets come up with a completely nonsensical way of doing things!'

These things are all seen as the province of a successful insurance system because they are all required for a successful insurance policy.

The comparison isn't even realistic. If I went into a grocery store, and they sold nothing but meat, I'd be pretty damned dissapointed. I wouldn't really care how often the workers there tried to explain to me that Deoderant has nothing to do with meat, I still damn well expect them to carry it. Despite how silly it would sound to some, it's really not much of a grocery store if it doesn't also carry generic, random house-hold items wether they have anything to do with food or not.

Socratic: I'm a huge fan of vouchers-- its my preferred solution for the payer element of reform. I do think there needs to be some routine/preventative care covered and encouraged, similar to soullite's point.

Flory: I definitely agree that others have proposed reinsurance before Obama, I was just pointing out that the current health care debate between HRC v. Obama has been extremely oversimplified. There are probably 10 good topics of discussion on the differences between their plans besides mandates (although mandates is probably the most important in term of impact), reinsurance being one of them.

Vouchers, as used in non-British European national healthcare plans, would address a lot of Smith’s and Klein’s concerns better than a single-payer plan.

Ideally, we would learn from what works well and not so well in European countries to even let the voucher money be split into multiple payments, such as, perhaps, a castastrophic health insurance policy, a prescription discount policy and a wellness policy where basic checkups would be connected to a certifiable wellness plan.

Vouchers free you not just from rack rate hospital costs, but from rack rate one-size-fits-all insurance coverage.

It’s like trying to sell a car that's bundled together with car insurance and three dozen eggs every week and a trip to Bermuda when you turn 27.

If this thread goes on long enough, eventually people are going to start saying "No, it's more like selling a (insert clever)", so before that happens, I just want to celebrate that this is a pretty good simile.

He forgot "(5) So that health-care providers have a guarantee that they will actually be paid for their services."

Try going into a doctor's office and telling them you don't have insurance, and that you're going to pay out of pocket. I bet they won't even see you.

Try going into a doctor's office and telling them you don't have insurance, and that you're going to pay out of pocket. I bet they won't even see you.

Um, I have the standard healthy young worker setup of HSA + catastrophic coverage (which focuses on purpose 1, as I like it), and I do this all the time. Never had a problem. Paying cash means they don't have to deal with insurance processing, and I'm pretty sure I get put in line before Medi-Cal

They will be seen in our office as long as they give a credit card. No different than going to a restaurant, If I go to the trouble of cooking a steak for you I expect to be paid for it.

SocraticGadfly,

Not a challenge if you have a voucher-based system, as in most of Western Europe.

which West European countries have a voucher system?
Not Germany and as far as I know not France either. Just curious to know.

The vouchers give you enough money to buy insurance that meets No. 4, even if you're not totally healthy, and No. 1.

You then choose, essentially, how much more you want to pay out of your own pocket for Nos 2 and 3.

I´m not sure I´d like a separation of no. 1 and 2. Would that make sense?
I mean preventive care like yearly check-ups (early cancer detection for example) are good for you and good for the insurance system too. Probably easier and cheaper to treat than later on.

Primary care is dirt cheap out of pocket. People don't have a problem paying 40 bucks to have their oil changed in their car, but they do if they have to see a doctor.

Jenga, I'm not sure what universe you live in, but it's fairly rare when people actually get their oil changed as often as they are supposed to.

Of course, if you want to start practicing full on free market economics, maybe we should rethink our regulations regarding the prescription of medicines... And smash the AMA and institute a national, governmental licensing for doctors...

I'd suggest you people learn to play ball. You've got a lot more to lose than you seem to think you do.

You can address catastrophic insurance through the insurance system. You can encourage the segregation of insurance and routine services through tax policy (you get a tax credit one and no better than a deduction for the other). And you can deal with chronic care cost redistribution by appropriating subsidies for it. (Actually paying for the subsidies with increased taxes would be nice. What are the odds?)

I agree with your basic point — if it's counterintuitive to go to one company for four services that could be unrelated, then it would be counterintuitive to go to one government department — but I think the last item on your list is why we'd need a subsidized, standardized, streamlined status quo rather than starting over completely.

As Ezra has pointed out, state-level health care can be low-hanging fruit for budget cuts in lean years. The universal aspects of national health care might not be low-hanging fruit, but any aspects of the program that aren't universal might be targeted pretty quickly.

Also, this is OT, but Ezra, haven't you said that part of the reason state health care programs fail is because states have balanced budget amendments, so the programs are short on funds exactly when they're most needed? Interestingly enough, Vermont is the only state in the country that doesn't have a balanced budget amendment, and there's a push for a bill that would bring single-payer care to state hospitals. H.304. I have no comment on whether I think it's a good bill or not and our Republican governor is unlikely to sign anything like it, but still, it seems relevant.

"Um, I have the standard healthy young worker setup of HSA + catastrophic coverage (which focuses on purpose 1, as I like it), and I do this all the time. Never had a problem. Paying cash means they don't have to deal with insurance processing, and I'm pretty sure I get put in line before Medi-Cal"

Um, Senescent, you're being a little intellectually dishonest here because you sure as heck aren't walking in there with nothing but cash, unless the HSA plan you enjoy so much means you are paying the rack rate. You still have to flash some sort of plastic, whether it's a plan ID card, or a debit card that accesses your HSA account or both. And your insurer certainly needs a record of the transaction to credit towards your deductible, however high it may be.

I'm not picking on you. I have a BCBS HSA plan, too. Just saying that the point you made, in the way you made it, is sidestepping Brock's point, which is that, short of visiting a concierge medicine practice or a doctor that accepts no insurance, you will not be seen in most medical offices without some demonstration of the ability to pay for services rendered.

I think its partially that relatively normal things can count as 'catastrophic' now to many people. Why are thigs priced in this manner?

proceedures developed 30 years ago.. or worse yet, milennia ago are priced in the 3 or 4 figure range. Need some stiches? ..a good ER doctor, some nurses, and bam $3-4k blown right there. Why? If it only takes 15 minutes of actual dr time, and maybe 30 minutes total of nurse time. ..something that could well be handled by someone less skilled then a surgeon for less money. ..but they have a unique product and guaranteed demand so thay can price however they like.

So we turn something simple into a 'catastrophic' event.. that goes to insurance which pays it and the whole system goes downhill from there.

One thing I like in hearing Obama speak this weekend is he actually addressed the lowering of costs which is VERY rare. Everyone speaks about how to pay for medical care, but very few pay attention to the fact that simple proceedures, and simple medicines are overpriced at the start.

Anonymous, if that is your real name. All I'm asking is once a frickin year to see a physician for basic primary care. And if you can't change the oil in your car more than once a year, remind me to never buy a used car from you.
Jesus, lame brains that know nothing about medicine always trot out the tired evil AMA phrase. There is governmental liscensing its called residency. You can't practice medicine in the US without one. If you want eliminate liscensing all together, be my guest good luck finding a malpractice carrier. I am board certified, have 11 years of training, not a single lawsuit and pay 70 grand a year in malpractice. How much do you think it will cost some schlepp to stroll in with a GED and a B minus in Biology ready to manage your grandma's diabetes? The federal government determines the number of practicing physicians in the US, not the AMA and in their wisdom they froze residency spots over a decade ago. So bitch and moan at the federal government not a weak ass orgznization like the AMA.

Don't go to the ER go to an Urgent care. It's for EMERGENCIES not "simple" procedures thats why its 3 grand. You can guarantee the ER physician never sees that. He or she gets paid by the hour to see your 15 minute laceration and 10 other people in the remaining 45 minutes. One urgent care center in our city advertises in our paper every day. Laceration Repaired for a 99 dollar flat fee.

Yep, this is about what I've been trying to say. A bunch of unrelated problems have been all bundled up under one heading. I still think that John Kerry's health care plan was very good. People need to have insurance for disasters, but not for predictable expenses. The complex "pre-payment" scheme for primary care just raises the price of that care without improving its quality. Not paying for predictable expenses or medications distorts the market like the GOP tells us. People who don't want to spend $30 for a prescription medication think nothing of spending considerably more for a Super Smash Brothers Brawl and a Wii.

However, if you want integrated care, the French model certainly seems more workable. If you go to the primary care doctor (and most French docs are primary care), you pay for it in cash, then you get reimbursed from your insurance company within a few days. I work in an 80 provider (physician/NP/PA) group and we have a giant staff of people whose function is squeezing money out of numerous insurance companies. I suspect that more than 80 non-MDs are involved in that activity.

A drawback of the French model is that the employer provide coverage (or separately purchased coverage)of the co-pays makes doctor shopping more common. The French make a lot of doctor visits.

Try going into a doctor's office and telling them you don't have insurance, and that you're going to pay out of pocket. I bet they won't even see you.
Come into our office and we'll see you. We'll give you a 15% discount, if you pay the bill before you leave, too. I have HMO insurance through my employer, but I don't want to have my coworkers do my Pap, so I just pay cash to a randomly selected gynecologist. I haven't had a problem with that either. Primary care is dirt cheap. I can't tell you how many times someone has looked me in the eye and claimed not to have had a Pap because of lack of insurance -- while sitting there with a Star$s, a cell phone, a Coach bag, and a cute little pedicure. The damn purse costs more than a Pap.

And smash the AMA and institute a national, governmental licensing for doctors...

Go ahead and get rid of the AMA. They have nothing to do with licensing and only about 30% of physicians belong anyway. It's a lobbying group. Doctors aren't allowed to unionize, so why not disallow lobbying, too? The states are responsible for licensing. Dean Baker seems to be arguing against licensing altogether which seems a might edgy to me.

Brilliant excerpt.

I do have a suggestion of something to point out when talking about healthcare though...

Non-sociopathic human beings are incapable of making rational economic decisions about their own life (or the life of a loved one). How much money is your life worth to you? What about choosing between two drugs, a 1% chance of a fatal side effect vs a 2% chance... how much cash is that worth? This line of reasoning goes on and on but always leads to pathological 'markets' if that is the underlying model.

Oh, and it is also nice to ask how the Hippocratic oath jives with 'market based solutions'.

Wisewon,
Why vouchers rather than cash payments?

Let me add that the insurance companies need help from the insured to control spending.

It does seem possible that the government medical care could reduce healthcare spending but the fact that the same people who are calling for socialized medical care are always calling for more spending for schooling makes me wonder. In schooling as in medical care increased spending above some low level seems to have very, very, very, tiny, little, wee, small affects on outcomes, yet despite failure after failure they call for more spending because of course they say we just have not spent enough or we did not spend it in the correct way.