many of the poor do not value health insurance nearly as much as many planners feel they ought to, in large part because they are already getting some health care.
He quotes from the abstract of a paper by Amy Finkelstein, Nathaniel Hendren, and Mark Shepard. They conclude that most low-income people would not choose to pay for health insurance if they had to. My thoughts:
1. I would be careful about concluding that people do not value health insurance based on their preferences when their incomes are low. Perhaps if you raised their incomes a lot, they would value health insurance more highly.
2. Almost 15 years ago, I wrote an essay called Health Insurance Do-nots. I recommend it as relevant to the current discussion.
3. While people with low incomes get above-board subsidies for health insurance, many people with high incomes get subsidies, also. Government workers, for example. Or people who get employer-provided health insurance, which is subsidized through the tax system.
4. If my wife and I could be assured of paying the same price for medical services that our insurance company pays, we would be much better off self-insuring than getting our Obamacare insurance. If you cumulate over 5 years, we would have to incur well over $100,000 in medical procedures in order to make back our premiums/deductibles under Obamacare. And note that we separately pay for our own long-term care insurance, which addresses the biggest health-related financial risk that we face.
As ASDF has alluded to, we are in part paying a premium to be able to not have to think about it.
” If my wife and I could be assured of paying the same price for medical services that our insurance company pays, we would be much better off self-insuring than getting our Obamacare insurance. If you cumulate over 5 years, we would have to incur well over $100,000 in medical procedures in order to make back our premiums/deductibles under Obamacare.”
Been to a hospital lately? After years of back pain; countless non invasive treatments that had temporary benefits(if any); I finally had disk replacement surgery. I was in the hospital for two days. List price for the procedure was a little north of $150K. Insurance negotiated price was a little north of $80k.
Your self insurance idea is a great one. Unless of course there is a medical problem. And I would imagine it would really be hard to negotiate with providers when you are in need of care.
One of the problems I see, though, is that the insurance companies aren’t really that great at negotiating prices, either. 80k for what is, really, routine if delicate surgery doesn’t strike me as any sort of bargain (I have similar complaints about my own health insurance).
Health insurance companies generally are not in a particularly good position to bargain with major providers like hospitals. Their customers want plans that will cover them when they go to major hospitals in the area they live in. If they leave a major hospital out of their network, they risk losing customers. Those hospitals know this. The “skinny” Obamacare networks are an attempt to get out of this, but the experiment is not going well.
Honest question…assume Arnold’s model and you don’t pay health insurance premiums. How much would you be willing to pay out of pocket to have the disk replacement surgery?
When you had to pay out of pocket, you would likely feel the greater loss aversion than the slow accrual of premiums.
OTOH you’d feel as though you were receiving something for the payment, unlike premium payments.
True.
I think it is very illuminating that your question went unanswered.
If my wife and I could be assured of paying the same price for medical services that our insurance company pays,
That is a BIG if here and insurance companies get 30 – 40% of discounts and that is hard to negotiate upfront.
Anyway, I like to know what free market solutions for pregnancy. Because I wonder how people react when they see a coming $15K bill!
I’m afraid this is a good example of the libertarian equivalent of pc, that is, the use of language to impose the constructs of, and avoid inconsistency with, the ideology instead of accurately describing human reality in terms with familiar understanding. Libertarians are keen enough to avoid paternalistic conclusions that they use the revealed (or ‘time-inconsistent’) preferences construct to define “want” instead of allowing for the obvious fact that plenty of people have trouble with discipline, prudence, and forethought and will succumb to the temptation of short term gratifications at clear odds with their long-term welfare.
In Cowen’s own case, just days later, he wrote a Bloomberg article complaining about medical non-compliance. Does it make sense to day a diabetic ‘wants’ to lose his legs because he prefers to not to follow through with his prescription? Only if you are limited to operating within unrealistic ideological limits.
This presents problems whenever discussing matters of foolishly high time preference, such as obesity, addiction, savings, and insurance.
I think you’re right and I think people are, in the abstract, aware of their own (and others’) ability to make bad decisions contrary to what they really want; and therefore inevitably will vote to make the state protect them from themselves in some measure.
My solution is that people be required to put money every year in a savings account they can’t touch except to for medical expenses, but give them some freedom over how it’s invested.
The basic idea is, people should have to finance insurance agai st their own stupidity. In as much as government intervention in the healthcare market is justified by poor choices by consumers, the intervention should not be redistributive, like other entitlements.
Let’s keep in mind what Josh Barro noted:
Healthcare consumes about 1/6th of the economy (gdp).
But nobody wants to spend 1/6th of their income on healthcare.
Many (most?) simply cannot.
Most who don’t probably could but choose not to, because they can politically make others pay for it (or make themselves pay for it without realizing it). Perhaps if we made them pay for it via forced saving they would consume healthcare more judiciously and shop for it more and thereby drive down prices.
Arnold,
“If my wife and I could be assured of paying the same price for medical services that our insurance company pays, we would be much better off self-insuring than getting our Obamacare insurance.”
Don’t you live in Maryland? My understanding is that Maryland has an all-payer system that requires a provider to charge the same rates to all payers. Do I have that wrong?
He may not know. Scott Adams calls healthcare a Confusopoly. People think hospitals and insurers and employers are enemies, but they are really in cahoots in the long con. Personally, I doubt that if you could add up all the costs that insurers would be getting that much better of a deal. We here this is the case, so we kind of believe it and don’t want to think about healthcare enough to figure it out and just don’t want to risk it.
Assuming it’s so, how is that law enforced and by whom? If Arnold has surgery and the hospital presents a bill, how can he find out if he is being charged the same price as others? Can he get a price quote up front for a procedure?
I’m no expert on it, but my understanding is that all hospitals in Maryland have to submit rates to a state commission annually and that commission then approves/adjusts them. The hospital then has to charge everyone the approved rates. I don’t know if that commission audits them, or what. I’m sure there’s information out on the web about it if you really want to know. It’s called “all-payer.”
“I would be careful about concluding that people do not value health insurance based on their preferences when their incomes are low. Perhaps if you raised their incomes a lot, they would value health insurance more highly.” This is an unusually obtuse remark. Virtually everyone puts some positive value on “health insurance”; no one is suggesting otherwise. Also, since “health insurance” is not an inferior good, people’s willingness to pay for it increases as their incomes rise; again, no one denies this. The point is that forcing poor people to pay for something they consider not worth the cost is not doing them any good.
I think you are slightly shifting the meaning of words to make it sound obtuse. I want a Porsch 911 Turb bad. But I can’t imagine ever having the income that I would pull the trigger. But I’d like to find out!
Health insurance is a big crapshoot payoff. The poor might have different demand curves for risky purchases versus sure-thing payoffs and their curves may change shape depending on their income.
Also, you aren’t allowed to purchase marginal increments of health insurance, so the point is that not buying it in the available discrete increments may not imply the typical assumptions about revealed preference.
There are these things called “Cadillac plans” of very expensive, comprehensive health insurance that are a tax-deduction-subsidized form of compensation to high income or union-privileged individuals, which cost enough that they might approach that Barro figure of 1/6th of compensation. These plans are popular enough with their beneficiaries that they are proving politically impossible to tax. That means that typical benificiaries of these Cadillac plans prefer the marginal increase in coverage benefits to any alternative use of the after-tax equivalent in cash. And that implies a very high marginal utility of coverage for these people, which persists and doesn’t seem to diminish much even at already high levels of coverage.
Yes, it is certainly possible to say the rich and poor have different preferences and that the rich want a lot of expensive coverage while the poor have other priorities. But there are other plausible and reasonable interpretations of this fact, to include the notion that people in general really do ‘want’ the benefits of lots of health insurance, but that many lower income folks simply aren’t that good at deferring gratification to invest in the optimal and time-consistent amount of insurance for themselves, which is really not that much different from saying that they also under-invest in savings for themselves in general, which is not a very controversial proposition.