Wednesday, September 30, 2009

The rise in health insurance costs will slow down

A point that's been frustrating me.
Everyone says that health insurance costs are spinning out of control, and we need to slow down how fast they're increasing.
The problem with this logic, as I and others have pointed out, is that the increase in medical costs is due to improved healthcare technology. Chemotherapy is expensive, dying is cheap. As we can treat more things, healthcare costs go up.
Healthcare costs going up is therefore indicative of medical progress - a good thing. If healthcare costs more, we're getting more.
We can quite easily lower costs by just including less things. If you were willing to lock yourself into a 2009 standard of care, your costs of health insurance would DECREASE over time - getting a late 80s/early 90s standard of care costs about 1/3 what it did back then, inflation adjusted, if i recall correctly.
Thus, increasing healthcare costs can stop pretty naturally - not all insurance plans need to include all developments in healthcare. In 10 years, if I am willing to pay 25,000 a year, I get the 2020 version of healthcare, if i'm willing to pay 20,000, i get the 2015 version, if I pay 8,000 I get teh 2009 version, etc. This diversity in plans hasnt really come out yet because so many plans are employer provided, but that can change.
Before somebody raises an ideological issue of your ability to pay influencing your quality of healthcare, consider two points:
1) healthcare costs a lot to develop, and it must be paid for or it will not be developed. it is a good with positive externalities (as in, it's a good thing that everyone wants the best they can get of and you want everyone else to have more of), but it is not a "right" in the conventional sense, because unlike life, liberty and property, it is not something you have that is taken away - healthcare is something you need to be provided with.
2) Current proposals plan to deal with this by capping the quality of healthcare that can be provided to everyone (either explicitly, by limiting what's covered for anyone - that's "rationing", or implicitly, by forcing drug prices down and making it less appealing for healthcare companies to develop new care, so they develop less of it). But healthcare is not something you want equality on, it's something you want maximality with some baseline for everyone. If you have 10 people receiving level A of healthcare, that is worse than having 9 of those people receive level A of healthcare and the 10th receiving level A+B. By far the most efficient way of ensuring maximality with a baseline is to allow people to pay for the level of insurance they can afford (probably with a mandate for some low level of health insurance, perhaps vouchered by the government). Thus, allocation based on ability to pay results in the societal optimum - even poor people should rationally prefer it that way. You're not rewarding people for being rich, you're doing the best you can for society which happens to correlate with rich people getting better healthcare.

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