The Finch Formerly Known As Gold

17 October 2006


Two weeks ago I had an unscheduled trip to the dentist, the result of not looking too closely at what might be lurking in the bottom of that bowl of trail mix. (Whatever it was, it was petrified, and for all I know might have come from the Oregon Trail.) There was much discussion when I arrived, mostly over whether my insurance would cover the repairs. I pointed out that this would not be an issue, inasmuch as I didn't have any.

"Now here's a man who knows how to count," said the dentist.

And I suppose I do. I get three cleanings and one set of X-rays a year, at a cost of somewhere around $350. Dental insurance worthy of the name would cost me rather more than thirty bucks a month, and it wouldn't cover all of that stuff in full. Admittedly, I don't have teenagers in need of orthodontia, and the damage repaired that day didn't require crowns and such, but in the absence of some major catastrophe — and now you know why I'm getting three cleanings and one set of X-rays a year — I don't really see the need for buying dental insurance, unless I can find something that covers only major treatments, which presumably wouldn't cost so much.

I thought about that while reading this piece by Arnold Kling:

I think that the most important point about health insurance in the United States is that it is not really insurance. [Mark] Thoma says [in this article], "In general, insurance gives us financial protection from unexpected events — a tree falls on our house, we have a car accident, we become unemployed, we become sick and need health care, and so on."

But what we call health insurance covers things like new eyeglasses, which is not a rare, catastrophic event. It seems to me that the big market failure in health insurance is that it exists to protect health care suppliers from having to bill patients directly rather than to protect consumers from catastrophic loss. That is, the failure is not in the way risks are managed by insurance companies, but in the very structure of what we call health insurance.

Before we leap to having single-payer health insurance, we ought to change health insurance to something that looks like insurance, not like a scheme to insulate individual consumers from all health expenses.

James Joyner took on this premise and drew some interesting comments:

Just Me:
[Health] insurance has taken on what is the equivalent of auto insurance covering oil changes, tire rotations and spark plug changes. All of those services are relatively cheap compared to fixing a fixing the body from an accident, but everyone needs oil changes, tire rotations and new spark plugs — not everyone has an accident. I havenít had a car accident in almost 20 years, my auto insurance likes me, but I have 2-3 oil changes and tire rotations a year.

Steve Verdon:
Mark Thomaís example using a tree falling on oneís house is an excellent example. It is a rare event and it is generally expensive. Hence, it is possible to come up with an insurance policy that people might find reasonable. But having a homeowners policy that covers light bulb changing, broken windows, and a clogged sink is another matter altogether.

For the record, my scheduled medical expenses each year (unscheduled ones are, not surprisingly, harder to forecast) run about $2200 a year; actual copayments are around $600. I couldn't tell you how much my actual health coverage costs, though I suspect it's around $3500 a year; I can't help but wonder how much it would be if I were to pick up that $1600 (the difference between the copays and the actual price of the services and prescriptions) myself.

I don't see, though, any great demand to switch to health care that covers only the hyperexpensive stuff, no matter how little it might cost in comparison, and until there's a demand, I have no reason to expect there to be much of a supply.

Posted at 6:21 AM to Dyssynergy

We switched to a high-deductible policy ($5400/year for family) with a Health Savings Account. An HSA allows you to contribute up to, tax-free, the $5400/yr for family -- HSAs for individuals are about half that, I think. You pay out of the account any pharmacy/medical/vision/dental bills; they accrue against the deductible. Any residual in the account remains tax-free until you reach Medicare age; you can then withdraw it without penalty.

Posted by: John Owen Butler at 8:50 AM on 17 October 2006

Kling is a sad excuse for a free market economist. There is no such thing as "market failure."

Seriously, though-health insurance functions to provide the illusion that we are shifting the costs of our medical care to "someone else." This is also what government exists to do.

Posted by: John Salmon at 10:53 AM on 17 October 2006

I have a high-deductible policy which I still pay $150 a month for. The deductible is $5,000.00. This, obviously, is for something catastrophic. So, there is the possibility that I could pay $6,800.00 per month (premium and deductible) before anything is paid for at all. There's got to be a better way....I'm just not sure what it is.

Single-payer makes a lot of sense if it is ONLY that. As long as the providers remain private and only the payer is consolidated (similar to Medicare), I would consider supporting it. I am generally pretty conservative, but health care is out of control and the USA is falling far behind in general health care. The "best health care in the world," argument was true at one time - but no longer. "Best health care for those who can afford all the high-tech treatments," is still a possibility; but that does a number on my sensibilities which tell me, at gut-level, that a system that provides medical care like that has ceased to be of any use to all but the wealthiest. Grotesque and inhumane comes to mind.

Posted by: MikeSwi... at 1:37 PM on 17 October 2006

There is no such thing as "market failure."

Hahahahaha! weren't kidding. Seriously, when did you manage to know everything about everything? After all, one of the sources of market failure (to reach the most efficient outcome) is information not being difuse (i.e., you don't know everything about everything).

Posted by: Steve Verdon at 1:53 PM on 17 October 2006

Steve-Considering I started the next paragraph with the word "seriously", obviously I was kidding. I don't think anybody believes markets never fail.

Posted by: John Salmon at 3:19 PM on 17 October 2006

My dental insurance costs about what you pay for your yearly cleanings and Xrays. For that I get two free cleanings, two dental checkups and two sets of Xrays a year. Insurance only pays half of major work such as crowns, but having suffered such catastrophes in the past, I figure half is better than nothing.

Posted by: Rachel at 1:13 PM on 18 October 2006

A friend wrote in with this story:

As someone who pays cash for all my vision, dental, and medical needs I can tell you that there is the "cash price" for any procedure and the "insured price." The cash price is usually much less. That's the reason my back specialist refuses to treat me as a "self pay" patient. He can charge an insurance company double or triple what he can charge an individual. Therefore he won't treat anyone without insurance. A lawyer friend told me to get ready to hear that from all doctors by the year 2015. BUT one can go to every MRI office in town and ask what the cash price is and the offices will actually bid down to get your business. The cheapest price gets the patient and they will haggle. MRI with insurance $4000 ... without $1800. I have done it. It does pay to shop around, well, at least until the year 2015.

Okay, what's happening in 2015?

Posted by: CGHill at 5:28 PM on 18 October 2006