Now when we talk about Health Care Reform, we are not talking about reforming health care in the US. We aren't even talking about reforming how it is delivered. We are talking about how to pay for and ration health care. Now "rationing" is a "bad" word. But as everyone who has taking any courses in economics can tell you, almost everything is rationed one way or another. We ration most things in the US by ability to pay. Not everyone who wants diamonds has them. Only those who have enough money to pay for diamonds have them.
Currently, health care is paid for, primarily, by insurance. The purpose of insurance is risk management. You buy home owners insurance to mitigate the risk of catastrophic loss because of damage to your home. You don't buy home owners insurance to fix a leaky toilet or replace the filters on your air conditioner/heater. We don't buy insurance to pay for someone to cut our grass or even trim our trees. Those things are considered normal costs of owning a home.
One of the problems with health insurance is that we ask too much of it and we are using it for too many things. I submit that there are three types of health care
- Primary Care - this is the normal health care that we receive. It is doctors visits for routine physicals and immunizations or when you get the flu or a cold. I don't believe that insurance should cover this type of care. Covering primary care is like asking your car insurance to pay for oil changes or tune ups.
- Catastrophic Care - this consists of things that are rare, but expensive when they happen. Examples could be specialized tests or surgery or trips to the emergency room or catastrophic illnesses like cancer. These cannot be planned for on an individual basis
- Chronic Care - this consists of chronic diseases such as diabetes or asthma or even some mental illnesses. Maintenance care for these diseases is necessary and relatively inexpensive, but it can grow to be very expensive and, if the maintenance care is not received, the chronic disease will turn into a catastrophic one. Some form of payment sharing should be done by insurance because both parties have a strong interest in avoiding the costs of catastrophic care.
My next post will concern other impacts to the costs of delivering health care such as defensive medicine and legal fees as well as the friction costs of insurance and how we can reduce them.