Wednesday, March 25, 2009

US Health Insurance

Americans on a per capita basis pay about twice the price Japanese pay on health care, and yet life expectancy in Japan is longer than in the US. Arguably Americans are the least efficient health producer in the world if health performance is measured by life expectancy. There are a lot of reasons that contribute to this phenomenon but the central piece is an America idea about liberty.

In Europe and Japan mandatory health insurance or health tax is a norm. Mandatory health insurance avoids the classic insurance problem: adverse selection. Adverse selection is an insurance industry jargon referring to a market phenomenon that young, healthy people avoid buying insurance while the sickest all sign up. In order to be profitable private insurance companies either drop coverage for the sickest by way of pre-existing condition, or raise the premium significantly for everyone. The result is a combination of high health insurance cost and lack of coverage in the US.

Mandatory insurance is the solution to adverse selection, but it runs counter to American’s idea about liberty. “I, as a consumer, should have the right to decide what I am going to buy. If I decide food, clothes, and housing come in priority to health care, it is my decision and no one else’s.” That might be true, but sooner or later, people will get sick and eventually everyone will die. People who don’t buy health insurance usually end up in emergency room, costing expensive resources without paying. There is no solution to this problem, except for mandatory insurance or the inhumane way of throwing out very sick and injured people out of hospital.

It is hard to convince people that health care is something you have to buy, though. I have heard people say: “Some say everyone is required to have insurance to operate a car, and the same should apply to health insurance. That is not right. I can do without a car but I can’t do without myself. Mandatory health insurance is an unfair tax that helps the sick” Another fear that Americans have for a health tax is that people will lose their choice of health care provider. “When you don’t pay out of your pocket, you don’t have a say who is your doctor or nurse. But health care is so personal that I demand a choice.”

With this conflict between American idea about liberty and the need to avoid adverse selection, no answer is easy. Maybe there won’t be a solution in the US for health care. Coverage will continue to be insufficient and cost will continue to be high.

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