Is health insurance like a television? (or, What is the point of health insurance?–Part 2)

In my last post I identified an argumentative move that has been used to defend reforms like the Affordable Care Act. The move goes like this: “The whole point of health insurance is that it’s a vehicle to redistribute funds from the healthy to the sick. Virtually everyone wants health insurance of some kind. So virtually everyone is on board with the goal of healthy-to-sick redistribution. But that is all the Affordable Care Act really does. It just does it on a larger scale.” I cited a recent post by my favorite health econ blogger, Austin Frakt, as an example of this move out in the wild.

In that other post I also described a second line of argument that I said was “intriguingly similar” to the first. It goes like this: “The whole point of television purchases is to transfer money from the purchaser to others (e.g. workers at the television factory) in exchange for the television. Virtually everyone wants a television, so virtually everyone is on board with transfers from one person’s income to another’s. But that is all income-maintenance policies are. They are just income transfers on a larger scale.”

Most readers will find the second line of argument utterly unpersuasive. The point of buying a TV is to get a TV. Of course that involves handing over a sum of money a portion of which ends up in the hands of workers who labored to produce the TV. But their receiving money isn’t the “point.” This seems right. But this very same response can be used to rebut the insurance argument as well.  The “point” of buying health insurance is to protect oneself from the risk of financial calamity and/or barriers to necessary care in cases of unexpected illness. Of course buying insurance involves handing over a sum of money a portion of which–maybe most of which–will be transferred to other sick enrollees to pay for their care. But their receiving that care isn’t the “point” of my buying the insurance.

In a word: there is a reason why they call them “insurance products.” They are designed to offer various forms of coverage for prices that can entice a wide range of shoppers. The one thing that these shoppers have in common is that they are all–quite understandably–driven by self-interest to convert unacceptable risks into acceptable known losses in the form of annual premiums (and potentially a bit of out-of-pocket spending in the form of a deductible). It is therefore unlikely that we can pull the rabbit of social obligations out of the hat of private purchases. Put another way, there is a stark difference in both motivation and “point” between individually sensible insurance purchases and socially responsible support for policies that protect the health and well-being of those who cannot protect it on their own.

Liberals should not shy away from this fact. It is therefore unfortunate to see so many of them attempting to derive an essentially other-regarding duty (i.e. the duty to protect the health of others) from the essentially self-regarding motivations that lead individuals to purchase health care on their own.

The flaw in this unsuccessful attempt to bootstrap from self-regarding considerations is also reflected in a second bad argument in favor of the Affordable Care Act’s individual mandate. Consider an argument of Paul Starr’s that he first set out in a piece that ran on The American Prospect website and which was later presented in a New York times op-ed (this quote is from the AmProsp piece):

If legislation banned [pre-existing condition] exclusions without a mandate, healthy people would rationally refuse to buy coverage until they got sick, and the entire insurance system would break down. The mandate is designed to deter people from opportunistically dipping into the insurance funds when they are sick and refusing to contribute when they are healthy.

Starr notes that many believe this Free Rider argument provides a slam dunk case in favor of the individual mandate. But Starr disagrees:

Congress could address this problem more directly. The law could give people a right to opt out of the mandate if they signed a form agreeing that they could not opt in for the following five years. In other words, instead of paying a fine, they would forgo a potential benefit. For five years they would become ineligible for federal subsidies for health insurance and, if they did buy coverage, no insurer would have to cover a pre-existing condition of theirs.

Starr’s proposal demonstrates that if the only argument in favor of the mandate is the Free Rider Argument, then that provision is not really necessary. But that is not the only reason to support a mandate, as can be seen by the shortcomings of the proposal Starr favors.

Consider again Brendan’s claim that the mandate’s job is to “create large and diverse risk pools” by leaving the healthy and wealthy no legal option but to put their dollars into the same pool of dollars out of which the medical care of the sick and the poor (as well as the healthy and wealthy) will be financed. The worry is that this goal cannot clearly be promoted by the Starr alternative. After all, the individuals who are most likely to opt out are the healthy and wealthy whose dollars may well be needed to subsidize the care of those who are most likely to remain in the system.

The common thread running through the “Point of Insurance” Argument and the Starr Alternative to the individual mandate is that each distracts from the important argumentative task of justifying the appropriation of some people’s resources to pay for the medical care of others. In my next post, I’ll give examples of how two influential conservative economists have turned the tables on these two arguments, by using them quite effectively to argue against national health insurance reforms.

 

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One Response to Is health insurance like a television? (or, What is the point of health insurance?–Part 2)

  1. Pingback: Highlights so far… | Inequalities

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