A month or so ago, I had my appendix taken out. It’s impossible for me to know how much the hospital and assorted doctors will actually be paid for this, but the face value of the bills for that little adventure came to $25,000. That seems like a lot for what I actually experienced. On the other hand, if I hadn’t had it done, I’d be dead now. In that light, it seems like a pretty good deal.
This is one of the fundamental problems with healthcare. It isn’t a market because the fundamental condition that define markets – multiple two-party transactions between buyers and sellers who can place an economic value on the good or service to be exchanged – doesn’t exist. (For more on this, scroll back to “A Plague on Both Our Houses” from November 2009. I thought I was clever and original in making this argument, but the same case was made by Nobel Prize-winning economist Kenneth Arrow. In 1963. I’m often late, but rarely by 49 years. And rarely in such good company.)
The Supreme Court’s current consideration of the Obamacare individual mandate reveals another fundamental problem: health insurance isn’t really insurance.
To be fair, part of it is. When you write a check for health insurance, part of the money goes to protect you against the possibility that something both unexpected and bad (like having your appendix flare up while you’re in Arizona visiting Dad) will happen to you in the next 12 months.
The rest of the money, however, pays for the care of people who are older, and therefore predictably less healthy, than you are. You are also paying for people to whom something bad, that turned out to have ongoing consequences, has already happened. The younger and healthier you are, the higher a percentage of your premium is used to subsidize the care of people who are either already ill or are far more likely than you are to become ill in the next year.
The individual mandate is a means of forcing these young, healthy people into the system because without them, the system would collapse under its own weight. But confiscating money from some people in order to pay for something that benefits other people isn’t insurance. It’s taxation.
In that context, the individual mandate amounts to an outsourcing of taxation. It also provides a thin veneer of private sector involvement that lets us pretend we’re free marketers when we really aren’t. (On this, see the comments of conservative and former Bush aide David Frum.)
So what we’re talking about here is insurance that’s not actually insurance, which we use to fund a market that’s not actually a market.
I wish it weren’t so. I believe in markets and spend my days helping people figure out how to prosper in them.
But I also believe in calling a spade a spade. The system will function only if we force people to participate, which is a steep and slippery slope. We are going to wind up with a single-payer, government run healthcare funding system. Not because we should, or because it’s better or worse, but because it’s inevitable.
That is the irresistible force of gravity. The sooner we acknowledge it and act on it, the less it’s going to hurt.