Should health insurance remain in the private sector or be provided publically (or something in between)?
Healthcare (or even Health itself) is a scarce resource. How do we distribute the costs and the benefits in such a way that we maximize utility within the constraints of property rights?
Generally, if the conditions of perfect competition are met or when market imperfections are slight, it is better to relegate the production and consumption of a product to the private market with only the general laws against murder, theft, and fraud.
Health insurance, that is the means of paying for healthcare, however suffers several significant imperfections. Any plan to address health insurance policy in the private sector must address these imperfections:
1. Information assymetry: Producers of healthcare, doctors and corporations that develop medicines and medical devices, are at a significant information advantage over consumers of healthcare, the patients. A patient may not be able to decide appropriately whether a particular treatment is worth the cost.
2. Principal/Agent: Patient/Doctor: Worse, most patients don't decide their own treatments. Their doctors do. A doctor may consciously or subconsciously have different incentives than the patient's. (http://roomfordebate.blogs.nytimes.com/2009/06/18/better-medical-care-for-less/?ref=health)
3. Principal/Agent: Patient/Insurer: If the patient seeks excess treatment, the costs are borne by the insurance company. If the insurance company denies treatment, the costs are born by the patient.
4. Sickness Subsidy: The requirement that health insurance premiums should be the same for everyone regardless of health is effectively a subsidy for the sick paid for by the healthy. Those who are chronically ill will enjoy cheaper premiums because those who are generally healthy are paying higher ones. This will lead healthy individuals to seek cheaper and cheaper plans with less coverage so that they can avod paying this subsidy. Ultimately, healthy individuals will eventually choose to remain uninsured or self-insure while the sick end up paying for their own health care anyway.
So far it seems that surmounting these obstacles is impossible for the private health insurnce market to accomplish, and so I would advocate moving towards a minimum basic national insurance. Individuals would still be able to purchase supplemental insurance plans from private providers to enjoy care beyond that which is contracted to the lowest bidder.
National health insurance does not in itself solve all the problems above, but it has the potential to. We must carefuly craft the national health insurance program to solve these issues or else we will do no better than the private market today.
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