I’ve been pondering a mammoth post on health care for a while. I’m not sure if I’ve got it in me tonight. Or ever. So here’s a few thoughts. Mainly from my angle as an actuary who manages insurance companies for a living.
Most places that try to privatize health care to some extent do it via an insurance system of some kind. There is an enormous problem with this. Insurance works best when the event you are insuring against (e.g. car accident) is pretty random. It works least when there are different parts of the community who have enormously different risks of the event occurring. If you think about health care, the chance of anyone needing health care is enormously variable, depending on their current state of health. Compare me (moderately fit, only visits to the doctor in the past 10 years for pap smears, except for pregnancy related things) with the family friend Hungry Boy shares his birthdate with (severely autistic, has just started to say a few words at age 3 and a half).
If you’re an insurance company determining a risk based premium, then Hungry Boy’s friend’s premium for medical related care is going to be an enormous premium compared with mine. There are a few random-seeming events in someone’s medical life – a colleague in his mid 30s having a stroke is a good example. But there are a lot more that are pretty predictable looking forward for a year if you look carefully at someone’s state of health.
So insurance without some method of grouping is never going to work well as a way of paying for health care – by having insurance, you’re very close to just asking people to pay the costs of their health care with the intervention of an insurance company to organise the payments.
Here in Australia, the method of grouping is to force insurance companies to charge everyone the same premium, regardless of health status, age, or sex. And to get enough people to take out insurance (including healthy people like me) the government has to massively subsidise it with the tax system, to the point where there is more money going to dental treatment through tax breaks for high income earners than there is actually for people who need dental treatment through the health system.
It does seem reasonable to allow massively rich people (like Kerry Packer) to pay for private health care. But I’m not sure that I can see that the outcomes for society as a whole, including the roughly 50% of people who take out private health insurance, are better than they would be if we took the money spent on private health insurance and used instead in the state system. Seriously rich people could still pay more, but the health of Australians as a whole would probably be better.
I probably need another post to explain why I seem such a socialist in this post (more than I am when you look at my political beliefs as a whole). I do believe that markets add value, but only when there is full information on both sides of the buy-sell spread, which is manifestly not the health care market for the individual patient.