Irrational Health World
by John Goodman
Issue 109 - June 11, 2008
 In a rational world, deductibles and copayments serve an economic
purpose. Where it is appropriate and desirable for patients to
make choices (e.g., primary care, small-dollar services),
out-of-pocket cost sharing allows patients to bear some or all of the
costs and reap some or all of the benefits of the choices they
make. Where patient choice is not appropriate or desirable
(e.g., on a hospital gurney, large-dollar services), we would not
expect to see cost sharing. At least these are the principles
that govern other insurance markets.
Yet in the market for health insurance, those principles are
increasingly being turned upside down. In the small group market
a typical plan covers primary care visits from the first dollar, but
imposes high deductibles and copayments for inpatient hospital
care. And whereas tiered pricing for drugs once encouraged
generics over more expensive brand names, today tiered pricing is
being used to impose thousands of dollars of cost on patients who must
take expensive drugs with no generic substitutes. (See article here)
Welcome to the irrational world of health insurance, where normal
market forces have been systematically suppressed and no one ever
faces a real price for everything. State and federal regulations
have made it illegal to charge employees premiums that reflect their
individual expected health care costs or to deny them employment for
health reasons. But in outlawing discrimination, politicians
have not outlawed self interest.
The brutal reality: In today's market, employers and insurers have
every incentive to attract the healthy and avoid the sick. And
since it's illegal to do that directly, many are doing it indirectly
by choosing health plans that appeal to the healthy and repel the
sick. The implicit message for people with health problems
imbedded in many health plans is: "We don't want you in the first
place and should you enroll (by some mistake) we hope you will quickly
go elsewhere."
Ironically, there is only one product in the insurance marketplace
that by law must limit the out-of-pocket exposure of the chronically
ill. That product is Health Savings Accounts!!!
But haven't we been told over and over again that HSA plans are bad
for the sick and only good for the healthy? Yes. The
battle against the syllogism is unending.
John Goodman is President of the National Center for Policy Analysis
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