Saturday, November 16, 2013

Thinking about just allocation of health care costs

Consider a specific health insurance policy providing specific coverage for specific presenting conditions at a specific cost. While there are many such policies, in a country with more than 300 million people, each will be expected to cover a large number of people.  Thus each policy will have an expected number of each kind of presenting condition per year, an expected number of treatments, and an expected frequency of outcomes -- complete recovery, days of discomfort, days of lost work, rates of disability, mortality, etc. It will also generate a specific income for the agency offering the policy, specific health related out of pocket costs for the people it covers, and specific costs for employers and government.

In this kind of simplified treatment, we can treat the wealthy who self insure and pay costs of treatment entirely out of pocket as holders of a specific "policy", and we can treat the indigent who depend entirely on charitable and government financed services as holders of another specific "policy".

The World Health Organization has offered Disability Adjusted Life Years as a single indicator of the success of a health system/policy. At a conceptual level we can assume that there exists such a single indicator, and all the health insurance policies could be ranked in terms of their outcomes as measured by that indicator. If people had perfect information, one might consider that they would choose the policy with the best outcome for the cost they were willing to bear.

Thus in our mental experiment we might consider that only those policies that offered the best outcomes for a given level of expenditure need be considered. If one ranked the policies according to outcome, one would expect that there would be decreasing returns to cost -- one would get better outcomes for more expensive policies, but (at least after some level of cost) each added dollar of cost would provide less and less added benefit.

In our current system of private insurance, largely paid by employers who get government subsidies, some people get very high end coverage with the best expected outcomes. Others get minimal coverage with the worst expected outcomes. We could expect that with the same total cost to society we could get better average outcomes by reallocation of the total costs and coverage among alternative policies.

Great Britain for example, has most people covered by a government health service with uniform coverage, and a few people who opt out and pay for private health services. The country has better health statistics with much lower health service costs than does the United States.

Should People Who Opt Out of Affordable Care Act Insurance Pay a Tax?

A fraction of those people will require health services and will not be able to pay for them. In our society, hospitals and emergency services are required to provide services in many cases, even if they can not be paid for by insurance or out of pocket by the recipient. The cost of those services are shared between the government, or they are incorporated in the cost of other services -- someone pays.

Thus the people who choose not to be insured incur an average, probably low, cost. It seems just that they should give something to the government to cover that cost so that the rest of us do not have to do so (through higher costs for our insurance, higher out of pocket costs, or higher taxes).

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