Health insurance is the primary payment mechanism not just for expenses that are unexpected and large, but for nearly all health-care expenses. We’ve become so used to health insurance that we don’t realize how absurd that is. We can’t imagine paying for gas with our auto-insurance policy, or for our electric bills with our homeowners insurance, but we all assume that our regular checkups and dental cleanings will be covered at least partially by insurance. Most pregnancies are planned, and deliveries are predictable many months in advance, yet they’re financed the same way we finance fixing a car after a wreck—through an insurance claim.
The fact that we're out of touch with how much even a modest checkup costs creates a moral hazard situation. We buy more health care and doctors are incentivized to provide more:
Medicare spends almost twice as much per patient in Dallas, where there are more doctors and care facilities per resident, as it does in Salem, Oregon, where supply is tighter. Why? Because doctors (particularly specialists) in surplus areas order more tests and treatments per capita, and keep their practices busy. Many studies have shown that the patients in areas like Dallas do not benefit in any measurable way from all this extra care. All of the physicians I know are genuinely dedicated to their patients. But at the margin, all of us are at least subconsciously influenced by our own economic interests. The data are clear: in our current system, physician supply often begets patient demand.Lots to think about.
Adding: I'm not convinced Goldhill's reform ideas, which he gets to at the end of the piece, are quite right. His idea for universal catastrophic coverage seems good, but I can imagine hospitals charging just enough to fall into that bracket for things that are not necessarily catastrophic. Also, I've long been leery of health savings accounts as basically just government handouts to young healthy people. Still, Goldhill's idea for banking HSA funds and financing expensive care against future HSA payouts is intriguing. And it would probably be a lot less perverse than what we've currently got.