Catastrophic vs first-dollar health insurance

Megan McArdle makes the point that our health care debate is skewed because we are debating a full coverage program rather than also discussing the need for catastrophic coverage. The latter is in some ways much easier to justify and to insure, but our framing covers the entire health care market, with all the concerns about care rationing, government intervention, standards, etc., pushing aside what should be a far simpler to implement government mandate.

One of the comments on her blog explains it well using an analogy of groceries and flood insurance. We all need food to live, but we are “trusted” to choose it and pay for it ourselves. For those with limited income, government subsidies in the form of food stamps and other programs help them and encourage but do not require good decision making. In healthcare, first-dollar care means our employer- or government-provided insurance is intimately involved in all of our health decisions, including normal checkups and things like breast cancer screenings. We are not making our own informed choices about which health care to pay for out of pocket (self-insurance) or which free market insurance company to choose. Since it is someone else’s money, there is no incentive for that sort of decision making, the market for services is not competitive, and thus prices rise.

In much the same way, we need shelter and choose on our own how and where to obtain it, be it by buying, renting, subletting, or taking advantage of a government assistant program if we are poor. But for people who live in flood zones, the government mandates flood insurance. This catastrophic insurance is required and usually subsidized or provided free by the government. In the event of a catastrophe, this insurance (in theory) kicks in. In much the same way, the government should mandate catastrophic health insurance coverage for all Americans. A policy that covers things like heart attacks, strokes, car accidents, etc. Since the shared risk pool is massive, the cost of insurance can be fairly low. While most people will never need it, it is a public safety net for everyone.

I’m not entirely convinced by this libertarian-minded argument, since I tend to see healthcare as an entire ecosystem with good choices in preventative care paying large dividends down the line, and with chronic conditions sopping up most of our health care dollars. But in terms of getting something passed through Congress to improve our system and cut costs, the idea of tackling catastrophic insurance first does have some appeal.

2 replies on “Catastrophic vs first-dollar health insurance”

  1. Are there any new ideas?

    About a decade before Danny was born, many if not most employers provided only catastrophic coverage. The switch to more complete coverage was gradual and I think temporally coincided with the advent of HMOs.

    Having a universal program that covers catastrophes and basic preventative care, while leaving other forms of care as an economic decision for the consumer, seems like a rational plan. But not a rational plan that has any chance of getting through Congress, because the public is still under the delusion that every man, woman and child is somehow entitled to receive $10000 worth of care at $5000 cost.

  2. I agree with Steven’s final bit on the delusion of the American people. However, I came to comment about how we could *pay* for the catastrophic coverage *and* keep the private system so many people seem to think is awesome (I am not one of those people, but I digress). Here’s how it would work: anyone with a catastrophic illness denied coverage by the insurance plans (or those without insurance) would get their treatment paid for by the government. The government would in turn tax all the CEOs and upper management bonuses at the rate sufficient to pay for said denied coverage. Problem solved, and the jerks mainly responsible for the problem would pay for it. 😛

Comments are closed.