Why Insurance Is the Wrong Way to Think About Health Care
Cathleen Kaveny December 3, 2009 - 12:30pm
It now seems clear that political pressures have transformed President Barack Obama’s health-care reform plan into a health-insurance reform plan. Some commentators have protested that this transformation will result in a reform package too limited in scope. I think the problem is more fundamental. We shouldn’t be thinking of our duty to provide health care as a matter of insurance in the first place, because the logic of insurance leads us to avoid those who most need our help—the sick, the old, and the medically vulnerable.
The basic idea of insurance—making provision for risk of loss—is very old; it began with merchants making provision for the loss of their wares during transit. The Code of Hammurabi provided that merchants borrowing money to fund their ventures could pay an additional sum for loan forgiveness if their goods were lost. The Middle Ages saw the development of actual insurance contracts among ship owners, who paid wealthy individuals a premium to cover the costs of a ship lost at sea. It made sense for the merchants to throw in their lots together. All ships appeared to be equally at risk from the arbitrary cruelties of the wind and waves; no one could predict in advance whose ship would be lost.
The core of insurance is the rational transfer of the risk of a large, unmanageable loss or expense in exchange for a manageable fee—a premium. Insurance underwriters have become extremely sophisticated at estimating risk, and pricing premiums (or declining coverage) accordingly. Ironically, the closer they get to predicting the future accurately, the closer they get to making their jobs obsolete. A true crystal ball, which eliminates risk entirely in favor of certain prediction, would be the death of insurance. No one is going to insure someone against a certain or virtually certain harm—the price of the premium would be the price of the payout.
We can now see why the idea of health insurance is so problematic. Death is a certainty for us all, and periods of disability and illness are highly likely occurrences for most of us. The question isn’t whether our bodies will fail, it is when and how. Moreover, it doesn’t take an actuary to predict with some degree of accuracy who is at low risk and who is at high risk—hence we have what insurers call the “moral hazard” problem, in which people try to buy insurance only when they think they will need it. So the young decide—quite rationally—that paying the rent is more important than buying health insurance.
Insurance companies face equal and contrary temptations. They can try to “cherry pick” those they cover by attracting healthy populations (free gym membership, anyone?) and excluding those who will run up high medical bills. Developments in medical diagnosis and genetic testing give them powerful new tools for medical underwriting. From the insurer’s perspective, it is simply good business to exclude the baby girl born with the BRCA-1 gene from the coverage she will need most—for she has a preexisting condition indicating the potential for breast cancer even before she develops breasts. Employers face analogous temptations. Those employers who have a healthy group of workers in a low-risk environment may choose to cover medical bills themselves rather than join an insurance pool with other employers whose workers are likely to need more medical care. Quite rationally, they don’t want to throw in their lots with companies likely to have higher medical bills.
Moreover, understanding health care through an insurance framework leads to other morally troublesome conclusions. Viewed purely from a bottom-line perspective, a health insurer’s best customer is someone who leads a productive, sedentary, risk-free life until age fifty, and who then dies suddenly from a massive heart attack just as he receives his AARP card and schedules his first colonoscopy. The ugly fact is that a quick death is always cheaper for a health insurer than a prolonged period of debilitating illness. But this fact has been hidden since 1965 through the Medicare program, when the federal government started to cover the cost of health care for those most likely to need it.
By its very logic, the concept of health insurance pits the self-interest of the young and healthy against the interests of the sick and the old. One might object that young people’s conception of self-interest may be too narrow; that they will be old one day, too. True enough. But the objection does not go far enough—why should anyone pay for diseases that she knows she has escaped—say, juvenile diabetes?
People who don’t (and won’t) need health care ought to contribute to the care others need for the same reason that people who don’t have children, or whose children are grown, ought to contribute to the education of the next generation—it’s part of providing for the common good. A good society is one that honors the inherent dignity of all persons, no matter what their physical disability. The concepts at the center of health-care reform need to be solidarity and vulnerability, not risk and its rational transfer.