Insurance and health

I gotta get something off my chest.

Occasionally I read something that suggests, or outright states, that the author believes that health insurance does not improve health. (No, I won’t link to any of them.) Fine, they can believe that. Let’s ignore the massive amount of research to the contrary for a moment and just look at the logical, rational consequences of this belief:

If insurance does not improve health then it either (a) worsens health or (b) it is irrelevant to health (neither improving or worsening it).

In the case of (a), it worsens health, then it is rational to refuse health insurance, public or private, even if it is provided at no cost. That requires paying for all of one’s care out of pocket. It may make financial sense to do this, but that’s not the point I’m arguing right now. I’m talking about health. If insurance is bad for health and one rationally refuses it on those grounds–independent of cost–how does one also justify using health care at all? What’s the full argument that health care is of some value while health insurance is not? (I once offered one. I’m not linking back to it. If you want to make this argument, figure it out for yourself.)

In the case of (b), insurance is irrelevant to health, then it doesn’t matter whether one is insured or not. Now I’m willing to enter into financial considerations to break the tie. Should one buy insurance or not if it is irrelevant to health? One should if it is a less expensive way to obtain the health care one would otherwise buy without it. (If one wants to include risk aversion in the cost-benefit analysis, that’s fine.)

Pursuing this idea, one finds that the whole notion of insurance unravels. If only those who would financially gain by purchasing it do so, premiums must increase to balance expenses. But then those for whom the higher premiums outweigh expected costs would refuse insurance. Continuing, we enter the classic adverse selection death spiral. Insurance eventually makes financial sense for no one. (It does not matter that this is not common in the real world. We’re talking about theoretical arguments here.)

A world could exist with no insurance at all. But if health care has any positive effect on health, we’d all be fools to live in such a world. Health care costs something, a lot if one is sick enough. Dying is a certain end of one’s ability to enjoy life. Most people would (and do) want to obtain care to prolong life or improve the quality of it. Who will finance that, possibly expensive, care? How does one transfer the risk that one will want care beyond one’s current means? How does one protect one’s family from the financial hardship of accidents and disease? Insurance! It makes sense even if it doesn’t itself improve health, so long as it doesn’t itself endanger health (case (a) above). (Note, I am not suggesting that insurance means one can get something for nothing. It’s a question of how to finance an acute episode. One may be able to “pay it back” or prepay it in premiums. It’s fine with me if you want to think in terms of catastrophic insurance only.)

Actually, insurance can’t logically play the financial role just described without also being good for health. If one thinks that insurance has financial value because it facilitates the access to expensive care, spreading its cost over time and/or over a broad risk pool, what does that mean about the relationship between insurance and health? Well, if the care bought with insurance is good for health and that care could not be obtained without insurance, then insurance is good for health. It’s impossible to claim that insurance plays purely a financial role if the use to which insurance is put is to buy health-improving care that could not otherwise be purchased.

Thus, the only logical end of the claim that insurance isn’t good for health is to opt out of insurance and to opt out of health care altogether and forever. How many of those who claim insurance doesn’t improve health are willing to follow the logic? Insisting they walk the walk, and not just talk the talk, makes that small crowd a lot smaller. So small, I conjecture, it’s not worth paying attention to. They can’t possibly have any effect on policy. They’re not just wrong, they’re wasting their time and anyone who pays a moment’s notice to them is too.

With that, I’ll move on to something relevant.

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