• National Flood Insurance Program and Health Policy-5

    This is the last in a series of posts considering what the 43 year old history of the National Flood Insurance Program (NFIP) could mean for health policy, with special emphasis on Medicare. Previous posts are linked below.

    This post focuses on how we should decide if the NFIP, or Medicare is worth continuing/reforming? Getting rid of either is a stretch, since they have both been around since the the 1960s. However, there is renewed interest in the NFIP given the cost of storm cleanup, and Medicare is perpetually the focus of reform discussion.

    The cost outlay of a program is not the correct way to assess its merit. Instead, you need to know the costs and benefits as compared to the default alternative. When these programs were created, that was flood risk being uninsurable, and half of the elderly being uninsured. A careful consideration of the following is needed to decide what to do as compared to the default case:

    • costs
    • benefits
    • distribution of same

    If you end the NFIP now, you will not end floods, and certainly won’t end the federal government’s role in responding to flood damage. Cost/benefit analysis (CBA) can be used to decide whether to undertake or continue a program as compared to a plausible alternative. It is imaginable that a CBA could conclude that the costs outweigh the benefits and that the NFIP should be discontinued, due to the benefits being highly concentrated but the costs broadly spread. More likely is that the program will be reformed. Medicare will obviously be reformed in some way.

    Once you have decided that you will do something (say treat  back pain in the Medicare program, or seek to mitigate flood risk on the Outer Banks), you can then move on to cost-effectiveness analysis (CEA). Here the question is given that we will do something, what will we do? What provides the best bang for the buck?

    I think that the NFIP could be subjected to CEA to determine if the subsidies provided in their current form are appropriate, and to prioritize flood mitigation strategies. If we picked a standard amount we were willing to pay per unit of flood risk mitigation, I suspect we could muddle through successfully, and reform the NFIP. I am less optimistic about using CEA as a practical tool in Medicare. There are huge differences in how much we do pay to save a statistical life year across settings, demonstrating we have context-specific standards. And when it comes to health care, our technical ability to identify the cost effectiveness of treatments is far greater than is our willingness to use this information to make hard decisions.

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    • While you are correct, that ending the NFIP will not end floods, it might greatly reduce new construction in flood-prone areas. There are LOTS of choices about where to build, and putting taxpayers on the hook for choosing to take flood risk sure strikes me as creating moral hazard. I look at all the houses built on sand bars near Cape Hatteras, and shake my head.

      There is a sorta-kinda parallel in Medicare, where lifestyle factors (smoking, obesity, etc.) might be enabled by the guarantee of coverage, though I think that its a lot more complicated to think about than flooding potential.

      • @David
        Outer Banks is an inherently unstable place to build a house. Sure is beautiful and nice when there is no hurricane. Medicare is a bit more complicated, esp since everyone eventually dies (Medicare was the insurance plan for 83% of the U.S. deaths last year). However, there are certainly those who would be uninsurable without Medicare. society made an explicit decision to not tolerate that for folks 65+