EconLog’s Arnold Kling is doing some of the best thinking and writing on America’s broken health care finance system these days. In this lucid Cato Unbound article, Kling channels one of this thoughts from his book Crisis of Abundance: Rethinking How We Pay for Health Care (Cato 2006):
The health coverage most Americans have is what I call ìinsulation,î not insurance. Rather than insuring them against risk, most familiesí health plans insulate them from paying for most health care bills, large and small. [. . .]
Real insurance would pay for treatments that are unavoidable, prohibitively expensive, or for illnesses that occur relatively rarely. Instead, insulation reimburses even relatively low-cost services, such as a test for strep throat or a new pair of eyeglasses. Insulation pays for treatment even if it is commonplace or discretionary.
For health care providers, insulation is a bonanza. Because consumers are not spending their own money, they accept doctorsí recommendations for services without questioning them and without concern for cost. Faced with an insured patient, a health care provider is like a restaurant catering to convention-goers with unlimited expense accounts. The customer will gladly take the most high-end recommendation and not worry about the price.
Consumers are happy as well. Insulation relieves the patient of the stress of making decisions about treatment. The patient also does not have to worry about shopping around for the best price.
The problem with insulation is that it is not a sustainable form of health care finance. Individuals, employers, and government are all under stress. [. . .]
Today it is fairly deeply ingrained with most Americans that health care services are something that you should not have to pay for yourself. Insulation is the norm, and real health insurance as I would define it is almost nonexistent.
Ultimately, I think we are headed for a collision of cultural values. We prefer insulation to real insurance. We expect services to be readily available, without the supply limitations or waiting lists that exist in countries where government is responsible for more health care funding. And yet we are growing increasingly concerned over the expansion of health care spending that takes place in a system that lacks constraints on either supply or demand.
Real health insurance may not be popular now. But when Americans see that the providers of insulation, including Medicare, have to turn to the rationing of health care services in order to meet budgetary constraints, real health insurance may start to look like a good alternative.