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A Double-Bounce on Health Insurance

Posted by: Michael Mandel on January 10

I’m looking at this statement from Arnold Kling (whom I always find to be an interesting read). (I got to the statement via here and Tyler Cowen here)

Kling writes:

What we call health insurance also arose to meet the needs of creditors. In this case, the creditors were doctors and hospitals, who wanted assurance that they would be paid for service. Comprehensive, first-dollar health coverage, which is not really health insurance, protects suppliers, not consumers.

That’s interesting. If a doctor or a hospital is going to treat someone who is going to die, or be very sick, or perhaps not be able to work in the future, it helps for there to be a third party to pay for the bills.

I have to think about this one a bit…first dollar health insurance is really insurance for the suppliers. Otherwise it’s simply a payment from the employer to the worker.

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Reader Comments


January 10, 2006 08:33 PM

I have been living with out health insurance for 10 years.I see no way to afford the high cost of insurance.If I get seriously ill I am in big trouble.Regretable if a hosiptal takes me in and some refuse to unless your a illigal immagrant, who knows who with pay the bill.


January 10, 2006 10:50 PM

This sounds like a reasonable assertion to me. If health insurance companies were on the side of the consumer, they would be working to lower health care costs. Instead, the process by which they work increases the overall health costs and raises prices.
I know it flies in the face of "economist's wisdom", but a single-payer health care system would be greatly beneficial and reduce costs in the U.S. The research I did for a project late last year showed that the single-payer systems run by governments in the world were more efficient, had lower overhead costs and reduced the overall cost of health care for their citizens compared to private "insurance" systems. The U.S. spends twice as much per capita on health care as the second highest nation, but in all healthcare-quality ratings ranked around 9th out of industrialized nations in all surveys. We like to claim "we pay more because we have the best" but the research doesn't prove that to be true. The single-payer systems were more efficient and resulted in substantially lower cost-per-capita for health care and in most cases of industrialized nations provided better health care results. Is single payer perfect? No; nothing will ever be perfect. But we could have something much better and much less expensive.

May I add that a national health care system would greatly aid small business as it would take the burden off of those companies which don't have the resources to provide such benefits. Additionally, they would be able to compete with large companies for top talent far better with that variable removed from the compensation equation.


January 11, 2006 01:30 PM

I think the medical establishment is sophisticated enough to make sure they get paid whether someone has insurance or not. Cost shifting is the name of the game here.


January 19, 2006 06:53 PM

related to the "does IT matter" article, I wonder whether IT can help reduce the cost in the healthcare sector, by either increasnig efficiency in hospitals, or reducing adverse selecction in the health insurance sector.


January 20, 2006 08:37 AM

R-Squared... that's a big part of Intel's strategy going forward. Here is one of many articles I found online:,1540,1851619,00.asp


January 26, 2006 05:39 PM

The problem with health care is the same problem we have with the Schools. It's also the same problem we had with the Phone Company, and the Cable Company. The same thing that caused Russians to wait for hours in line to get a loaf of bread causes the problem we have in health care today. We are under the illusion, in America, that we have capitalized medicine, when in fact we already have socialism. It might not be socialism provided by the government but it is a socialized system where a third party pays and no-one cares how much the doctor, hospital, or the pharmacist charges. After all, "all I have to pay is my co-pay." If we are ever going to fix health care for good, we need to capitalize it.

Today your employer, instead of paying you, pays a health insurance company. The company intern pays for a pill that you take every day for the rest of your life. That system makes no sense at all. Insurance shouldn't pay for a pill you are going to take for the rest of your life. Insurance is supposed to pay for things that are rare and extremely expensive; things that you couldn't possible pay for on your own. Now imagine, instead of paying the insurance company, your employer pays you. You go to your doctor and he/she writes you a prescription giving you 3 options for a drug. Then you go out, shop and compare prices and chose the one that is cheapest. I bet you will have more money in your pocket at the end of this game than you would under the current system. This is one tiny example of how to bring capitalism into health care. We need an entire system of capitalized health care to put competition into medicine. This system can be built. On a related note, we also need a system of capitalized education from pre-school to post doctorate level. That system can be built as well.

Thomas N. Campbell

January 31, 2006 02:02 PM

It's going to be hard for the insurance, pharmaceutical, medical, and legislative monopoly to hold onto the facade that they provide the right approach to health care, esp since their system has vaulted MDs into the leading cause of death (See "Death by Medicine" by Gary Null et al online). 900,000 are unnecessarily dead each year from this system; that's over 2400 a day (Iraq is 2.1 US soldiers dead per day). Null's study is not the only one that exposes medical-performance shortcomings (See JAMA Vol 279(15) p1200 and the Barbara Starfield, MD, study in JAMA 2000. Or you could just read "Who's Representing the Healthy? by me and get all those studies in one place.)
As a CEO on Ron Insana's CNBC roundtable discussion pointed out recently, "At the bottom line, we need fewer people going to doctors, if we plan to control costs." That means having healthier people. What motivates people to be healthy? Does free insurance provide motivation? Such an approach is more likely to produce a tax increase to pay for the "free" insurance.
Rather than resort to socialism to attempt to repair our health-care problems, it might be worth asking if our current system provides incentives for good performance or disincentives for poor performance. It doesn't; everbody in the group pays the same premium. Group-health plans dump the poor-performance cost overruns onto the employer, the government and worst of all, onto the healthy policyholders, who pay a large portion of the premiums for those who fail to maintain their own bodies. Who is that motivating, and why do we punish our top performers?
Capitalism can fix the health-care problem by offering healthy people their own insurance. Such a plan will drive costs up for poor performers who will be encouraged to get healthier to acheive lower premiums. Such a plan is akin to pay-for-performance. Imagine the effort people might make if their premium was linked to their measured state of health.
Corporations can go one step further by training and assisting their employees to learn and perform to higher standards.
Best regards,
Dr. Thomas N. Campbell, DC

Prescriptions Man

January 24, 2007 01:25 PM

A national health promotion and disease prevention initiative bringing together many individuals and agencies to improve the health of all Americans WBR LeoP

Pharmacy advisor

March 11, 2007 05:46 PM

Don't people go to hospitals to die? WBR LeoP


March 11, 2007 06:27 PM

If group health insurance was more efficiently priced, and individuals paid premiums that truly reflected their unique risk of coverage... then I believe behaviors and attitudes towards obesity would begin to change. WBR LeoP

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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