Do Americans Expect Too Much from Health Insurance?


Sep 23, 2017

Sen. Bill Cassidy (R-LA), accompanied by Sen. Lindsey Graham (R-SC), Sen. Roy Blunt (R-MO), Sen. John Barrasso (R-WY) and Senate Majority Leader Mitch McConnell, speaks with reporters following the party luncheons on Capitol Hill in Washington, U.S., September 19, 2017.

Senators Graham (R-SC), Blunt (R-MO), Barrasso (R-WY), and Cassidy (R-LA) with Majority Leader McConnell (R-KY), in Washington, D.C., U.S., September 19, 2017

Photo by Aaron Bernstein/Reuters

This commentary originally appeared on U.S. News & World Report on September 19, 2017.

Congress is once again in a familiar place—gearing up to consider a bill to repeal and replace the Affordable Care Act. The public's response to the ongoing effort to replace or change the ACA has made it clear Americans expect at least three things from the health care system: health insurance to protect them from unpredictable and significant financial risk stemming from accidents or illness; affordable coverage for pre-existing conditions; and access to routine and often relatively low-cost services, such as annual check-ups and preventive care.

Each of these goals is worthy, and together they characterize what many Americans view as an equitable, responsive health care system. Yet insurance, a product designed primarily for risk protection, is the vehicle being used to try to achieve all of these goals. Relying on insurance may not be the most efficient or affordable approach to achieving broader societal objectives.

Consider how differently car insurance works. It is intended to protect the policyholder from significant financial risk by covering the costs if a car is damaged or stolen. However, car insurance is not expected to cover routine maintenance—doing so would increase insurance costs while providing little additional value to consumers. If each policyholder's car receives a regular oil change, and insurance fully covers this service, then insurance premiums must be increased by the cost of the oil change, plus the insurer's administrative charge. The insurer serves as middleman and is paid a potentially high fee, without reducing costs for anyone.

In the health insurance market, one argument for covering routine care is that some services—like preventive care—may decrease spending in the long run. However, if these spending reductions occur down the road, insurers may not recoup their costs, so they are not necessarily good investments for them. Another argument for covering routine care is that certain services may improve population health. That is a compelling reason for public investment in health care, but not necessarily a reason to expect privately purchased insurance to provide such benefits.

It is not surprising when people who own expensive cars or have poor driving records have to pay higher premiums for car insurance. And car insurers would never be expected to cover an accident that occurred before the policy was purchased. In contrast, Americans feel strongly that those with pre-existing conditions should be able to purchase health insurance after the condition is diagnosed—and pay the same price as healthy individuals—regardless of whether the condition is due to genetics, behaviors or other factors.

Consumers also want health insurance to cover a wide range of treatments, including insulin for diabetics, statins for people with high cholesterol and periodic screenings for those in remission from cancer. But a health insurance market that offers a wide range of benefits and protects people against the cost of illnesses they have already been diagnosed with can only function if people are required to participate. Otherwise, healthy individuals will wait to enroll until they need care, and premiums will escalate.

The ACA has many regulations and mandates to cover those with pre-existing conditions, ensure that socially desirable services are covered and prevent sicker people from facing higher premiums. These include penalties for people who don't obtain coverage, a requirement that insurers offer coverage to all applicants, regulations requiring that healthy and sick people are charged the same premiums and regulations that define what benefits must be covered.

Perhaps these goals could be accomplished more efficiently by addressing them separately, rather than using insurance to address them all. Socially desirable services might be able to be subsidized with public funds, rather than through insurance mandates. In the Netherlands, where almost everyone has private health insurance, mammograms and colonoscopies are paid for by the National Institute for Public Health. A universal catastrophic approach, in which everyone has access to a high-deductible plan, could be used to insure against future health risks. Society could help people with chronic conditions, or those with low incomes, by providing subsidies to help make their care more affordable. One reason Medicare exists is to provide coverage for older people who have predictably high health care costs and are difficult to insure through private coverage.

A similar public approach could be considered for people of all ages with costly health conditions. Any combination of policies should be thoughtfully analyzed to ensure that it truly meets Americans' needs, keeping in mind the goals of risk protection, affordability and access to care.

As health care reform continues to be discussed in America, remember that many goals are trying to be achieved under the umbrella of insurance. Expecting insurance alone to accomplish an assortment of social objectives hides the trade-offs.

Christine Eibner is the Paul O'Neill-Alcoa Chair in policy analysis at the nonprofit, nonpartisan RAND Corporation. She is a professor at the Pardee RAND Graduate School. Katherine Grace Carman is an economist at the nonprofit, nonpartisan RAND Corporation. She is a professor at the Pardee RAND Graduate School.

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