Health Insurance Is Not Insurance
Is health insurance a plan to help healthy people mitigate against an unexpected illness, or an income subsidy to help the sick pay for medical care?
By suggesting that those who take better care of themselves should pay lower health insurance premiums, Brooks implied that health insurance is indeed a type of insurance arrangement. After all, the risk adjustment of premiums is a practice proper to all other kinds of insurance services. A prudent driver pays less for auto insurance than one with a negative driving record. A homeowner pays more for home insurance if the property is on muddy terrain rather than on sturdy ground. A smoker pays more for life insurance than a non-smoker, as does anyone whose risk of dying prematurely is high, even if that predisposition is inherited genetically.
Brooks’s conception of health insurance, however, intuitive as it may be, is wrong. Health insurance is not insurance even if, on the surface, health insurance policies meet thedictionary definition of insurance as contractual arrangements “in which one party agrees to indemnify or reimburse another for loss that occurs under the terms of the contract.”
Health insurance cannot really be insurance because human health is un-insurable: human beings are not machines or buildings whose function or condition can be ascertained objectively. Yet, an objective assessment of damages and costs is essential for any contractual arrangement to function in a sustainable manner.
Consider, for example, that medical care is based on the legal principle of “medical necessity.” Medical necessity is invoked when, presumably, there is an impairment in the patient’s health that could be remedied by a medical intervention. But medical necessity is a perniciously elastic concept that cannot possibly satisfy the precise contractual requirements of insurance.
Take Joe, an overweight truck driver, who suffers from back pain and whose MRI shows a slipped disk at the location corresponding to his symptoms. He and his doctor wish to proceed with surgery. Is surgery medically necessary?
To answer that question, the insurer would need to know several other things. To what degree is Joe incapacitated by his back pain? Did he give physical therapy a fair try? Could he improve his condition by losing weight? If so, how willing is he to try to lose weight? In other words, did he do his very best to avoid expensive medical care? And, similarly, for the doctor. Did he carefully advise Joe on all his options? Is his advice disinterested? How confident is he that the surgery will help?
These are all legitimate questions, the answers to which are completely inaccessible to the insurer, for they reside in Joe’s mind and his doctor’s—and possibly below their level of consciousness.
No amount of utilization review can overcome this insurmountable “information asymmetry,” yet medical care is replete with situations that are just like Joe’s: doctors and patients who wish to pursue a plan of care, without objective evidence to show—one way or another—that the care is necessary, let alone effective.
This consideration is not meant to cast doubt on the integrity of doctors and patients, but to point out that medicine is an occupation that frequently deals with intangibles. And even for conditions which, on the surface, seem objectively determinable, like heart attacks or cancer, the tentative way in which medical care necessarily proceeds is antagonistic to the aims of insurance.
Take Laura, who has sudden severe chest pain in the middle of the night. Concerned, she calls an ambulance and is taken to an emergency department staffed by competent and cost-conscious doctors. For a variety of reasons (the character of the pain, the fact that Laura has a family history of heart disease, the equivocal finding on the electrocardiogram, etc.), expensive tests and scans must be performed before the doctors can reassure themselves—and Laura—that she is fine, and that her chest pain was simply a bad case of acid reflux, or perhaps a panic attack.
Should the insurance cover the expensive work-up for this false alarm? A “no” answer seems absurd: people cannot be penalized for misjudging the severity of their condition. If the answer is “yes,” on the other hand, the program is no longer insuring against objective health impairments, but against any concern that can cross someone’s mind—be he a stoic or a hypochondriac.
In short, it’s in the uncertain nature of medical care to conspire against insurance plans that, by nature, must necessarily deal with objectively verifiable claims to remain viable.
So, health insurance is definitely not insurance in the proper sense of the term. Instead, health insurance is—and always was—an income subsidy, ostensibly designed to help the sick pay for medical care.
Such an understanding of the essence of health insurance should not be controversial if we consider government health insurance programs. After all, the first health insurance program was plainly designed by Bismarck as an income subsidy, if only to gain for the Prussian state the loyalty of the working class.
In the United States, the Medicare and Medicaid programs were also enacted as income subsidies to help the elderly and the poor pay for medical care. The subsidies seemed justified by the sharp increase in the cost of medical carethat followed the widespread adoption of private health insurance after World War II.
As it turns out, however, even American private health insurance plans were conceived as income subsidy programs. In the 1930s, the early Blue Cross and Blue Shield experiments were carried out not to actually provide insurance against illness, but to alleviate the surge in hospital bed vacancies that occurred when the Great Depression corrected the hospital construction boom of the 1920s.
A decade or two later, employer-based private health insurance emerged as a means for businesses to circumvent wartime wage controls and recruit employees whose salaries could not be raised. After the war ended, the government made that form of income subsidy permanent by specifically exempting health insurance from payroll and income taxes.
In short, be it a public initiative or privately provided service, health insurance is an income subsidy program and can only be considered as such.
As far as income subsidy programs go, however, health insurance has its own peculiarities.
First, health insurance essentially operates as an unlimited voucher program for medical care, sinceneither the government nor private insurers can set limits to the amount of allowable coverage. As such, then, health insurance is one of the most generous income subsidy programs conceivable. It is no wonder, then, that the healthcare industry has grown to command nearly one fifth of the gross domestic product.
Second, the income subsidy conveyed by health insurance is not allocated based on a person’s income or wealth. After all, it is the wealthy and securely employed who have historically benefited from “Cadillac plans,” while those uninsured tend to come primarily from the lower middle class.
By forcing health insurance on everyone, the Affordable Care Act is admittedly trying to close the gap separating those who do from those who do not currently benefit from health insurance. The plain result of that policy is to ensure that, in principle, no one is left un-subsidized.
Are income subsidy programs that make unlimited amounts of health care funds available to anyone and everyone sustainable? Conservatives had better answer that question correctly.
Michel Accad, MD, practices cardiology and internal medicine in San Francisco, offering individualized care in a free-market setting. He is the author ofMoving Mountains: A Socratic Challenge to the Theory and Practice of Population Medicine. His blog about health-care and medicine is AlertandOriented.com.