Saturday, February 20, 2010

The three invisible BMW's in your driveway

I currently pay for my family's health care directly, since I'm unemployed at the moment. It costs us roughly $1500/mo. for a family of five.

That's the equivalent of three leased BMW 528i's sitting in my driveway - ghostly reminders of the outrageous runaway cost spiral of health care in this country. And every few years I get new ghostly BMW's when the leases expire. But I never own them, or even get to drive them.

But somebody is! Who is driving my three BMW's? Some guy at Pfizer probably has one of them.

If only I could buy good, practical health insurance, like the used Toyota 4-Runner that I actually drive. Room for the whole family!

Why the Anthem Death Spiral is a Good Thing

Krugman, that embarrassment to economics, recently wrote an article about Anthem Blue Cross's "death spiral":

In a nutshell, Anthem wants to raise its rates because the healthy customers are leaving in droves. When a risk pool loses healthy customers, the remaining 'less healthy' customers cost more money to insure - leading to a rate hike. However, the rate hike itself will cause another layer of relatively healthy customers to peel off as well. Thus a 'death spiral'.

Here's why I think this is a good thing.

I have repeatedly pointed out that the core problem with health care in the U.S. is the complete disconnect between payer and payee. A variety of tricks are used to disguise the fact that the end user pays for his own health care. In the rare instance when a customer will see an actual bill, they say to themselves, "I'm glad I'm not paying for that...".

The way to fix runaway health care costs is to have people actually just pay for them. In other words, to shop for them, and to choose not to use a service or drug that's too expensive. The miracle of supply and demand will eventually lower those prices. Today, the only thing slowing down runaway health costs are command-economy-style committees whose interests are more likely to be aligned with the fox than the hen.

So the hundreds of thousands of ex-Anthem customers out there will stop buying an overpriced product, and start paying for things only when they're necessary and affordable. With enough customers like these, prices will eventually be driven down.

The next important fix is to have insurance companies sell actual insurance - what they call 'catastrophic insurance', rather than pre-paid, pre-priced health care plans that are little more than welfare for the health care industry.

Those two changes alone would be enough to save health care in America.