Why is competition between health insurance companies useful?
13 02 08 - 12:08
Kevin Drum (and Matt Yglesias) asks an excellent and important question:
Tyler is arguing for keeping the insurance industry competitive. But I simply don't see what that buys us. Even if the health insurance industry were dramatically improved, this wouldn't especially make healthcare any more efficient. It would only make the insurance industry more efficient. That would be nice, but hardly earthshaking...
Let me be clear: the incentives today are screwy.Let me also tell you my ideal world.Insurance companies are judged by honest third party intermediaries.Insurance companies compete like heck to make customers satisfied.Insurance companies monitor doctors, read Robin Hanson, and require evidence-based medicine.Insurance companies which fail at these pursuits either go bankrupt or they must abide by an ex ante contract to permit the exile of their CEOs to Greenland. Every year prices would fall in real terms, quality would improve, and coverage would be expanded.Imagine the whole health care sector working like laser eye surgery or cosmetic surgery.
This is not the world we live in, but it is the world we should aim for and I am more than willing to consider how government might get us there.(Mandating greater price transparency is but one step.)But if we institute a single-payer system, or highly regulated mandates, we will never have much chance of arriving in that world.Ever.We will have a fairly static sector with high coverage levels but rising costs long term and less innovation.
I believe we know why insurance companies don't work this way, namely monitoring problems; they screw you over instead of serving you and they can get away with it.Go ahead, call me a pollyanna, but modern information technology and measurement can indeed resolve many monitoring problems.We can now monitor central bank performance quite well or show up in Sicily with a credit card and rent a car.Neither was the case forty years ago.
Here is one summary of how health insurance companies are improving information technology for claims processing, medicine itself, and promoting evidence-based medicine.I don't mean this industry-supplied link to be a good summary of the current truth; take it as one vision of what might be possible.To put the point another way, insurance companies are not just risk assessors or dollar transfer mechanisms; they also can be monitors and buyer agents and that is why competition is potentially so useful.
The policy point is not: "you must die today so that the reign of Milton Friedman can arrive in forty years' time."It is more like: "whatever transfers we wish to do today, let us proceed so that such a future remains someday possible."
Medical care is just starting to cure human beings, so don't think the future will look like the past.I know that preaching the virtues of insurance company competition is not a popular position in the blogosphere but like Arnold Kling, I see the single-payer advocates and mandate advocates as the conservatives, not the visionaries.
Addendum: A month or two ago, one MR reader left a long and very good comment about all the innovations provided by private health insurance companies.I can't find it, can any of you? Please let us know in the comments or email me.