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Source link: http://archive.mises.org/10897/healthcare-and-insurance-on-a-desert-island/

Healthcare and Insurance on a Desert Island

October 23, 2009 by

The US healthcare system appears to many people as broken beyond repair. Let us consider what healthcare would look like on an idyllic island in order to see how best to fix the US healthcare system. FULL ARTICLE by Gilbert G. Berdine, M.D.

{ 8 comments }

Ribald October 23, 2009 at 2:50 pm

A few points about Hoppe’s 4-point plan:

1: “…Because consumers would no longer be duped into believing that there is such a thing as a “national standard” of health care, they would increase their search costs and make more discriminating health-care choices.”

Since the problem is supposed to be solved by a sufficient amount of labor to pay the doctors, it seems that non-doctors would be burdened by search costs, decreasing the amount of labor available to pay for doctors. On top of that, consumers would be at greater risk of deception by charlatans and their choices would be predictably irrational. Having little or no medical knowledge, they would be entirely unequipped to judge medical advice. Relatively expensive treatments would be avoided in favor of cheaper treatments, without proper regard to the benefits either provides. These effects may nullify any supply increases.

2. It’s certainly true that the regulations regarding production and sale of medicine need to improve, but it doesn’t seem so simple as deregulating. For example, it would be impossible to litigate product liability if there were no laws concerning product liability.

3. See 2. It would be trivially easy for insurance companies to deny the insurance claims of the gravely ill to boost their profit margins. Without laws restricting this practice, it is certain that those whose illnesses are costly to treat would be locked out of the insurance market altogether and would typically die and/or go bankrupt without a vast reserve of savings. A similar scenario plays out on the desert island, as was eluded to. As in (2), there would be little possibility of litigating without laws regulating insurance.

4. I would laugh, if Hoppe’s fourth idea wasn’t so utterly bizarre. Contrary to minority opinion, people do not typically seek or avoid high-risk behaviors based on how much they can be compensated for being injured. Rather, their behavior is predicated on avoiding the risk. Furthermore, another name for “subsidies for illness” is “insurance”. Yet, risky behavior is not in evidence among those concerned about risk (those who buy insurance). Rather, their use of medical care increases, which decreases the overall cost of their care over their lifetime.

The scant few who act as Hoppe expects can’t be depended on to avoid unnecessary risk in any sort of market. They are the sort that would purchase insurance in the expectation of injuring themselves, rather than to mitigate the risk of an unforeseen event.

As Berdine says, these ideas appear draconian, but if you make very poor assumptions–assumptions that paper over the shortcomings of the ideas in question–then they are, indeed, the only way the problem can be solved.

Jorge Borlandelli October 23, 2009 at 6:51 pm

Answer to Ribald:
1. The unregulated market will develop specialists in advising about better doctors and treatments. The way rating agencies used to work before they were captured by the issuers of securities.
2. Not true.
3. A responsible parent would insure before conception and therefore before any illness is present. Those who are not insured and get an illness need to face the consequence of their choice. Of course, private charity organizations might help them.
4. You are describing pre paid medical services and not health insurance. Going to the doctor should be paid by the patient. Health insurance should be for catastrophic illnesses and the insurance companies can lower your premium if you do the right things and increase if you the wrong ones.

How long can socialists argue in favour on regulation without admitting its obvious failures?

LibertyCowboy October 24, 2009 at 5:47 pm

I agree with Hoppe’s plan.

1. People purchase items and services ranging from landscaping to software without extensive regulation or education. It is simple enough to get a referral from a friend or perform a cost/benefit analysis.

Currently, the most expensive treatments are chosen because someone else is paying. Just as we don’t need PhD automotive engineers to change oil, doctor’s need to delegate more and focus on medical research.

2. The common law provides that people abide by their contracts and always has within the US.

3. While there is a time and a place for charity, let me say this: there is a $300 way to treat any illness and a $30,000 way. For example, you can equip a hospital with expensive digital heart rate monitors and redundant power supplies, or you can take someone’s pulse more or less for free. Once we price healthcare at a rate average working people can afford with their cash on hand, charity will be a non-issue.

4. As a self-insured individual I avoid risky behaviors like motrocycle racing in large part because of the fees I might have to pay if injured. By altering insurance fees based on claims expierence, as in the case of auto insurance this could be extended to commercial insurance. My overall goal is to maximize expected lifetime wealth.

pbergn October 25, 2009 at 9:36 pm

The author advocates for another extreme, which is essentially anarcho-capitalism, where individuals co-exist in minor groups, and interact with each other on on-demand basis, driven by the day’s demands…

This resembles a primordial society of pre-historic man, which lies in a stark contrast to the Fascism, Socialism and Communism, which are, the other extremes…

Is it not self-evident that the individuals, given absolute freedom, will prefer non-productive means of subsistence by coercing them from the more productive ones, barring the existence of a power broker?

Remember what happened when the North America colonies revolted against England, and there was practically no rule of law in certain neutral areas for a while… This gave rise to skinners, thieves and other kind of plunderers… Do you really think that the productivity of the settlers have increased due to overturning the authority of the land? And conversely, the authoritative coercive power of the kings has driven the settlers to revolt, in the first place…

In other words, too much centralized coercive power decreases the productivity of the society, due to the decreasing of the vested interest to be productive of its members, and too little power, gives rise to various machinations, schemes and violence…

On a final note, I would like to bring to the attention of the readers the fact that too fine-grained society has a very short time-horizon in terms of planning for the future, since the individuals are driven primarily by their own goals, and may easily overlook the bigger picture, resulting in extreme redundancy and duplication of work (e.g. due to lack of common standards, and lack of sharing the previous technological break-throughs by some parties with the others, being viewed as competitors)… It is easy to see that very fine grained society will spend most of its productive time either on settling the disputes or heavily defending against existing and potential ones…

Much like the primitive tribes in remote corners of Africa and Amazon will eternally battle each other for control of the resources, the fine-grained society is limited in its development scope by design.

Only the existence of a “fair” broker can ensure continuous development, which can be a weak government, for example…

Bala October 26, 2009 at 9:41 pm

Jorge Borlandelli,

You asked

” How long can socialists argue in favour on regulation without admitting its obvious failures? ”

The answer is simple. As long as they think they are morally justified in doing so. Utilitarian arguments will not convince them off the “sound”, “moral” path. Work out all the models you want to show the real alternative to regulation, but they will not even listen to, leave alone subsequently understand and finally accept what you are saying .

You will be called a selfish, immoral person for stubbornly refusing to take responsibility for the suffering of your poor, less fortunate brethren. Your arguments and models will be called self-serving attempts at preserving your privileges.

My simple point is that while articles such as these will give a person like me (who shares your premises on this issue) a picture of how healthcare will work in a free market, it will not convince a supporter of socialised medicine that his ideas are wrong and hence will not work.

For that, you need to write to show why socialised healthcare is immoral and hence unworkable, like everything else immoral.

Luke October 28, 2009 at 7:04 am

The author offers the begginings of sound advice on the problems with health insurance (and thus healthcare demand), but, throughout his article, completely neglects -except by referencing Hoppe- the coercive forces in place which restrict the supply of health care workers and products (via the AMA, State licensure of pharmicists, FDA regulations on drugs – etc.). Take his conclusion for example:

“It is not enough that people are available to do the healthcare work. Somebody else must divert leisure to generating real wealth (fish) to pay the healthcare providers. The healthcare problem cannot be solved by money. The problem can only be solved by people able and willing to generate real wealth in order to sustain healthcare workers.”

This is the most superficial solution to the most superficial statment of the healthcare problem. The surface healthcare problem is that “we” can’t afford to pay for healthcare. The solution offered above just says that someone should divert more real resources to payments for healthcare. This logical chain utterly ignores the underlying causes of the high cost of care.

In reality, the solution is to end the market distortions in supply and demand. Hoppe’s plan is that solution. The author knew this, or seemed to, since he referenced Hoppe. So I must give him credit at least that far.

Douglas Thompson April 23, 2010 at 5:17 am

Health Care Reform Act-intent for Change

For many years, America’s health brokers have been offering health insurance to individuals, small businesses and large businesses for decades, yet the enrollment statistics have revealed a steady decrease on an annual basis. The number of uninsured Americans is estimated to be as high as 30 million, and the Health Care Reform Act offers a solution. Not only will there be a higher enrollment number for America’s health brokers, but as of 2014, it will be required by law for every American to obtain health insurance. Every single American will be impacted by the New Health Reform Bill, making it one of the most important measures of the 21st Century.
Businesses
The main focus will be on businesses of 50 or more employees, in which they will be required to offer individual health plans, as well as family plans to all employees or face some stiff fines from the government. The amount comes to $2000 per uninsured employee, though there are exemptions to this fine. If you as an employer assist an individual with acquiring a personal health insurance plan through an open market called an exchange, then it would result in no fines. This only applies to an individual who makes a certain amount under the Federal Poverty Level, and the premiums are over 8% of his annual income.
America’s health brokers can rest easy in the fact that there will be expanded coverage, though there may be more competition. With the rise in individuals who will have health insurance, there may not be as large of a risk as one may assume. Though the new bill will require America’s health brokers to enroll individuals with pre-existing conditions, there will also be a new population of young individuals who will be insured with fewer health problems.
It is understood that larger companies already provide a group insurance plan (HMO, PPO) that covers all areas of needs for the population of employees. These policies will change very little, but there may be some changes in where the funding for the new health care plan will come. It is proposed that those making a certain amount of money, both individuals and couples, will be taxed at a higher percentage than others. This will provide money that can be used for the exchange and making sure that all individuals will be offered an affordable health plan.
There are still a few years before the plan goes into full effect, though some of the measures will be enforced immediately. There will be plenty of time to sort out the details and iron out the difficulties. As for the plan, anyone who does not have health insurance as of January 1, 2014, will be penalized a certain amount of money, and this amount could become worse if health insurance is continuously neglected. There has never been a better opportunity for America’s health brokers in terms of acquiring a new customer base-a broader customer base. Also, there has never been a better time in history for individuals being provided with the resources for the necessary medical treatment. This is a very unique time, with history in the making. Finally, there will be health care for all.

Douglas Thompson April 23, 2010 at 5:18 am

A Government proposal for Change-Health Care Reform Act

March 2010 may stand out as a monumental month for change with the Obama Administration-Americans can look forward to changes in the current health care system through the passing of the Health Care Reform Act. Though there are many details that need to be ironed out, there are many changes that have been established.

There are two factors that will have the largest impact for Americans and America’s health brokers:
1) The fact that as of 2014, it is required by law for employers to offer affordable health insurance plans to all employees.
2) As of 2014, all Americans will be required to acquire health insurance.

Employers-For businesses over 100 employees, there may not be many changes. The difference may be that part-time employees will be offered aid with a percentage of hours in relation to full-time employment. This will offer benefits to those who do not have that same opportunity currently as a part-time employee. With businesses under 100 employees, there will be opportunities for credits from the government to offer aid with those employees. A percentage will be paid, based on payroll that will pool to help those who acquire insurance through an exchange, where many of America’s health brokers will provide different affordable insurance plans for all individuals.
What is the incentive for employers to offer insurance?
Employers will face a fine of up to $2000 per employee for not providing insurance coverage to an individual employee. These fines can be diverted if the employer offers an alternative means to acquire insurance (which would require assistance through the exchange).
Individuals-As of 2014, all Americans (with the exception of certain special case individuals) will be required to carry some form of insurance. Insurance will either be offered through employment or affordable insurance can be purchased through the exchange. America’s Health brokers will offer many new plans and opportunities to acquire cheap health insurance.
What is the incentive for individuals to acquire insurance?
According to the law, there will be a penalty assessed to all Americans who fail to acquire health insurance by the year 2014. The fine will be originally set at $695 per person, per year. This will hopefully be enough to encourage those who are not insured to carry some form of low cost health insurance.
America’s health brokers will be seeing some changes that could affect them. Pre-existing conditions will no longer be applicable in denying insurance to children. As of 2014, America’s health brokers cannot deny health insurance to anyone due to a pre-existing condition. There are other factors that will change certain policies and conditions.
The Health Care Reform Bill is an opportunity to reorganize the condition of care that is offered in the United States. There are many issues that riddle the care of many Americans, so hopefully this will provide solutions to some of the larger issues. One key aspect is the fact that all Americans will have the opportunity to have health care. This will be advantageous in many aspects: Prescription medications, preventative care, and treatment.

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