The Musings of Gary M. Zeiss

Health Care in 2010 – My Prediction

Posted on: March 8, 2009

Few would argue that the current healthcare system needs overhaul.  The current model of employer-sponsored private insurance has become unwieldy and unsustainable – particularly when employers are cutting upwards of 700,000 jobs a month.

At the same time, our current financial crisis is calling upon our public resources in record ways in hope of averting the Greater Depression.  The jury is still out on whether it will succeed.

In the area of health care, however, there is little question that some form of nationalized or mandated solution will be submitted soon by the Obama administration.  However, I believe that something bigger will happen first that will both trigger nationalization of at least part of our system.  Furthermore, I predict that this new approach will be in place before the end of 2009.

What is the triggering event?  If I had to bet, it will be the bankruptcy and restructuring of General Motors.  All reports make it appear that such a bankruptcy and restructuring is inevitable, and one of the key costs that GM will seek to jettison in any such reorganization are their health care benefits costs for both employees and retirees.

The unions will fight elimination of those benefits, however, leaving GM between a rock and a hard place – at least until the government steps in.  However, I don’t believe that the government will simply take over all health-related expenses.  Instead, I predict that the government will take over what used to be known as “major medical” – hospitalizations, critical surgeries, etc. – and leave preventative care and minor medical care to the private markets.

As soon as this occurs, it will appear to the remainder of corporate America that GM now has a competitive benefit – the elimination of the most expensive portion of medical care from its suite of benefits.  At this point, every corporation in America will be clamoring for the same advantage.

Actually, there is a good bit of economics literature that would support such a proposal.  Frank Knight, in his 1921 book, Risk, Uncertainty and Profit, separated out the concepts of risk – an eventuality that can be insured against  – and uncertainty – an eventuality that cannot be insured against.  In Knight’s view, insurers addressed risk and entrepreneurs addressed uncertainty with a view on profiting on it.

I know that this model does not map directly onto health coverage.  However, I do believe that the comparison works.  If we address normal course illnesses and injuries – colds, broken bones, etc., as risks – items that individuals can actually control with caution; and extraordinary events such as cancer, heart attacks, etc., as uncertainty, the logic makes some sense.  Furthermore, few of us look to be entrepreneurs with our own health, and fewer still seek to profit from our own health uncertainty.

I do believe that it would be appropriate and reasonable for individuals to pay for risk (as described above) through private or employer-sponsored insurance, with the government (and the taxpayers – each of us) covering issues of uncertainty (as described above).  After all, individuals who suffer from severe diseases or conditions did not likely sign up for such “uncertainties,” they were simply foist upon them.  Should they be forced into bankruptcy due to a “bad luck of the draw?”

Many would argue that I am simply drawing an artificial line between diseases based upon the cost to treat.  To a certain extent, that would be accurate.  But, more importantly, I believe that individuals, through the health coverage market, should be given incentives to reduce their potential for serious and non-serious disease – long the argument of the private market, without being brought to bankruptcy in the event of a catastrophic illness.

It will take wisdom to draw the line between risk and uncertainty, but it certainly is not impossible.  Doing so may, however, allow the United States to develop a hybrid coverage system (public and private) that could retain many of the benefits of each.

Gary
March 7, 2009

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  • Mike: I was just speaking to a friend in DC that was explaining the same thing to me. The firm he's been clawing his way to the middle of for the last 7 ye

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