On Health Care and Insurance

Many Americans conflate health care and insurance, which are in fact two very different things. In this tweet,

Bernie is referring to the GOP’s health care plan that would stop subsidizing insurance for an estimated 23 million people. Of course, taking away insurance is not the same thing as preventing medical care. Historically, routine visits were paid out-of-pocket by patients and were relatively cheap compared to today’s health care costs. Insurance wasn’t as necessary in the past.

Health care includes goods and services provided to prevent illness, treat/cure illness, or maintain health. Such goods and services include doctor check-ups, emergency stitches, casting a broken arm, MRIs, drugs, etc. Procedures, tests, check-ups, prescriptions, and any other goods and services can vary dramatically in price. A prescription for a common medication may cost a few dollars or even less (small costs for average consumer), whereas a risky procedure could cost hundreds or even thousands of dollars (large costs for average consumers). While it is easy to save
smaller amounts of money in case of small accidents, doctor visits, prescription costs, etc., it is much more difficult for the average consumer to realistically keep enough money on-hand to cover the costs of a catastrophic incident, such as one requiring a very expensive operation.

This is where health insurance comes into the picture. Rather than trying to save up money for a possible catastrophic incident, insurance offers the insured to regularly pay a premium and in exchange the insurance company will cover agreed upon health care costs in the future. Insurance companies use the premiums they receive and pool them together to pay for the insured when they need it. Insurance plans can vary immensely which gives consumers a variety of choices in planning their lives. If one can afford routine doctor visits, small procedures, tests, etc. (as most people would
be able to in a free market), then it doesn’t make sense to pay a higher premium for a plan that covers those routine expenses. Rather, it would make sense to have catastrophic insurance to cover unforeseen and expensive illnesses such as cancer. If one is paying out-of-pocket for regular medical care they are incentivized to live healthier, to avoid frequent doctor visits whose costs will add up over time if utilized too often.

For-profit insurance companies are a business like any other. They must maintain profit to stay in business. This means rationing their services, just like any business must. Insurance companies ration their services (which is the accumulating of money to insure customers’ expenses) by discriminating based on risk. It may be unfortunate, but it does not make economic sense for an insurance company to provide insurance to someone with a preexisting condition such as cancer. To make such an arrangement possible for the insurance company to break even or profit, the insurance company would have to charge outrageous premiums to the cancer patient (much more than a healthy person’s premiums) to cover the cost of cancer treatment (assuming cancer treatment is more expensive than what the average consumer can afford).

Over time the state has intervened more and more in the health care industry, with disastrous effects for consumers. Health care and insurance are regularly conflated in popular media. Many Americans use insurance to cover routine doctor visits as prices have increased due to government intervention. The Affordable Care Act, or, Obamacare has been a disaster. Some people less sympathetic to my reasoning demand a full takeover of the health care system by the state. Contrary to politicians like Bernie Sanders, I realize the way for Americans to have access to affordable health care is to roll-back government’s involvement in the health care and insurance industries. Do these politicians and citizens who demand more government involvement in health care ever ask themselves why the costs of health care are so high?

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