A Rough Vision of Better Healthcare Insurance
When I discuss what I think health insurance in the US should look like - as close to term life insurance as possible maybe with some tweaks - I often use prostate cancer as an example. Prostate cancer is about as easily quantifiable as a serious disease gets. We know what percentage of men will get prostate cancer. We know how much each treatment option costs and based on history we can forecast what future treatment may cost. We know what percentage of men will choose what form of treatment and we know the success rates of each form of treatment. Given all this, it would be a breeze for actuarial science to quantify the risks of prostate cancer making this disease as insurable as one's car, life or home, so insurance companies could price prostate cancer insurance easily. I'm not an actuary but it is easy to surmise that a man in his thirites should be able to buy insurance for prostate cancer for about the price of a daily cup of coffee or less. "Term Prostate Cancer Insurance" could be quite a compelling product for many men to purchase (especially for poorer and/or minority men who would benefit from sharing in the risk pooling with rich and/or white men, who disproportionately survive prostate cancer). This particular risk could be bundled with other typical male health risks into a more comprehensive "term health insurance" package that could be even more compelling. You could even have a gender neutral insurance bundle (but why would women want to pay to insure men for prostate cancer or men want to pay to insure for women for breast cancer?).
I bring all this up because the other day the WSJ had a powerful story about a young woman who suffered from Lupus and couldn't get health insurance. Like clockwork the Letters to the Editor section of today's WSJ contained letters decrying this situation as clear evidence that we need to have nationalized health insurance. The letters arguing for such offer no logical argument but rest solely on the emotional appeal of this one woman's ordeal. More to the point, they assume that if insurance didn't cover Nikki Smith today it will never cover the likes of Nikki Smith. I disagree and the prostate cancer example is why. I could use Lupus as a stand in for prostate cancer to argue the same point. 90% of Lupus suffers are women and we know quite well the odds of women contracting Lupus. It's about 1 in 1000 for white women and 1 in 250 for black women. Let's keep it simple and assume that these are the only two demographics in the US, then 1 in 675 women will get Lupus on a weighted average basis based on population makeup. This number is across many birth cohorts, let's say over 30 birth year cohorts. So in any given year, of the roughly 2.2 million female births, roughly 3200 will get Lupus in their lifetime. If it costs $1 million to treat each case of Lupus that is roughly $25,000 per year over a 40 year adulthood. Given that treatment won't start for many years the present value at birth of the future liability of each of those 3200 future Lupus sufferers is much less, more likely $40,000 rather than the $1 million. If you shared that future risk across the entire birth cohort of 2.2 million female births, that translates to roughly $58 per female. In other words, if every parent of a baby girl born in 2006 chipped in $58, none of those little girls would lack coverage for Lupus in her lifetime. Think about that...$58 to know that if you ever get Lupus, you are covered. That is an absolute paltry sum and that is the kind of actuarial calculation that would bring us greater coverage in a deregulated health insurance market. In the same way that men could get male-specific prostate cancer coverage, women could get Lupus coverage that would disperse the high cost and skewed incidence across a wide risk pool. The result would be an astonishing level of affordability and the effective elimination of undo burdens on certain demographic groups - the cost subsidy to the relatively highly likely Lupus sufferers (black women) from the comparatively unlikely (white women) would be driven to infinitessimally low levels as the risk pool grows larger. If this can be done with Lupus, it can likely be done with the 5 biggest health risks that women face. Does anybody doubt for a moment that women wouldn't be advised to learn about and purchase such a product in same way that women are encouraged to undertake all manner of empowering steps in their lives today via the infinite channels that market anything and eveything to women these days ? Does anybody doubt that parents wouldn't be marketed such a policy when their children are born? Would you pay $58 now, or $5 a year for 10 years for that matter, to know that come hell or high water your newborn daughter will never have to worry about paying for treatment if she develops Lupus? I sure would. We could have this if it weren't for our current, highly regulated healthcare insurance system.
My larger point is that when you combine the actuarial sophistication of the insurance industry and the marketing prowess of our service-based economy, you can imagine the profusion of healthcare insurance products that would sprout up to address both specific and general healthcare risks that people face. My feeling is that some people will still bristle at this notion because it offends their absolutist egalitarian sensibilities - after all there is no getting around the fact that some people will simply be higher risk than others. Such absolutists would deny the rest of us a profusion of affordable options that meet our individual needs rather than tolerate the recognition that there are these differences among people. Right now we have a poor healthcare system, but there are still people who would let the perfect stand in the way of the good.
Previous healthcare posts here and here and here.
UPDATE: I forgot one...here too.
I bring all this up because the other day the WSJ had a powerful story about a young woman who suffered from Lupus and couldn't get health insurance. Like clockwork the Letters to the Editor section of today's WSJ contained letters decrying this situation as clear evidence that we need to have nationalized health insurance. The letters arguing for such offer no logical argument but rest solely on the emotional appeal of this one woman's ordeal. More to the point, they assume that if insurance didn't cover Nikki Smith today it will never cover the likes of Nikki Smith. I disagree and the prostate cancer example is why. I could use Lupus as a stand in for prostate cancer to argue the same point. 90% of Lupus suffers are women and we know quite well the odds of women contracting Lupus. It's about 1 in 1000 for white women and 1 in 250 for black women. Let's keep it simple and assume that these are the only two demographics in the US, then 1 in 675 women will get Lupus on a weighted average basis based on population makeup. This number is across many birth cohorts, let's say over 30 birth year cohorts. So in any given year, of the roughly 2.2 million female births, roughly 3200 will get Lupus in their lifetime. If it costs $1 million to treat each case of Lupus that is roughly $25,000 per year over a 40 year adulthood. Given that treatment won't start for many years the present value at birth of the future liability of each of those 3200 future Lupus sufferers is much less, more likely $40,000 rather than the $1 million. If you shared that future risk across the entire birth cohort of 2.2 million female births, that translates to roughly $58 per female. In other words, if every parent of a baby girl born in 2006 chipped in $58, none of those little girls would lack coverage for Lupus in her lifetime. Think about that...$58 to know that if you ever get Lupus, you are covered. That is an absolute paltry sum and that is the kind of actuarial calculation that would bring us greater coverage in a deregulated health insurance market. In the same way that men could get male-specific prostate cancer coverage, women could get Lupus coverage that would disperse the high cost and skewed incidence across a wide risk pool. The result would be an astonishing level of affordability and the effective elimination of undo burdens on certain demographic groups - the cost subsidy to the relatively highly likely Lupus sufferers (black women) from the comparatively unlikely (white women) would be driven to infinitessimally low levels as the risk pool grows larger. If this can be done with Lupus, it can likely be done with the 5 biggest health risks that women face. Does anybody doubt for a moment that women wouldn't be advised to learn about and purchase such a product in same way that women are encouraged to undertake all manner of empowering steps in their lives today via the infinite channels that market anything and eveything to women these days ? Does anybody doubt that parents wouldn't be marketed such a policy when their children are born? Would you pay $58 now, or $5 a year for 10 years for that matter, to know that come hell or high water your newborn daughter will never have to worry about paying for treatment if she develops Lupus? I sure would. We could have this if it weren't for our current, highly regulated healthcare insurance system.
My larger point is that when you combine the actuarial sophistication of the insurance industry and the marketing prowess of our service-based economy, you can imagine the profusion of healthcare insurance products that would sprout up to address both specific and general healthcare risks that people face. My feeling is that some people will still bristle at this notion because it offends their absolutist egalitarian sensibilities - after all there is no getting around the fact that some people will simply be higher risk than others. Such absolutists would deny the rest of us a profusion of affordable options that meet our individual needs rather than tolerate the recognition that there are these differences among people. Right now we have a poor healthcare system, but there are still people who would let the perfect stand in the way of the good.
Previous healthcare posts here and here and here.
UPDATE: I forgot one...here too.
posted by Donny Baseball at 4:06 PM
2 Comments:
The problem with your approach is that new diagnostics technologies and tools will be available in the future that could tell us if one will have certain diseases right after they are born. Obviously the lucky ones won't pay to treat something that they won't have. So should only the unlucky ones pay for their bad luck?
I am afraid that healthcare is just too big a mess to deal with right now. Probably nothing will be done until the system stops working.
I think that is a beidge we should cost when we come to it, no sense in holding back the benefits of my approach for fear of this. Also, these dianostics would give us better information adn thus better pricing for risk, that can only be good. The problem comes when a baby comes out of the womb and you instantly know it will get Lupus or some such disease. Is that so bad? Wouldn't we rather know at birth or 18-30 years later?
As I have mentioned before, there will be insurable cases, but we have the government step in for those cases. We already spend billions on insurable risks. We need to stop that spending and divert it to uninsurable risks.
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