As I write this, I am listening to snippets of debate in the U.S. Senate about what has come to be known as a “patients’ bill of rights.” The only contentious issue involves whether people will be allowed to sue insurers, HMOs or their employers.
I am disappointed that this apparently is the best we can do in terms of health care reform. As usual, I also am disappointed by the inflated rhetoric surrounding the issue. But if this is the issue of the day, let me offer some insights that I hope will be helpful.
For many U.S. households, health care decisions involve insurance and are made after interactions among several entities. These often include the household itself, health care providers such as doctors and hospitals, an insurance company and an employer who pays most, if not all, of the cost of the insurance. Increasingly, the roles of health care provider and insurer are combined in an HMO.
In the United States, households can get all the health services they can pay for. In contrast to some European countries, there are no government bans on private provision of care. What Congress is debating right now involves the rules of the game about who has to pay for what and how much.
Most U.S. households have similar relationships with auto insurers and auto repair providers. There are some differences. While most households seek health care every year, often on several occasions, careful drivers may go several years between incidents in which they need accident repairs or incur liability. Moreover, the stakes clearly can be higher with health care than in auto repair. However much one may love a particular car, it is still only a car. But a life is a life.
The decision of which auto insurance to buy is made directly by the household. People don’t expect their employer to offer car insurance as a fringe benefit. Nor do employers specify which auto policies their employees may buy.
Like health insurance, car insurance is not provided in a legal vacuum. Government sets the rules of the game. And despite the obvious differences between human health and cars noted above, such government rules have economic consequences in both cases.
Take some simple examples. In the state where I live, the law says insurance companies cannot require car owners to get glass replaced by the cheapest bidder or from specific shops that have a special arrangement with the insurance company.
This law protects consumers from having to accept inferior materials or workmanship when having auto glass replaced. But it also means that premiums for glass coverage in my state are higher than they are in states that do not have similar laws.
Similarly, my car insurer cannot tell me which body shop I must use if my car is damaged in a collision. I can choose the shop that suits me. But again, premiums are higher here than in states where insurers still can require car owners to accept the shop with the lowest of three estimates.
Finally, as in virtually all states, I am required by law to carry liability insurance in case my driving harms someone else’s life, health or property. There is a legally specified minimum level of coverage. I can voluntarily choose to pay more and have higher levels of coverage. I can also voluntarily choose to pay more for “uninsured” and “underinsured motorist” coverage that will compensate me if I am significantly injured by another driver who bought minimal coverage (or who broke the law and bought none at all).
Automobile insurance is largely noncontroversial. Not everyone likes car insurance companies, but no one talks of a national crisis in auto insurance. Health insurance is not intrinsically different. We can pass laws at state or federal levels requiring insurance companies or HMOs to reimburse or provide greater or lesser levels of health care. But as with auto policies, someone will bear the added cost whenever the law prescribes higher levels of service.
In health care, such elementary tradeoffs are obscured by the fact that employers, and not households, write out the check for insurance premiums. While we generally accept that if the cost of repairing our family sedan exceeds its market value, we will get a check for the latter amount, we refuse to make an analogous calculation when our children get sick.
If someone buys an insurance policy with liability limits of $300,000 per accident and then runs a busload of 40 schoolchildren off the road, no one goes to court demanding that the insurer pay open-ended amounts necessary to make the injured children whole. But when a severely handicapped child requires $300,000 in nursing services in each year of her life, parents are quick to sue HMOs and insurers demanding that they foot the bill.
No economist can determine which set of rules concerning auto insurance is best for society. Nor can we do this with health coverage. These are value judgements in which different people inevitably will make different choices. But we can point out that tradeoffs are involved in either case.
© 2001 Edward Lotterman
Chanarambie Consulting, Inc.