Thursday, December 4, 2008

Health Insurance versus Health Care

In the looming discussion of nationalizing health care, I would like to add a helpful note on jargon: let's distinguish between health insurance and health care. Too often, those are considered synonyms, and the confusion in language has led to some confusion in policy.

Health care is, clearly, the receipt of medical services, including treatment and prevention. Universal health care is desirable for a host of reasons - humanitarian, economic, epidemiological, etc. I haven't met anyone who wishes health care was flatly denied to someone else. The debate over nationalization typically hinges on how to balance quality against distribution. Both are worthy goals; good people can disagree on the best balance.

Heath insurance, by contrast, is one means of paying for health care. Specifically, it involves pooling risk so that the unforeseen expenses don't bankrupt one's family. As with other kinds of insurance, risk-averse people are willing to pay somewhat more in expectation than if they self-insured; they are also prone to morally hazardous decisions.

As this country likely decides how to go about providing health care to as many people as possible, we should consider getting away from the insurance model. Most nationalized systems are basically big insurance plans, and the inefficiencies are substantial. The current system in the U.S. has broken down essentially because the inefficiencies associated with private insurance have become ponderous.

Whatever balance the new American health care system strikes, the goal we should all be able to agree on is that inefficiency - whether it comes from bureaucracy, externalities, or moral hazard - ought to be minimized. I and others who care more about the well-being of the American people than about telling them what to do will be favorably disposed toward the plan that offers the most health care with the least inefficiency.

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