Insurance, Child Birth and Other Things
I’m curious why you say health insurance shouldn’t pay for child birth, Steve. I haven’t heard this before (I apologize if I haven’t been paying attention).
The classic definition of insurance is to reduce the losses to an individual (or firm) for risks that are large and rare. If the losses are to be expected, then the premium for insurance is going to be pretty much equal to the loss. Think of it this way, suppose you have 100 people and the risk of the loss is $100, but there is only a 0.01 probability of incurring the loss. The premium would be $1 since the expected loss is $100 and there are 100 people purchasing the insurance. Now suppose that the probability is 0.9, the expected losses are going to 90*$100 or $9,000. Now the premium, for the same group of 100 people is $90.
Child birth is not usually something that happens without at least some intention involved. For example, if I were to drive my car recklessly at speeds far in excess of the speed limit and disregarding other traffic laws and my insurance company decides not to cover me for plowing into a tree many people probably wouldn’t be that shocked. If you have sex with no birth control there is a high likelihood that he woman will get pregnant. Quite similar from when you look at the behavior and outcomes from the perspective of insurance as described above.
These days we don’t have insurance anymore but insulation. It is insulation from high costs of health care irrespective of whether or not the costs are associated with events that are high or low probability. Now one can argue that this is a good thing, but I think one has to also admit that it can drive up the cost of health insurance, see the above simple example. Health care these days covers things like child birth, routine check-ups, eye-glasses, prescription for minor illnesses (ear infections in children, antibiotics for bronchitis, etc.), and even in some cases things like Lasik.
I’d argue that we could get some quick reductions in health insurance costs by eliminating these things from coverage. Will it make some people worse off? Sure. But that is the problem we are facing. We can’t grow the world’s food supply in a flower pot and we can’t give everyone all the health care resources they might like. Resources are limited, not infinite and as such there has to be trade offs. The problem is that it is all too common for many people to think that we can have our cake and eat it too when it comes to health care. Why we’ll just reduce administrative costs and spend it on providing resources for child birth. The problem is that doesn’t reduce health care costs or even the rate of growth in health care expenditures. At best it leaves them unchanged, at worst it will accelerate the problem. You’ll often hear these people say, “We spend N times what this country or that country spends!” The implication is, that it is a bad thing. But then they don’t favor simply reducing costs, but reallocating costs in ways they approve.
The end result is that this will ensure that health care expenditures will rise, health insurance will become increasing less affordable, and that we will continue towards the cliff’s edge. Just about every country is in the same boat. They are having problems covering their health care expenditures. France, England, the United States, Germany, Canada are all facing serious health care issues or have very high growth rates for health care expenditures. Merely switching to a different system might slow the process down (or speed it up), it will not solve the problem.
Photo by Flickr user quinn.anya, used under the Creative Commons license.