Thursday, February 27, 2003

More on Healthcare for the Intemperate

Mark responds in an update to his original post to my response below, saying: “[Glen’s] answer -- essentially, the creation of a special underwriting category for alcohol and drug abusers, who would pay higher insurance rates than the more abstemious -- makes sense, as most libertarian solutions do, if you abstract from a few facts.” Allow me to respond to those facts one at a time:

“Much health insurance is bought by employers for employees, rather than individually.” This is indeed a fact – one created almost entirely by the current tax code, which effectively gives a tax break on insurance only if you buy it through your employer. A sensible tax code would treat all health expenditures equally, thus removing the perverse incentive to tie your health insurance to your employment. But even if we take that as given, the fact that health insurance is typically attached to employment and sold in packages does have an upside, which is that it ameliorates the adverse selection problem. (Adverse selection is only an issue if the low-risk folk can opt out and the high-risk people can opt in, thus biasing the insurance pool.)

“Being an alcohol or drug abuser isn't (1) a simple yes-or-no; (2) a stable condition over time; or (3) an easily observable condition; the usual diagnostic approach is asking the person involved, which isn't going to work very well if the consequence of saying "yes" is having to pay higher insurance rates.” There do exist other means of diagnosis, including medical tests. They are not perfect, but nothing ever is. Moreover, premiums are adjusted based on medical history. Someone with a history of conditions correlated with alcohol abuse will see rising premiums. The fact that alcohol or drug abuse isn’t a simple yes/no proposition with a constant answer over time makes things more complex, but not intractable; being a “bad driver” is not a simple yes/no proposition either, but auto insurance companies are remarkably skilled at observing its correlates.

“Someone who isn't clinically diagnosable as an alcohol abuser can still wrap his car around a tree.” Since the whole problem Mark raised had to do with the failure of doctors to perform the tests they *do* have available, I don’t see how this is relevant. If the condition is not clinically diagnosable, then unperformed tests are beside the point. Now, it’s true that there could be an adverse selection problem here (the drunk drivers are more likely to buy health insurance that covers their drunk-driving accidents), but there are potential solutions. Here’s one that comes to mind: Insurance companies could offer a policy that will cover your auto-related injuries only if you are tested at the hospital for alcohol and the test comes back negative (or within certain parameters). Those who drive responsibly will happily sign onto this agreement. Those who don’t will have to pay a higher premium for a policy without this provision.

“Having all the drunks and drug abusers uninsured -- the likely consequence of charging them the expected-value cost of their health insurance -- means that the rest of us wind up paying for their care through the unpaid care accounts kept by hospitals and passed through to insurers, unless we're willing to have them die in the streets. The whole logic of treating medical care as an ordinary commodity falls apart once you say, ‘No, we're not prepared to have people who can't pay for care die for want of care.’” First, let’s recognize that, if it’s really true that drunks and drug abusers are unable to afford the expected value of their health insurance, it means these chaps are creating greater healthcare costs than they can afford. Are these people who deserve a public subsidy? I’ll happily concede that if you reject free-market policies in some respects, other free-market policies may not work very well, either. If we say that we’ll provide free or subsidized healthcare to people, *regardless of their poor choices and stupid behavior*, then the natural consequence is that we all end up paying through the nose. It’s not just that we pay for others’ healthcare – it’s that the costs will be inflated because people will choose to engage in even more irresponsible behavior (the moral hazard problem).

The next step, of course, is that the high costs imposed on the rest of us will be used to justify the abridgment of personal freedom and the regulation of lifestyle choices. When users of drugs and alcohol (and motorcycle riders, and high-impact sports participants, and those engaging in high-risk sexual acts) are held responsible for the consequences of their own choices, then their choices need not be any of the public’s business. But the liberal attitude that treats healthcare as a right creates a powerful incentive for the government to intervene. (As an aside, I think this is the primary reason that so many liberals, a group that libertarians used to agree with on issues of personal choice, are now drifting to the authoritarian camp by supporting legislation and/or litigation to control smoking, consumption of fast food, etc.)

In any case, the problem of “the rest of us wind[ing] up paying” follows from *any* position that accepts Mark’s premise that people deserve healthcare no matter what. If we have socialized medicine, then we all pay, plus we get moral hazard. If we have publicly funded ERs and clinics that must treat all comers (even when they’re not insured), then we all pay, again with moral hazard. If we force private insurers to cover all medical expenditures regardless of cause, then we all pay, plus we get adverse selection. If we use tax funds to subsidize the purchase of health insurance for all, then we all pay, plus moral hazard again. Does Mark have in mind some system in which we do not all pay? The only one I can think of is the one I propose and Mark rejects.

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