Med Like Car Insure?

With car insurance, you typically first get a neutral expert diagnosis of the damage to your car.  Second, you get a check based the estimated cost of a recommended treatment to fix that damage.  Finally, you can spend that money as you like; you don’t have to do as much as suggested, or anything, if you feel so inclined.

Medical insurance is usually different.  You still get an expert diagnosis, and a recommended treatment.  And in Medicare, the resulting cash paid depends only on the diagnosis.  But the expert who makes these choices is less neutral – if you the patient approve, it is he or she who is paid to do what they recommend.  And if you decline their treatment, or opt for something less expensive, you don’t get the difference in cash.  This greatly reduces your incentive to seek the most cost effective treatment, or to skip treatment if none are cost effective.

Could we do medical insurance more like car insurance?  Well one obvious problem is that medical diagnoses are sometimes based primarily on a patient’s complaint, and it won’t do to give someone cash just because they complained.  But we don’t have to allow the cash option in all cases; we could limit it to cases were the diagnosis was based primarily on independent clinical evidence.  We could also disallow the cash option when an untreated patient would be contagious, or in emergency situations without enough time for a data, diagnosis, cash, choice cycle.

There is also the issue that how you treat one condition may influence what other conditions appear later.  This is a reason to be careful in defining the scope of conditions, and also perhaps to only offer a discounted cash option (say 80% of the suggested treatment price).

Even with these limits, it seems to me most folks dislike this idea.  I think this is why such med insurance isn’t offered.  Why?  Some possibilities:

  1. By explicitly distinguishing cases where no clinical evidence confirms patient complaints, we’d embarrass and insult such “asymptomatic” patients.
  2. We frame medical insurance as a gift, and it is rude to encourage people to exchange their gifts for cash.
  3. We think of medical insurance as a way to force people to get more medicine than they’d choose for themselves.
  4. Doctors are our authorities, and so we look bad if we disrespect them by not following their advice.
  5. Health is noble, money ignoble; it is immoral to make folks choose between them.
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  • Khoth

    Who are “we”? Are there regulations preventing an insurance company from offering this kind of insurance?

    • Robert Koslover

      Robin often posts speculative ideas in exactly this sort of language, suggesting that “we” could (for example) operate our economy differently, structure society differently, dispense health care differently, behave socially differently, etc. I think in these cases he may be more interested in the rather abstract question of whether the idea is a good one, rather than on if any mechanisms exist, or ever should or could exist, that could bring it about. Whenever I wear my “axiomatic libertarian” hat, which is most of the time, I am bothered by his apparent failure to concern himself about the liberty-destroying acts that could be required to bring about his speculative worlds. But I’ve become accustomed to it. And overall, I think Robin has a reasonably-strong (if sometimes buried) libertarian slant to his thinking anyway. He just doesn’t like to waste words explaining, or guessing, at the particular mechanisms for realizing his imagined societies, economies, etc. To the extent I perceive that those mechanisms would have to be totalitarian, I oppose them (in my “axiomatic” way). But to the extent that I think they could possibly be freely/voluntarily adopted and not automatically infringe upon what I consider to be fundamental liberties, then I go ahead and consider/ponder them. After all, he does have a lot of interesting ideas, right?

  • Ian

    Car insurance insures against a loss in the time independent value of the car, the difference being paid in dollars. Health insurance insures against nearly all losses in health (including inevitable ones), with the difference being paid in ‘doctors’.

  • “Health is noble, money ignoble; it is immoral to make folks choose between them.”

    “We think of medical insurance as a way to force people to get more medicine than they’d choose for themselves.”

    I think both are definitely active here. One question I had for healthcare reformers was “why not just give them a subsidy equal to the amount you expect to spend on each person, and let them buy health insurance or something else if they want?”

    There are a couple caveats you have to add for say, pre-existing conditions, and a few other things, but that the response to this was so universally negative (among both reformers and anti-reformers) leads me to believe that we really think we know best for what other people should get.

  • Joe Teicher

    This is not so different than what AFLAC offers. For instance, they offer lump sum cancer insurance policies. People can get AFLAC with pre-tax dollars through their eimployers if they offer it so there isn’t any tax penalty for this type of insurance vs. traditional health insurance. But it is only considered supplemental insurance and the amounts are not enough for full treatment.

    I don’t know why no one offers this type of insurance with high enough benefits to cover full treatments, but it doesn’t appear to be a regulatory issue. Maybe no one has figured out how to market this kind of health insurance effectively. I don’t think that just because its not popular today you can say that people definitely don’t want it. No one would have wanted a gigantic Ipod touch that cost more than a real laptop until Steve Jobs convinced them they should want it.

    • Khoth

      I think it would be hard to market. If you intend to spend all the payments you get on healthcare, the points Robin brings up mean that you’d get a better deal with traditional insurance. If you intend to spend none of it on healthcare, then you’re not getting insurance, you’re just gambling in a game with negative expectation. In the intermediate case where you plan to use part of the money to get cheaper treatment and pocket the rest, you’d be better off finding a traditional insurance policy that offers lower coverage for health problems you don’t want to spend as much on.

    • Khoth, why doesn’t that argument apply to car insurance? What if you want to wait until the last minute to decide in a particular case what treatment you think is worth the cost, rather than having to decide that ahead of time for all possible conditions and treatments?

      • Khoth

        The primary disadvantage to doing it for health insurance is probably that car insurance pays out for damage caused by specific incidents. They don’t pay for normal wear and tear, and it’s relatively easy to separate out existing damage from new damage.

        Of course, this is all uninformed speculation. You’d be far better off asking someone who works for a health insurance company.

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  • Jim Vernon

    Do jury verdicts signal that only certain “other” people’s money is ignoble? The verdicts certainly seem to signal that people think it’s noble to transfer money from one party to another, often in “exchange” for health.

    Best regards,

  • Nate Skiba

    My health insurance already covers the minimum treatment, regardless of whether that minimum treatment works. For example, my doctor wrote me a prescription for the allergy drug Allegra. My insurance will not cover it, because there are other allergy drugs that are over the counter. These drugs do not work for my allergies.

    In order for the system that you suggest to work, medical companies would have to take the word of some expert diagnosis, either my doctor or some other neutral party. They don’t. The secondary opinion is their own, and they have a vested interest in not paying out.

  • lemmy caution

    Car insurance mainly covers crashes. Lots of things can go wrong with cars that are not covered by insurance. These non-crash related problems are more analogous to most health issues. I guess these things are more arguably under the control of the owner so insurance makes less sense. without the crash event, there would also be the problem that garages could just make up problems and if there was insurance, people wouldn’t care. Also, you can buy a new car (or live without a car for a while) and it isn’t that big a big deal (unlike the whole dying thing).

    There are a lot of disability and tort payments where they don’t care what you do with the money either. These are more analogous to the car crashes covered by car insurance.

  • William H. Stoddard

    Didn’t health insurance used to work like automobile insurance, back before 1940? As I understand it, the change to health insurance as an employee benefit . . . one that was never counted as taxable income and didn’t show up on paychecks as a deduction . . . and the consequent shift from catastrophic to comprehensive health insurance helped change people’s mental models of insurance from a commercial model to a largesse model: “The generosity of my employer/the government gives me health care without the need to ask what it costs.” People’s attitudes toward health care are not an exogenous variable in the system of health care funding.

  • Lord

    The unpleasantness of treatment and all associated side effects are deterrent enough for most.

  • I dislike this idea, but only because of reasons you’ve nicely outlined for me; I seem to think the scope of the “exceptions” you’ve outlined are much greater than you do.

    I’m typing with a broken hand, and think I could have gotten much more cost efficient care with the hypothetical cash instead of the over-treatment I received; I think I’m biased towards your solution instead of against it. As one example:

    > medical diagnoses are sometimes based primarily on a patient’s complaint, and it won’t do to give someone cash just because they complained

    You don’t think a hospital would have huge liability problems in the case of not giving cash due to complaints? If we could just solve the problem of allowing hospitals to deny treatment when they are pretty sure the complaint’s spurious, that would be a huge advance in its own right; cash instead of treatment seems like small potatoes.

  • Vladimir M.

    lemmy caution:

    Car insurance mainly covers crashes. Lots of things can go wrong with cars that are not covered by insurance. These non-crash related problems are more analogous to most health issues.

    Well said. This really is the crux of the issue. For medical problems that are analogous to car crashes in that they appear as unpredictable and unusual (and thus insurable) events, car-like insurance already exists. You can buy insurance against accidental injury and disability for a very modest price, and as far as I know, this system works without significant problems.

    Trouble is, most medical problems are not like that. They’re analogous to car failures whose frequency predictably rises as the car gets older, and eventually reaches the point where it would require enormous costs to keep the old clunker still running. With cars, it’s pretty clear when it becomes more economical to ditch the old car and simply buy a new one, but for humans, such a simple calculus obviously can’t be applied — even though the unpleasant decisions about who will be cut off still must be made, since the available resources are finite. So we prefer these decisions to be made in an obscure way shrouded in elaborate procedures of expertise and bureaucracy that enable us to pretend that there is ultimately no need for these unpleasant decisions.

  • Jess Riedel

    Isn’t a big problem that medical options are much more controversial? When you get in an accident, pretty much everyone agrees what needs to be done to restore your car to its previous condition (although some owners will opt to keep the cash rather than repair minor damage). But when someone gets very sick, there are often several options with varying costs, risks, and benefits. Even disregarding cost, reasonable doctors will disagree on the proper treatment (often to the point where they feel morally prohibited from performing an alternate treatment). I think this would prevent separating the “damage appraiser” role of doctors from the “repairer” role.

  • A different Ian

    I can think of several problems with cash payments for health insurance claims:

    1) Medical problems often get worse if left untreated. If someone chooses cash instead of treatment, the insurance company may end up facing a much larger claim later on.

    2) Health insurance claims would be much more amenable to fraud and repeat claims because claims may be in response to an ongoing or subjective condition. Car insurance claims, on the other hand, generally need to be triggered by a specific event like an accident, whose occurrence may be easy to verify. Medical procedures are rarely pleasant, so there’s little incentive for patients to fake health problems. If they could get cash instead, they’d have a huge incentive to fake it, or in the case of real problems, to initially choose cash and do nothing, and then make the same claim a second time to cure their problem.

    3) In some cases public health concerns may demand that a person be treated. If someone has an infectious disease (say tuberculosis) it would be unethical to give them the option of money instead of treatment because this would increase the risk of them transmitting it to others.

  • William H. Stoddard

    A different Ian: Why are public health concerns a special issue with health insurance? A car that’s not in proper repair can be a public danger too. Yet we have one set of rules for keeping unsafe cars off the road, and a different set for providing drivers with funds to repair their cars after an accident. Why should the two be conflated with health care?

    My own take is that the original decision to grant health insurance a special, tax-exempt status for employees encouraged the creation of an enlarged health insurance industry that then became a collector of economic rents, and naturally sought to preserve them; and arguments about things like public health effects emerged after the fact as a rationalization for rent-seeking.

    • A different Ian

      William Stoddard,

      I suppose the issue of public health concerns is not really one of insurance per se, but rather a question of being able to refuse treatment. If you have no choice in the matter of treatment then the insurance is effectively just reimbursing its cost even if you choose to think of it as a cash payment. I suspect that for infectious diseases and such where this is an issue, treatment would be given long before the insurance company had a chance to weigh in. I don’t actually know how the laws currently work in this case, so it’s possible I’m wrong.

      Car repair is different in that you could choose to get rid of the car rather than repair it, which isn’t really an option for health problems: it would be a bit like giving people the option of suicide or treatment.

      As for your second point, laws attempting to limit the spread of infectious diseases go back centuries, long before health insurance existed, so it seems difficult to argue that they’re merely a rationalization for rent-seeking (although health insurance may have led to an increase).

  • Rich Rostrom

    “But the expert who makes these choices is less neutral – if you the patient approve, it is he or she who is paid to do what they recommend.”

    Say what? In general, very little of the cost of a treatment goes to the physician who diagnosed the ailment. The physician doesn’t get paid for prescribed drugs; if surgery or hospital stays are required, he doesn’t get paid for that, either.

  • another commenter

    my doctor wrote me a prescription for the allergy drug Allegra. My insurance will not cover it, because there are other allergy drugs that are over the counter.

    when I’ve had this problem in the past, my Dr. faxed a letter in saying the OTCs don’t work, and then they covered it.

  • Rob

    >> “The U.S. is definitely on the wrong trajectory,” Chris Murray, director of the Institute for Health Metrics at the University of Washington, one of the study’s authors told the Associated Press. “(The US) spends the most on health out of all countries, but (it) is apparently spending on the wrong things.” <<