Imagine No Insurance Industry

It's easy if you try.

Kevin Drum has a fabulous post at Washington Post on living without the insurance industry. One of the reasons that both Kevin Drum and Ezra Klein are so great is the quality of the comments they inspire. Scroll down and admire how smart people are.

Drum links to an LA Times article on Blue Cross/Blue Shield sending a threatening letter to physicians, telling them they'd better tell all about their patients' conditions so that the insurer can deny treatment by any means possible.

He asks -- what good are insurance companies? "They cherry pick clients, add huge administrative costs to the system, and do nothing to drive innovation or bring down costs."

Next he muses on a column by right-winger Tyler Cohen, who thinks that all we need to do is set up a massive new federal bureaucracy forcing the insurance industry to be more accountable. Drum's responds,

But if it's price signals and competition you're after, why not cut out the middleman and have consumers pay doctors directly? For example, imagine a national healthcare plan that paid 75% of all medical expenses but required you to pay the other 25%. Your maximum out-of-pocket expense each year would be capped at, say, 5% of income at low income levels, 15% in the middle, 30% at the next level, and 50% for the rich. Or something like that. It covers everyone, it limits catastrophic medical expenses, and it eliminates insurance companies and their bloated administration costs. But the copay is high enough that it gives consumers an incentive to shop around and doctors an incentive to compete.

This kind of single-payer system obviously requires lots of government funding, but on the regulatory front would probably be more conducive to competition and innovation than desperately trying to bring down ever-bigger hammers on private insurance companies who are gaming the system. And since the government would basically just be in the check writing business, not the spending business, deadweight costs would be fairly low.

I didn't have to go far before finding a commenter pointing out that high deductibles are counter productive to preventive care.

The internet is a wonderful place. Thanks Al Gore.