Cavalcade of Risk #18 Is Up

Joe Paduda hosts a rather comprehensive edition of the Cavalcade of Risk over at his Managed Care Matters blog. Paduda takes issue with two of my recent blog posts. 

1. The first is a post where I argued that an individual mandate will not solve the free-rider problem. One reason is that people with health insurance account for about one-third of the free-rider problem

Paduda suggests that this portion of the free-rider problem could come from providers who claim that they were uncompensated because the insurance companies or the patients did not pay as much as the provider billed. That’s a recurring problem with many estimates of uncompensated care. (Providers charge everyone the “list price” even though they don’t expect to receive it. Then they claim that the difference between the list price and the actual price was uncompensated care. By that rationale, car dealers lose millions every year to “uncompensated automobiles.”) 

The study I cited, however, based its measure of uncompensated care on the question, “How much would providers have been paid if the uninsured had been covered by private insurance?” That takes list prices out of the equation.

2. The second is a post where I argue that insurance markets do not naturally succumb to adverse selection. Rather, adverse selection only becomes a problem when insurers do not adjust premiums according to risk. Therefore, those who would prohibit risk-based premiums are largely responsible if insurers respond by trying to avoid sick people. 

Paduda responds that “the end result of Mr. Cannon’s prescription is full self-insurance for all health care costs.” I don’t know how that conclusion follows. As I understand it, the end result of risk-based premiums is that people keep purchasing (third-party) insurance until the costs of moral hazard and loading costs exceed the benefits of risk protection.