Health Care Is Cheap (Subsidies Are Not)

A column I wrote in 2002 seems more relevant than ever.  Some excerpts:

Health care is cheap: Eat less fat and more veggies, take a daily walk, quit smoking, and drink a little wine with some nuts. Fail to take care of yourself, and the long-term results can be costly – like the results of never changing the oil in your car and never replacing the tires. New diagnostic and surgical technologies involve expensive equipment and skills. Even so, insurance for gigantic medical expenses is also cheap. My policy pays nothing unless annual medical bills top $2,000. Most people call that “catastrophic” insurance. I call it real insurance.

Insurance for accidental damage to cars and homes is real insurance – something to protect against emergencies, not routine expenses. We do not expect an insurance company to pay for tires and gasoline, or to pay for home painting and termite inspections. When families make their own choices and pay for them, they choose insurance only for catastrophic expenses – the car becoming a total wreck, the house burnt to the ground or the breadwinner dropping dead. If we never collect a dime from such genuine insurance, we consider ourselves lucky.

With health insurance, by contrast, we all want somebody else to pay. Each of us expects to pay less for health insurance than the insurance companies pay to hospitals, doctors and pharmacies. Sadly, that does not add up.

More than a fourth of the U.S. population already has federally subsidized health care through Medicare, Medicaid and military health benefits. If that percentage ever reached 100 percent, as some politicians promise, we might finally begin to wonder how it is possible for everybody to subsidize everybody else.

If you subsidize something, people want more of it. That increase in demand translates into a market in which prices can more easily be raised.