What Is Health Insurance?

Over at the Health Affairs Blog, Mark Smith, president of the California HealthCare Foundation, offers the following assessment of that which we call “health insurance”:

When you ask people why they want health insurance, they will give you one of four answers… . (1) “What if I’m hit by a bus?”; (2) “I need to be covered for my preventive services”; (3) “I can’t afford to go to the doctor, or to get my medicine”; and (4) “I’ve got a chronic disease, for which I can’t afford to pay over time.” …

Please note: Only the first of those is insurance, in the sense in which anyone would understand that term — that is to say, protection of financial assets against the rare, unpredictable, catastrophic event …

Some component of what we call health insurance is that “what if I’m hit by a bus” concept. But the difficulty, we think, in trying to find a method of coverage which is acceptable to the various constituencies who are involved in health insurance … is that this thing we call health insurance is actually four different market items put together in one financial instrument which is increasingly unaffordable… .

To the extent that insurers and providers both see the problem of the uninsured as a revenue problem — which is to say, there are all these people out there who aren’t part of our system, and we need to find a way to buy them into our system at more or less our system’s price, at more or less our system’s configuration, and more or less maintain the incomes of everybody in our system — that is a very different question from how can we make the underlying asset more affordable… .

My point, therefore, is not [we] shouldn’t continue with the quest for expanded insurance coverage but that in so doing, we try to understand what it is we mean by insurance in the first place, and the extent to which combining these functions in one financial package creates a package which is simultaneously attractive for some people and unattractive for others. And in a voluntary market you create this mismatch, because for instance, how many people would pay money to protect their assets if they don’t have assets to protect? Most of the uninsured are low income; most low-income people don’t have huge amounts of assets to protect. They know that the hospital won’t come after them in quite the same way as the department store will, even for the same bill, and so asking them to pay money every week or every month, to protect assets that they don’t have, in case of an experience which will probably not occur to them, strikes us as not a very likely way to expand coverage among that population.