NCPA – Goodman, et. al.

The modern era has inherited two models of health insurance: the fee-for service model and the HMO model. Neither is appropriate to the Information Age.

Both models assume that (1) the amount of sickness is limited and largely outside the control of the insureds, (2) methods of treating illness are limited and well defined, and (3) because of patient ignorance and asymmetry of information, treatment decisions will always be filtered by physicians, based on their own knowledge and experience or clinical practice guidelines.

However, an explosion of technological innovation and the rapid diffusion of knowledge about the potential of medical science to diagnose and treat disease have rendered these assumptions obsolete. In this chapter, we briefly outline the type of insurance we believe would emerge if we rely on markets, rather than regulators, to solve our problems.

WHY TECHNOLOGICAL CHANGE AND THE DIFFUSION OF KNOWLEDGE HAVE MADE

TRADITIONAL HEALTH INSURANCE MODELS OBSOLETE

Although the HMO model is often viewed as the more contemporary, it is actually the less compatible with the changes the medical marketplace is undergoing. The traditional HMO model is fundamentally based on patient ignorance. The basic idea is a simple one: make health care free at the point of consumption and control costs by having physicians ration care, eliminating options that are judged “unnecessary” or at least not “cost effective.”

But this model works only as long as patients are willing to accept their doctor’s opinion. And that only works as long as patients are unaware of other (possibly more expensive) options.

As we argued in the Introduction, we could spend our entire gross domestic product on health care in useful ways. In fact, we could probably spend the entire GDP on diagnostic tests alone—without ever treating a real disease.

The information reality is that patients are becoming as informed as their doctors—not about how to practice medicine, but about how the practice of medicine can benefit them. Combine the potential of modern medicine to benefit patients with a general awareness of these benefits and zero out-of- pocket payments, and the HMO model is simply courting disaster. The fee-for-service model is only a slight improvement. It tries to control demand by introducing deductibles and copays. But even it offers strong incentives for patients to over consume health care.

Some believe that managed care can solve these problems. They are wrong. Imagine grocery insurance that allows you to buy all the groceries you need; but as you stroll down the supermarket aisle, you are confronted with a team of bureaucrats, prepared to argue over your every purchase.

Would anyone want to buy such a policy? Traditional health insurance isn’t designed to work much better.

Stay tuned . . .

Goodman, et al, NCPA

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Government is not the solution to our problems, government is the problem.

– Ronald Reagan