Thursday, December 17, 2009

Why The Price Is Right

Kevin Willaimson has an excellent piece in the most recent edition of National Review on the problems caused by lack of pricing information in markets including health care. It's called Priceless Is Worthless (sub req)and includes one of the best explanations of the realities of preexisting conditions I've yet read:

But rather than bring price transparency to health care, we're going full-tilt boogie in the opposite direction, specifically by insisting that insurance companies be barred from putting real prices on preexisting conditions. Set aside, if you can, all those images of poor little children with terrible diseases being chucked out into the Dickensian streets by mean old insurance executives in top hats and monocles, and think, for a second, about what insurance means, and what a preexisting condition is. Insurance is, basically, a bet: The insurer calculates the probability that a certain unhappy condition will befall a consumer. Actuarially speaking, the number of people who will suffer heart disease or car accidents is fairly predictable within a very large pool, so the insurer can figure out roughly what it will have to pay out in a typical year for every 100,000 policies, and the premium will incorporate that number. But predictable applies to things that happen in the future. Maybe 3 percent of those 100,000 people will need to see a cardiologist in a given year, but 100 percent of the people with diabetes will suffer from diabetes. That's a fact: It's what preexisting means.

Unless Governor Schwarzenegger manages to invent Terminator insurance, whereby Allstate agents travel back in time to insure you against problems you haven't developed yet, you cannot insure against something that already has happened, and to pretend otherwise dumps a whole metaphysical can of worms all over the insurance space-time continuum, landing us in an alternative universe where Insurance = Not Insurance. You'd never take a bet that you knew you were going to lose, right? Insurance companies won't do that, either, unless they get paid to do so--specifically, unless they are allowed to charge at least as much for covering Preexisting Condition X as it's going to cost them to treat Preexisting Condition X. Ignoring the reality of prices--waving the magic wand and saying: "There shall be no price put on preexisting conditions"--does not solve the problem. Health care costs money. The price is right, and you cannot politically engineer your way out of that reality, no matter how many sickly toddlers you parade around on CNN.

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