Unbiased Analysis of Today's Healthcare Issues

Minimum Insurance Benefit

Written By: Jason Shafrin - Mar• 13•08

Many reform advocates have claimed that the federal government should mandate a package of insurance benefits that all private and public health insurers would be legally compelled to provide. Switzerland is one country in which the government defines a what the insurance benefit will be for all standard health insurers. The National Coalition on Health Care also proposes “…requiring insurers to establish explicitly separate premiums for the core benefit package.” Is having the federal or state government mandate a minimum benefit package a good idea?

Cons

Most neo-classical economists would say that having the government mandate an insurance package is a bad idea. Regulation restricts choice. If consumers would prefer an insurance company to cover mental illness and another person would prefer their insurance company have more generous coverage for cancer treatment, then it would be welfare destroying to eliminate the individual’s choice. Even if regulators were able to determine an ‘optimal’ benefit package–even a benefit package deemed optimal for society is unlikely to be optimal for each individual–this optimality could only be achieved in a static setting. When new medical technologies and procedures became available would they be adopted? Adopting unproven medical technologies may not increase quality of care, but would increase the cost of premiums. Adopting technologies too late will harm the sick patients who could benefit from these advances.

Another issue is who would be deciding which procedures are included. Whether it is Congress or a medical “Federal Reserve,” these groups would be influenced by lobbying from the AMA, pharmaceutical companies, and patient interest groups. Further, Congressmen will have their own favorite diseases that they will include in the basic coverage plan, even when funding coverage for these diseases may not be as beneficial as for other diseases.

Pros

One benefit of the standardized medical package is that people would better be able to comparison shop. Currently, it is nearly impossible to determine what your insurance company covers unless you are an expert. With a mandated core benefit package, insurance companies would only be able to compete on the dimensions of price, service, and reputation. They would be no competition with regards to which procedures were covered. Also, this would help to attenuate the problem of adverse selection. Many insurers currently do not offer generous coverage since they know by doing so, they will attract the sickest individuals and likely decrease their profits.

Further with a standard benefit package there should be lower legal costs for both the insurance companies and patients. With a clear core benefit package, litigation would not be eliminated but it would certainly be curtailed since much of the payment ambiguity would be cleared up.

Supplemental Insurance

Regardless of whether or not you prefer a minimum insurance benefit, the government should allow supplementary insurance markets to exist. In this way, those who prefer more generous coverage could purchase additional insurance. Further, it is likely that supplemental insurance would be the first-adopters of new technology and could provide a testing group as to whether or not a new medical treatment should eventually be included into the core benefit package.

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No Comments

  1. One should be troubled, very troubled, when two attorneys (Hillary and Obama) are so convinced that they know more about the practice of medicine than anyone else.

    This we know: biologic systems are complex, hence medicine is complex. Biology is analog not digital, hence what is best is not always clear. For example, there is no one precise total hemoglobin value for everyone, nor is there one precise normal value of estrogen, testosterone and every other hormone in the body. As a result, there are no singular precise choices that can be applied to every incident of human pathology whether treating an ear ache or heart attack. Sure, some practices are better than others, and medicine is working hard on identifying those, but it’s not a simple task and we can’t afford mistakes.

    As hard as it might seem to many of us, not everyone values good health equally. Some smoke, to many over eat or over drink, or both, it’s just that way. What drives the cost of health care is as much behavior as it is anything else.

    What should bother anyone in favor of single payer national health is the resulting bureaucracy that will lie between the patient with a problem, and it’s solution. Canada works because it has a “relief valve” the entire width of the northern border of the US.

    We ought focus on how to improve efficiency of those providing health care, and less about the book keeping, or worst yet, creating one large national labor union.

    Tom

  2. Bruno says:

    First, I’d like to say that I really enjoy the bolg.

    Second, I think there is a mistake in the post when it said that the minimum benefit package would attenuate adverse selection. Probably, the average premium would rise and this would worsen the problem.

    My country (Brazil) adopts since 1999 minimum package of benefits (the ICD-10) and there are evidences that the probability that older individuals are demanding more health insurance than before has risen (the inverse being truth for younger individuals).

  3. Rafael Leite says:

    I can only agree that this blog is quite unique in its proposal and you´ve been adressing interesting issues here (sorry for bad english).

    Disagreeing with Bruno: Actually, the “minimum package” in Brazil is quite fragmented – the insurance companies (well, here it works a little bit more like HMOs) can offer “segmented” packages. For an instance, the ambulatory plan covers only exams and physician consults; the hospital plan covers cirurgical procedures, hospital costs, cirurgic materials, etc. It is possible for the HMOs to offer, in a health plan, a combination of segments, like ambulatory plus hospital segmentation.

    In the “cons” you poses the following and one of the most important questions: who decides for the procedures/benefits of the package? In Brazil, there is a Regulatory and Executive Agency specific for such task: the National Agency of Supplementary Health. It is the governmental agency responsible fot, between other questions, deciding who gets what.
    As you pointed correctly, it is subject to lobby pressure from HMOs, health insuarance companies, consumers associations and providers organizations. Too many interest groups interested!

    You may count on me as a regular visitor of this blog.

    Best regards.

  4. InsureBlog says:

    Mandatory Insurance: Are We There Yet?…

    By the way, I’m not the only one who’s giving this some thought of late: both Jason Shafrin at the Healthcare Economist and Amy Tenderich at Diabetes Mine have some intriguing ideas on the subject, as well….