In attempt to mock conservatives’ reaction to the landmark study finding that Medicaid coverage did not improve physical health outcomes, Paul Krugman snarks that “Fire Insurance is Worthless! After all, there’s no evidence that it prevents fires.” Actually, fire insurance would be a pretty good model for health insurance.
True, in its early days, before modern fire departments existed, fire insurance was created to ensure that fire brigades would show up to extinguish fires at clients’ houses. Over time, it evolved, and now is typically attached to homeowners’ insurance policies. But when homeowners purchase insurance policies, they do so to protect themselves against catastrophic losses that would cause them major financial strain, be they from fires, hail storms, lightning strikes, falling trees, burglaries, and so on. Such insurance does not cover routine visits by plumbers or electricians, or subsidize batteries to put in a smoke alarms.
Free market health care policy analysts have long argued for a catastrophic approach to health insurance. If health insurance were like other types of insurance, it would protect beneficiaries against financial strain due to unexpected medical expenses, but it wouldn’t cover routine costs. Monthly premiums would be much lower in this case and individuals could put money in health savings accounts to pay for qualified medical expenses.
If anything, the findings in the Oregon study make the case for such an approach much stronger. To review, the study found that Medicaid reduced financial strain (“catastrophic expenditures, defined as out-of-pocket medical expenses exceeding 30% of income, were nearly eliminated.”) But, despite the increased consumption of medical services, Medicaid did not improve enrollees’ physical health. A fire insurance-type model for health insurance would be significantly less costly than our current health care system, and it would still be there for medical emergencies and to protect individuals and families against financial ruin.
Unfortunately, President Obama’s national health care law takes the opposite approach. Starting next year, Americans will be mandated not just to obtain health insurance, but to obtain insurance that’s comprehensive enough to meet the specifications of the federal government. Though it’s important not to extrapolate too much from this study, the results certainly do challenge the assumption that increased consumption of health care services automatically makes people healthier.