Fire Insurance
Fires are expensive to put out. I mean really expensive. You have to get brave, highly trained and physically fit men and women willing to endanger themselves in order to rapidly deploy sophisticated fire suppression equipment. The equipment itself is costly to begin with, and it has to be expertly maintained or else it may not work when property and lives are depending on it.
Right now, the local government is responsible for maintaining fire stations, with subsidies coming from the state. And to help pick up the excess, we have volunteers and community fundraisers. Essentially, we all pay for it through taxes (or donations), and we trust the government to run the whole system on our behalf.
It works to some extent, I guess. But maybe it’s not the best way. It may be time to harness the proven power of the free market to do things more efficiently.
First off, why do we pay to have fire houses even when there aren’t fires? Maybe we should only pay fire crews when they put out fires. The rest of the time, what good are they really? And instead of forcing everyone to pay for the stations, maybe we should move the burden to the individuals who need to be evacuated from a burning property, as well as the property’s owners. After all, who else really benefits from having the fire crews come out?
I can imagine it might be a little upsetting to have your home damaged or destroyed by fire, and then still have a $50,000 bill for the fire crew’s services, but how is it fair to ask anyone else to pay? And besides, you can always get fire insurance. There’d probably be a deductible - maybe you’d have to pay for the first couple thousand, and then the insurance company can pay for the rest.
Of course, there might be less emphasis on fire prevention then we have now. Maybe the fire marshall wouldn’t be quite as concerned about fire safety checks of new buildings, seeing as he and his crew make most of their money when they actually extinguish fires. And I suppose once a crew actually arrives to put out a fire, there might be some incentive to use more expensive fire suppression techniques then may actually be necessary, but then again, your fire insurance policy would pay for it, not you.
And sure, fire insurance premiums might be a little too expensive for everyone to afford, but most people could probably get a policy through their jobs. And as for the uninsured - well, they might have to face bankruptcy in the event of a fire, but ultimately the people who have insurance would make up the difference. That would raise costs further on them, but at least the market would be in charge of rates and not some incompetent government bureaucrat.
And on the up-side, if a for-profit fire crew accidentally fails to rescue a family member from your burning house, it would probably be a lot easier to sue them for malpractice than today’s legally unaccountable firemen - people who under the current system can’t even be sued unless they practically set the fire themselves. In fact, that might make a for-profit fire crew motivated to do a much more careful job than today’s government-run crews, even if the extra care meant slightly more expensive techniques. And hey, if they did get sued, they’d probably have fire-fighting malpractice insurance to pay their legal costs.
It’s a neat thought, right?
Right?
Ok…
So maybe you already guessed this is actually a satire on our health care system. But it brings up a point. Why is it that when you call 911 and the operator asks ‘fire, police, or ambulance?’ only one of those three presents you with a bill afterward?
Our system runs on a fee-for-service model. It makes money by treating the sick, and gets almost nothing from the healthy. In a publicly funded system, the government saves money by keeping people healthy and loses money when they get sick. In our system, instead of taxes, we pay for our care through insurance premiums and deductibles. Our insurance companies then try to avoid paying claims, or else pay as little on them as possible, in order to maximize profits for shareholders. A public system also tends to look for ways to keep costs low, but instead of investor profits, cutting costs means lower taxes.
The issue became more important for me personally when my wife had to be taken to the hospital for a gall bladder infection. It was serious illness, and she had to have surgery to get it removed. A few days later, she had to go back to the hospital, because of a common complication of the surgery called pancreatitis. Now, theoretically, the doctors should have found the gall stone that, by getting lodged in a bile duct, led to the complication, and she could have had it dealt with during the first visit. And to be fair, they did try to find it.
But it brings up a question - what motivation does the hospital have to do a better job? In a publicly-run system, the hospitals don’t make more money when someone has to be admitted more than one time for the same condition. But according to my insurance statement, the hospital in question made almost $40,000 during my wife’s two subsequent trips (the first time the emergency room physician decided to send her home with some anti-nausea and painkiller meds - the condition was only found and treated on the following visit).
Essentially, the hospitals and doctors are motivated to do a good enough job to prevent getting sued. And there’s little incentive to treat cheaper, more minor conditions before they become serious. In a publicly-funded system, every health care provider is guaranteed the same salary regardless of how expensive the treatments are. And cheaper treatments that can avoid more serious complications later are going to be pursued at every level. In every industrialized country that has a universal public health care system, the result is a healthier citizenry that spends less money per capita on health care than we do. Click the image below to learn more about that.
One of the oldest laws of economics says that, if you want more of something, subsidize it. Our health system makes more money off sick people then healthy ones. Maybe there’s a reason we have so many.
But hey, maybe I’m missing something. If you think it makes sense to have a for-profit health system, but not a for-profit fire department, I’d like to hear your reasoning in the comments.
April 2nd, 2009 at 11:15 am
There are few fundamental logic problems.
One, in the first comparison of 911 services, only one is an optional service. You can’t opt not to be arrested, or legally choose not to report a crime (accessory after the fact), and you can’t choose not to have the fire department put out a fire. There is a distinct lack of freedom of choice. We as a civilization, have chosen to forfeit these freedoms in exchange for the security of a system of law that is above any one person, and in exchange for the security of not having our house at risk because the neighbor refuses to deal with his house fire. The only truly analogous medical comparison would be dealing with infectious diseases. You don’t let someone with ebola or smallpox choose not to be treated. So naturally, I have no problem with CDC being a government agency, or in the tax money going to fund infectious disease treatment and research.
However, with normal injuries, people have the choice not to be treated, to treat themselves, to wait until normal doctor’s office hours, to drive themselves or have someone drive them to the emergency room, or have an ambulance pick them up. I don’t see what gives me the right to tell anyone else which price-service option he must choose. If this is in anyway unclear, let me know.
Two, as to the argument of motivation; not all interest parties should have the same motivation. In fact, for proper economic balance, they should NOT. I see the proper balance as being the individual’s motivation to be healthy and not in debt as balancing the hospital’s to run an effective business and make money by healing people. And in fact, individuals in America choose to spend 40% less on healthcare when they are paying for it than when they expect others to pay for it. This indicates that there is no special medical exception to the basic laws of economics with regards to supply-demand. And as long as there is no monopoly, natural market competition forces hospitals and doctors to balance their services with their prices and costs. I can see a logical argument for making the ambulance service itself into a local government entity, either separate or combined with the fire department, with only a few minor negatives.
An unhealthy balance has resulted from the weight of malpractice suits on the industry. Doctors now routinely order more extra tests and services in order to reduce their liabilities to keep their malpractice insurance cost down. These costs substantially increase cost and decrease response time for those who need the tests and services most. Put simply, to decrease price for those who need them, decrease the demand by those who don’t.
Three. Regarding the un-sourced graph, there are several problems. The first is simply correlation does not equal causation. Overall, there is a slight trend that higher spender tends to produce longer lives, but the degree of data point scatter indicates other major factors at play.
The second is that without a source and methodology, a graph is an unsubstantiated assertion. If the creators of the graph are dishonest, they can cherry pick data to support their bias (as I have seen gun-control advocates do time and time again), over-emphasize small differences to make a larger emotional impact (the total difference from best to worst is 6%). But even if they are completely honest, and transparent about their biases, without a methodology we cannot determine what other factors are at play.
I can think of several probabilities right off the top of my head. I think they simply charted some statistics without taking into account the largest contributing factors to health and long life; namely diet and exercise. And I’m sure you’re aware that Americans are known for doing poorly in both. In a controlled study, I bet that the impact of those two factors absolutely dwarfs the impact of the amount of money spent on health care. Other health factors could include average hours at work, general stress levels, education, environment, urban vs rural, etc. Obvious cost factors (besides the malpractice costs mentioned above) could include a failure to take into account the total spent rather than just the amount paid for healthcare rather than the average price by the individual, how much money went to new drug development (which unless I’m mistaken, the vast majority of which is done here), percentage difference between preventative and reactive treatments, scarcity of generalist vs. specialist doctors here, etc.
Lastly, even if we were able to make the health system system 10% more cost effective by removing the freedom of people being able to choose their own healthcare, I would still be against it.
As a thought exercise, imagine the government running a health insurance business that people could opt in to use and pay for in their taxes, or opt out of not pay taxes for. How do you think it would do in competition with the private insurance companies, and what reason do you have to think less competition would produce better price or service?
April 2nd, 2009 at 12:20 pm
I thought about the fact that not extinguishing a property fire endangers other properties. And I agree that that alone is sufficient to ensure that people voluntarily come together to put out another person’s fire in a way that they don’t necessarily come together to treat another person’s illness. It’s a weakness in my metaphor.
But my point about the 911 call was that you’re only supposed to call it when your life - or someone else’s - depends on emergency intervention. If someone near you collapses suddenly, you’re supposed to call for an ambulance and try to keep them alive until the paramedics arrive. Later, assuming they survive, that person is going to have to come up with the money to pay for that ride, but “receive rapid emergency care by EMT’s or die” isn’t really much of a choice.
As for the costs versus outcomes comparison, I think a lot of the reason our system is so expensive is that such a huge population can’t afford basic preventive care. When they do have problems, they may not see a doctor until they’ve got a genuine emergency, and that’s always the most expensive type of care.
In Debbie’s case, she’d been having some stomach pains on and off for a couple of months before we had to take her to the emergency room. It would last for a few hours at a time and then go away. She didn’t know what it was, but kept assuming (hoping, really) it was no big deal. What we should have done, of course, was see a doctor about it before she required emergency care. Problem was that our insurance had a high deductible and we knew we’d be liable for the full cost of the visit. And at that time, we were barely making ends meet.
As to your thought exercise, I think it misses the point of what I’m proposing. I don’t think the government needs to simply take over the payment side of health care - basically becoming the insurance company you imagine. Costs would still be the same, and $12K per family per year in taxes is the same as $12K per family per year in premiums and deductibles. I think the government needs to take over the supply side of health care and remove fee-for-service payment structures altogether. Maybe health care shouldn’t be free - people should bear at least some responsibility for not taking care of their own health. But people should never fear bankruptcy because they or their dependents get hurt or seriously ill.
Here’s a thought exercise in return. Imagine that there were both private and public hospitals operating in parallel systems. If you wanted to use a public hospital, you paid some additional amount in taxes, and it drastically curbed your ability to sue your doctor. But the amount you paid in taxes was barely a third of what private insurers charged in premiums, and your out-of-pocket costs were fixed per visit - not based on the specific service (if any) performed by your doctor. Which system would most people choose?
April 8th, 2009 at 7:32 pm
Hmmm… you do have a point about high deductibles causing a reluctance to get care when it would do the most good and be the most cost effective.
My recommendation would be paying general care doctors more (so we get more than 2% of medical students taking that career path), and change insurance policies so that all preventative care has no deductible. Take advantage of the 40% increase in usage going in the right direction (away from emergency visits).
I don’t object to the idea of public hospitals operating in parallel, but I seriously doubt you’d be able to reduce costs by 2/3 without drastically cutting quality and supply of medical care. If anything, I would expect any government run program to be even less efficient than a private counterpart. The cost-supply equation will always balance, and in general, government agency are poor resource allocators as they tend to fix the price, which forces the supply to react in a detrimental way. Sometimes this extra cost is disguised through sucking money out of the general tax fund, operating on a deficit (stealing from your kids), or through inflation (printing money to steal value by reduce the worth of the money that others are holding).
Curbing ability to sue doctors should apply to public and private, with the recognition that our medical knowledge is not perfect and sometimes bad things happen that are anyone’s fault. There should only be civil liability for serious neglect, or damages done from overriding the patients wishes. And lawsuit award money shouldn’t be going primarily to the lawyers instead of the patient or family.