Healthcare is an emotional issue because it can determine whether people live or die. That’s all the more reason to think about it with reason, and try to work out the best means to provide fair provision for all.
A common fear surrounding private health coverage regards the incentives facing insurance firms. It can be stated as “the more healthcare they can deny us, the more money they make”, since “getting the government out of healthcare ... is to place it in the hands of people with a dollar incentive to deny people healthcare.”
I once worked for a health insurance company, and find it hard to accept the implication that my colleagues and friends tried to deny people coverage. Whilst some of them were unfriendly to other staff (!), they were all professional with customers: you couldn’t meet a nicer woman than Roz, who was in charge of paying out life cover. She had no intention at all to hoard money for the plc, rather ensure that the policy hadn’t been abused. Of course she knew that if she denied a pay out, that would leave the company with more money than it otherwise would have. But that money would be used to lower premiums of other clients, all of who were keen that we clamped down on fraud. She also knew that if she made a mistake, and turned down a fair claim, the policy holders’ family would have the full weight of the law behind them to take us to court. No bereaved family would enjoy legal action, but for that reason the publicity generated would be huge. I can assure you that if the company were unsure whether a claim was genuine, the value of their reputation would err on the side of caution.
Most of the employees worked in the call centre, directly involved with clients. I was surprised when I first arrived, since I expected to see targets and pressure to pull in money for the company. But the incentives weren’t for increasing profits, but improving service. Their performance was judged in handling queries, responding to claims quickly, setting up new accounts without error... why might this be? Well it’s perfectly true that a health insurers profits come from the different between what customers pay, and what they give out as benefits. In the short term, they do have an incentive to break faith. But this phenomenon isn’t just confined to health care! In the car market, Honda earns profit from the difference between the price of a new car, and the amount it cost them to build. But they don’t make the engine out of chocolate, or use cardboard steering wheels. If it did, aside from having the legal right to demand a refund, we can simply stop buying from Honda in the confidence that a rival such as Toyota would be willing to serve us better. The principle that aligns a company’s quest for profit, with serving their customers as well as possible, is competition.If different insurance companies compete for customers, they need to take into account the consequences of their actions – that denying fair coverage will make them bankrupt (either through losing customers, or in legal fees). They must therefore protect their reputation new clients with promises that they keep.
In spite of these features, a private insurance system is not perfect. But let’s compare it to government provision – do they have an incentive of depriving service? Perhaps not directly, since anyone spending other people’s money will be lavish. But the bureaucrats do not have unlimited resources, and any spending on healthcare must reduce the funds available for education. Also, there is a more important, indirect consequence of central markets: the loss of innovation. Since it is unseen, it’s easy to neglect, but the competitive pressure for customers tends to spur innovation, and reduce costs. A casual comparison between private and state-run hospitals underlines this point, since a vast gulf in quality care exists. Not only that, but increasing numbers of people are finding private care affordable, and this trend willcontinue.
Even if the government subsidised those that can’t afford the care they require, the best possible health care system needs to be one that encourages innovation, reduces prices, and provides quality care for more and more people. And the profit seeking behaviour of private firms, constrained by the law, by their reputation, and by their rivals, is the best means to do so.