Normal Limits

"Chance is the very guide of life"

"In practical medicine the facts are far too few for them to enter into the calculus of probabilities... in applied medicine we are always concerned with the individual" -- S. D. Poisson

November 14, 2005

Paul Krugman - Health Economics 101

NYT's Krugman:
We rely on free markets to deliver most goods and services, so why shouldn't we do the same thing for health care? ... It comes down to three things: risk, [adverse selection] and social justice.

Insurance is a process of risk-sharing amongst a group of individuals. In adverse selection, those people who can save money by buying insurance--ie, those who are more likely to use more health care resources--are more likely to do so, since it is clearly to their advantage. At a large scale, however, these high-risk individuals can overwhelm the risk-sharing scheme by shifting their health care costs onto healthy individuals. What health insurance companies do to counter this imbalance is screening:
This screening process is the main reason private health insurers spend a much higher share of their revenue on administrative costs than do government insurance programs like Medicare, which doesn't try to screen anyone out. That is, private insurance companies spend large sums not on providing medical care, but on denying insurance to those who need it most.

An article in this month's Health Affairs by James Kahn, Richard Kronick, Mary Kreger, and David Gans found that in California, billing and insurance paperwork alone constitute about 20% health care spending.

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