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Health Insurance in the United States

Health insurance is one of he most controversial forms of insurance because of the conflict between the need for the insurance company to remain solvent versus the need of its customers to remain healthy, which many view as a basic human right. This conflict exists in a liberal health care system because of the unpredictability of how patients respond to medical treatment. Suppose a large number of customers of a particular insurance company were to contract a rare disease costing 10 million dollars to fight for each patient. The insurance company would be faced with the choice of either charging all its future customer astronomical contributions (thus loosing customers and going out of business), paying all claims without complaint (thus going out of business) or fighting the customers in an attempt to deny the costly treatment (thus outraging patients and their families, and becoming a target for lawsuit and going out of business).

There are further economic problems with private health insurance. Asymmetry of information about a person's health and behavior is likely to add to adverse selection and moral hazard. In essence, those seeking health insurance are likely to be those with existing medical problems or high likelihood of future medical problems and those who take out insurance may engage in risky behavior, such as smoking and excessive alcohol consumption, which they otherwise would not. These problems may lead to "good" insurance risks being priced out of the market or even insurance being uneconomical to provide. With publicly funded health insurance, the good and the bad risks are all included in the coverage and the same moral hazard applies. Further, every risk must subsidize the unhealthy, and those that take care of their health have no opportunity to avoid this subsidization.

Many countries have mad et he societal choice to avoid this important conflict by nationalizing the health industry so that doctors, nurses, and other medical workers become state employees, all funded by taxes, or setting up a national health insurance plan that all citizens pay into with tax or quasi-tax payments, and which pays private doctors for health care. These national health care systems also have their problems. Some of these countries have citizen groups which protest bureaucracy and cost-cutting measures that unduly delay medical treatment. Similar issues exist with private health management insurances in countries with privately funded medicine.

In the United States, health insurance is made more complicated by Federal Medicaid/Medicare programs, which have had the unintended consequence of determining the price of medical procedures. Many suspect that these prices are set independently f medical necessity or actual cost. A physician who refuses to accept Medicare/Medicaid payment will be banned from accepting any such payments for a number of years, regardless of the reason for rejecting the payment or the amount offered. In either case, this means that private insurers have little incentive to pay more than the government does.

Today, most comprehensive private health insurance programs cover the cost of routine, preventative and emergency health care procedures?and almost all prescription drugs, but this was not always the case.