Risk Pools: Why It’s Dangerous to Swim in the Shallow End

by gradycarter

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With the government shutdown well underway, and the debt ceiling looming, seemingly many people are still very confused about the Affordable Care Act (Obama care), and it seems like a good time to address what the actual philosophical principles are that are being disagreed upon. Sometimes it can be difficult to recognize amongst such bitter fighting that there are ideas.

This fight has essentially been over the the government mandating that people buy private insurance, which is a law and has been ruled constitutional so long as it is considered a tax. This mandate as a philosophical idea is supposed to manipulate risk pools. You see, we seem to live in a world where it is becoming essential for us to have insurance for everything, and I personally don’t love that, but it’s apparent. The basic reason for this in regards to health is that as a society we aren’t willing to watch those who run into health bouts lose everything for having misfortunes. This is insurance at its most basic elemental, as insurance is a risk buffer. It’s like gambling, sometimes people will make a bet and then they will actually make a bet against that bet (like bonds and derivatives on Wall Street) so that they can minimize their probability of something bad happening.

One key component about risk pools is that the larger they are the more stable they are likely to be. Imagine the difference between throwing a rock into a lake rather than a bathtub, the lake is just affected less on the whole. Now this is oversimplified, but it paints a picture that I believe is somewhat helpful to those trying to understand why anyone would want this system, or even a single payer system.

The Affordable Care Act demands that we get private insurance, and as I wrote about recently they will be subsidizing some plans to make them “more afforadable” and thus those who currently don’t pay for healthcare will pay something, not to mention they will have insurance policies and receive better care that will prevent them from getting super sick and becoming an expensive part of the risk pool… The subsidized policies will also enlarge the risk pools and voilà, that should make for a more competitive pricing system (as we all know we could use considering the price of healthcare). As far as I can tell these 2 things should help with the reduction in the price of healthcare, other than one external factor, which is that doctor’s offices will get more crowded with people who were mostly getting care at the emergency room, and with a higher level of Scarcity doctors will be seeking higher paying clients / costumers. And thus healthcare will either become much more expensive all together, or some doctors will lower their prices to be more competitive.

Now the last factor that I find rather interesting about the cost debate of the Affordable Care Act is the outlawing of preexisting conditions for insurance coverage. This may seem like it would guarantee a larger risk pool, but one with larger (riskier/more expensive) waves. the only problem with this idea is that preexisting conditions cause 1 of 2 probable outcomes: we as a society pick up their tab as they receive specific preventative treatment for their specific ailment (which we already do), or they receive more expensive emergency care and live with a lower health and quality of life (which also already happens, and we also already pay for). We already pay for those who can’t pay by way of the emergency room care. We won’t essentially be changing who we’re paying for, we will be changing what we pay for.

The question of whether or not these changes will be for the better I’m not certain that we know for sure. However, we have the most expensive healthcare in the world, and we are not the healthiest, and we’re not even close. All that to say it must be noted that we also have the most profit driven system in the world. People come from around the world to receive catastrophic and major health treatment, and we have a health system based on haves and have nots, and it’s probably rather important to figure out whether or not your comfortable with that reality. One part of that reality is that there are even selfish advantages to more people having health insurance, primarily that with larger more stable risk pools we might see our overpriced system trim down a little bit, which might greatly boost our economy, as inflationary medicine has been an overall drag on our economy. But, the question really is simply whether or not we believe that as a society a group effort can make things better in regards to our health.