Why So Costly?

Previously, I suggested that because health insurance is a derivative of medical care, physicians determine the direction of its cost. I also introduced the idea that an actuary, working to determine the price of an insurance policy, has to take into account considerations which differ from other insurance products.

One major difference between health insurance and car insurance is that the magnitude of a reimbursement is much less predictable for a health insurer than a car insurer. The value of your car and your driving record are excellent indicators of an auto insurer's liability. The value of your car is also plummeting, at a fairly steady rate.

Health insurance is much less predictable because the cost of medical care typically increases with each advent of diagnostics and treatments. A disease treated simply today, later warrants an expensive regimen of medications, procedures and tests. Innovation is inherently sporadic, which prevents an actuary from accurately calculating its value in the present.

Modern medicine would stun Dr. Frankenstein. We progress towards an ability to keep people healthy for so long that its becoming an ethical debate whether we should do so; when do we stop? The cost of the technology is unrelenting. No patient seeks the best care of yesteryear which has since become relatively affordable. This culture must also be accounted for by the actuary.

In another way, health insurance is very predictable. Most of us eventually grow quite ill. We prefer it to dying without a fight. Dr. Frankenstein might prefer our times, our villagers would descend upon his workshop brandishing consent forms, eager to qualify for his experimental research.

Quite differently, few drivers totally wreck their car. Even if they do, auto insurers face a limited obligation. Health insurers pay for treatments which quickly reach astronomical values. Sometimes without the patient perceiving added benefit. To maintain a level of predictability, insurers often limit the lifetime value of a health insurance policy, a practice tolerated in auto insurance but questioned in health insurance.

Because we prefer insurers remain in the business of finance and not manage care, physicians must take responsibility for improving access to care through affordable health insurance by lowering the costs of medical care. It is the natural burden of leadership.