Choices in health insurance

Excellent article in today's NYT by David Leonhardt on employer-provided health insurance. Leonhardt makes an important point about how individual choice is always going to be curtailed when most people get their insurance from either their employer or the government. Some people are risk averse and want insurance with low deductibles and copays; others are more willing to take risks (or have more personal wealth to cover downside risk) and prefer very large deductibles. Regardless of risk aversion, all parties want to take advantage of the tax subsidy provided to employer-provided insurance. However, employers generally negotiate for one plan to cover everyone, and in our low-savings society the low deductible plan will win out in almost every case. Customer service also suffers since customers cannot threaten to take their business elsewhere.

The immediate advantage would be that people could choose a plan that fit their own preferences, rather than having to accept a plan chosen by human resources. You would be able to carry your plan from one job to the next — or hold onto it if you found yourself unemployed. You would never have to switch doctors because your employer switched insurance plans. The longer-term advantage would be that health insurance would become fully subject to the brutal and wonderful forces of the market. Insurers that offered better plans — plans that drew on places like the Mayo Clinic to offer good, lower-cost care — would win more customers. “That’s the way the rest of the economy works,” says William Lewis, former director of the McKinsey Global Institute.