Health Insurance: Good of the Whole vs. the Parts

Published by clickbroker.blogspot.com.

Economists often compare the good of the individual versus the good of the economy as a whole. While it is beneficial for each individual to cut back spending and debt to rebuild their personal balance sheet, this retards growth in the aggregate economy. I draw the same conclusion to preventive care now being implemented via healthcare reform.

The health insurance companies are blaming a disproportionate amount of rate increases on new mandates for preventive care without explaining their calculations. I imagine that the cost of the actual exams is minimal. The real cost is the treatment for ailments discovered on the specific insurer or self-insured employer’s watch. This is important because people change employers and insurers multiple times throughout their lives.

Many insurers have spoke about the high initial cost of first year Medicare and Medicaid enrollees due to deferred care. In the same light, it is clear that insurers have a vested interest in not discovering problems requiring treatment during their limited watch. While passing the hot potato is beneficial to each individual insurer, it costs the country more in the long run. Insurance companies and employers only benefit if they keep the enrollee over their lifetime.

I believe the conflict of interest, societal medical cost versus private insurer, explains why total medical costs are so much cheaper everywhere outside the United States. Healthcare reform has some provisions to redistribute the cost of adverse selection in the future guaranteed issue environment, but this will not be enough to overcome the disincentive for early intervention. The future will see a more active role of government in motivating individuals to manage their own care.

Single countrywide insurance pools, such as the UK, align incentives to reduce the lifetime cost of care versus the short term cost of care. High deductible insurance in America incentivizes deferral of care. The latest earnings calls from health insurers emphasized a surprising reduction in utilization of medical services by enrollees. The disincentives to use medical care by the insured population are especially high during difficult economic times.

Most of the political rhetoric focuses on price controls and rationing in Europe (socialization of care) compared to unlimited access to care in the United States. I won’t divert into how care is rationed in the United States. But, these arguments miss the point entirely. Until a single entity is responsible for a lifetime of care, costs of healthcare in the United States will never be controlled.

I see the government moving much more heavily into the role of responsibility for the lifetime of care of Americans. They will start by enticing Americans to improve their eating habits. This effort to increase awareness of the harm of obesity will have a negative impact on the packaged food industry as whole; especially the corn based food economy.

Both political parties will realize that short of a single insurance pool, improving the food supply is the only way to contain healthcare costs. Already, I have seen a substantial increase in the coverage of obesity related diseases in all of the major newspapers, including The Wall Street Journal and The New York Times, as well as even the most conservative cable news network. Holy Roger Ailes (the substantially sized president of FOX News)!

Note: The demise of the corn based food chain will primarily affect the seed companies Dow (DOW), DuPont (DD) and Monsanto (MON); corn processors Archer Daniels Midland (ADM), Cargill and ConAgra (CAG); and of course the packaged food industry General Mills (GIS) and Kellogg (K) amongst others. Although these are diversified companies, the impact won’t be subtle. Already the FDA has been asked to rename high fructose corn syrup to corn sugar after a consumer rebellion. The industries advertising the wholesomeness of high fructose corn syrup was to no avail.

No Disclosures.

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