Praise for Pearlstein

Reading today's Washington Post I could hardly believe my eyes. Steven Pearlstein, the Post's business columnist and a guy I have criticized before, actually wrote a pretty good column on health insurance:

There is a part of health insurance that is meant to protect us from unpredictable or unavoidable "catastrophes," such as getting cancer or having a heart attack. But there is also a part of health insurance that covers fairly predictable and routine medical expenses -- the annual physical, a kid's ear infection or a colonoscopy for a 55-year-old. In those cases, health insurance is not so much protection from catastrophe as it is a mechanism to "prepay" what is likely to be the bill for your own care. The advantage of using insurance for that purpose is that an insurance company can negotiate better prices from doctors, hospitals and drug companies and can pay those bills with pretax dollars.

One way to think about the current debate over health reform is to consider how it alters those basic characteristics of insurance.

Republican conservatives, along with some health reformers, have long argued that the prepayment component of health insurance unnecessarily enriches insurance companies while driving up health costs because it leads people to consume more medical care than they really need. Since there is little extra cost, there is little incentive to avoid a visit to the doctor, or decline an extra test, or choose a less-expensive treatment option that may be just as effective. Insurance companies try to reduce this "moral hazard" through copayments and deductibles. Americans, however, dislike these cost-sharing mechanisms, if for no other reason than that they are unaware how much money they save in annual premiums.

...For what it's worth, I come down in the "catastrophic" camp, with the caveat that even catastrophic policies should also cover essential preventive care and treatment of chronic conditions over which people have no control. Such a high-deductible policy could not only lower premiums (and the need for premium subsidies) by 10 to 15 percent, but also put downward pressure on the growth of health spending as people became more cost-conscious about non-urgent care. Those who want more comprehensive benefits could still buy supplemental coverage to avoid out-of-pocket charges, but they would do so without subsidies from taxpayers or other insurance customers.

...In a free country, people have the right to decide what to buy, where to live, what to eat and drink, and how much medical care to buy. They're even free to negotiate for health benefits instead of wage increases. What they don't have is the right to expect that everyone else should pay for their choices through higher taxes and higher health insurance premiums.

One of the aims of health reform should be to make health insurance more like fire insurance, reducing as much as possible the moral hazards and the cross-subsidies while protecting all Americans from medical catastrophe.

This is absolutely correct and a position I have long maintained. The real head scratcher, however, is why Pearlstein supports current health care reform efforts when they are focused on expanding the broken health care model that places insurance at its centerpiece.