This is the second part in an ongoing series about health care costs and Medicare B. The first part is posted immediately below this. You can find more Xpatriated Texan at his personal blog (where he is currently exploring illiberal democracy and systemic corruption in New Jersey) or exposing political corruption in Hudson County.
I am forced to admit that, as much fault as I find in Ayn Rand’s Objectivism philosophy, she did provide one of my favorite quotes in arguing for it.
“A lie,” she writes in Atlas Shrugged, “is the worst insult you can give a man. It tells him that you find him incapable of dealing with reality.”
Reality is certainly a problem for many people on the political right. Take, for instance, this quote from the 2004 State of the Union Address,
A government run health care system is the wrong prescription. By keeping costs under control, expanding access, and helping more Americans afford coverage, we will preserve the system of private medicine that makes America’s health care system the best in the world.
Actually, it is the last part that shows a distance from reality. The Heritage Foundation was quick to pick up the lie to push its own agenda for health care, though.
The truth, however, is that by almost any objective measurement, the US does not have the best health care system in the world. For instance, Health Policy Reform actually finds that the US lags behind such countries as the UK, Germany, and Switzerland. Groups like Physicians for a National Health Program are even pushing to implement systems that emulate those in other countries.
Such efforts, however, are as much lacking a touch of reality as those of the far right. The truth is that there are too many interests vested in the current system to implement such a huge upheaval. While I believe all elephants can be eaten one bite at a time, it would be pure gluttony, and foolish, to try to eat the biggest elephant simply because it looks tasty.
Health care reform is badly needed, but it must begin with where the system is now. It isn’t exactly broken, because it works for a lot of people. What is needed is a way to make it profitable for those who lack access to the system to gain that access. That means finding a way to enlarge the system while still operating on sound. Specifically, we have to utilize the principle of risk averaging and the law of large numbers.
Risk averaging is exactly what it sounds like. Let’s say there is a ten percent chance of every person in America incurring a one hundred dollar health care bill this month. If you have a group of one hundred people; then you can be sure that ten of them will need to pay one hundred dollars worth of medical bills each. You don’t know which ones, and it doesn’t matter. What matters is the risk is averaged among the whole group. To be profitable, you only have to charge the hundred people enough to pay a little more than the total of the medical expenses. In this example, you only have to charge each of the hundred people ten dollars to break even. If you charge eleven, you make profit.
The law of large numbers says that such percentages are more precise in larger groups. The ten percent chance in the above example is for every month, so some months you’ll have more and some you’ll have less. To remain solvent, you have to maintain a large amount of reserves to cover the months when lots of people get sick. If you increase the pool from one hundred people to one thousand people; the monthly expenses get larger, but the percentage fluctuation from month to month gets smaller. If you increase the pool to a million people; then the law remains true.