What if There Were No Health Insurance – For Anyone?

I just love to engage in thought experiments. To think about scenarios that will probably never happen, just for the fun of being able to consider what the consequences might be (without, of course, actually having to experience them). My favorite thought experiments are those that most people would consider impossible, could never happen, don’t even think about.

So, for today, I ask you to consider what you think would happen, if, starting tomorrow, there was no health insurance for anyone. Would the human race die out within in year for lack of medical care? Would our life expectancy suddenly plummet? I am not so sure.

As a brief background, health insurance as we have come to know it in America, is less than 100 years old. Now that is partly due to the fact that 100 years ago, for many illnesses, there was little that could be done for most people anyway, so there was little purpose to insuring against them. But the fact remains: recorded history is about ten thousand years and we have survived 99% of that without health insurance.

One consequence of no health insurance would quickly become a fact: you would have to pay for your own medical care. I think we can agree on that. Two more consequences would quickly follow from that. First, medical service providers would have to tell you the price they charge, unlike today. (Does anyone know what their last doctor’s appointment cost?)  Second, there would be a built-in incentive to be healthy. More health would mean less cash out of your pocket to pay for medical services. So far I like it.

Imagine doctors having to post their prices on a web site. Couple that with the on-line recommendation ecosystem that would evolve and you would actually have market forces keeping the price of medical services in check. Good doctors could charge more; inferior doctors less, as it should be. And as crazy as this sounds, it is already happening.

How about pharmaceuticals? I can think of two consequences of having to pay for prescriptions drugs out of pocket. For non-life threatening diseases, there would be tremendous downward market pressure on the price of the medication. Just like fine jewelry you can live without if it is too expensive, so too would it be with prescription drugs you can live without. Of course with lower profit margins from downward market pressure, there would be less incentive for pharmaceutical companies to develop these drugs in the first place.

With life threatening drugs, the prices would remain high (at least during the patent protection period). Now for people of means, this would not be a problem, but it certainly would be for those who could not afford it. And for very rare, life threatening diseases, it is doubtful that the drugs would ever be developed. This is in contrast to today, where drug manufacturers can develop drugs for rare, life threatening diseases because the cost of the extremely expensive medications is spread across the entire insurance base.

Another extreme impact of the no insurance experiment would be the redirecting of over $400 billion dollars of health insurance premiums. Without health insurance premiums to  pay, there would exist about $1200 per person per year in the US to pay for direct medical expenses. Not enough to cover major surgery, but plenty of money to accommodate a person of normal health. And with the downward price pressure that would surely exist, the $1200 would buy a lot more medical service than it does today.

As for individuals, their medical care would ultimately depend on their income. People of means would still get the very best care, as they do today with health insurance. There would be little change for them. For people with no means, there would be very little change for them also. They cannot afford medical insurance today and they would not be able to afford medical care if there were no insurance tomorrow. They would continue to be recipients of some sort of pro bono medical care.

As for those in between, the situation is not so straight forward. Some people would learn to save for a medical rainy day. Some would forgo necessary medical care they did not want to pay for. Some would go far into debt to pay for necessary medical care. Perhaps purchasing co-ops would spring up to facilitate bulk purchasing of medicine. And end-of-life care would certainly change. People would be forced to make economic-health tradeoffs toward the end of their life.

Finally, we have to consider the doctors. Would they be better or worse off? It probably depends on the doctor. The very best would continue to do well, the others might struggle. How about their compensation? It would be determined by the free market, just like every other non-regulated good or service. But there is one advantage all the doctors would love: no more medical billing headaches. No more rejected medical claims, no more resubmitting medical claims multiple times, just cash on the barrel. They would get paid faster and more predictably. I wager to guess most doctors would like that.

This topic is far too complex to cover in a single blog post, so this was just meant to stir the pot a little. I would like to hear your thoughts on the prospect of having to pull out your credit card to visit your doctor.

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