Tuesday, June 04, 2013

Probability and morality in healthcare reform

This morning Democracy in America has a great post on Obamacare, highlighting the folly (in European eyes) of approaching healthcare as an insurance problem.

An insurance premium is basically calculated by multiplying the payout in case an event takes place by the probability that the event takes place. Crucially, and obviously, the payout is conditional on having purchased  protection. If a flood takes away my house I will be reimbursed only if I have purchased flood insurance, otherwise I will sleep outdoor. If I damage my car I will be paid to repair it only if I have insurance, otherwise I'll walk.

Healthcare (in America, where it is treated insurance-like) is different: emergency care is not withheld subject of having insurance. Despite Europeans believing that uninsured Americans are left dying in the streets, emergency care has to be administered, everything on top is not, but the basics are offered. Afterwards a patient is billed and if uninsured he/she will pay the potentially large sum up to his/her abilities which could include personal bankruptcy. Awful but better than death.

This is the fundamental difference, I am saved even if I have not paid. In finance the difference between buying an option or the underlying is that in the first case the capital is protected, hence the upfront premium. This applies also to standard insurance as well (where instead of capital we have the thing we want to protect, i.e. a car, a house, etc.) but not to health insurance. When it comes to health in America, the capital (our life) is protected anyway irrespective of our having health insurance.

The article points out that as Obamacare stands, the incentive/penalty for young, healthy people is not enough to push them towards buying insurance (and thus contributing to the overall expense) and a bigger carrot/stick is needed. Of course the ultimate stick would be saying, if you do not have health insurance you will not be treated at all, you will be left dying. Morally impossible one has to admit.

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