It's an oldie but a goodie. Read it here.
Here's a basic statement of one fundamental irrationality in our private health insurance system:
Can you see how these deep-seated structural problems with private insurance will be solved either by the current 'reform' bill, or by a 'public option'? Neither can I.
[T]he only way modern medical care can be made available to anyone other than the very rich is through health insurance. Yet it's very difficult for the private sector to provide such insurance, because health insurance suffers from a particularly acute case of a well-known economic problem known as adverse selection. Here's how it works: imagine an insurer who offered policies to anyone, with the annual premium set to cover the average person's health care expenses, plus the administrative costs of running the insurance company. Who would sign up? The answer, unfortunately, is that the insurer's customers wouldn't be a representative sample of the population. Healthy people, with little reason to expect high medical bills, would probably shun policies priced to reflect the average person's health costs. On the other hand, unhealthy people would find the policies very attractive.
You can see where this is going. The insurance company would quickly find that because its clientele was tilted toward those with high medical costs, its actual costs per customer were much higher than those of the average member of the population. So it would have to raise premiums to cover those higher costs. However, this would disproportionately drive off its healthier customers, leaving it with an even less healthy customer base, requiring a further rise in premiums, and so on.
Insurance companies deal with these problems, to some extent, by carefully screening applicants to identify those with a high risk of needing expensive treatment, and either rejecting such applicants or charging them higher premiums. But such screening is itself expensive. Furthermore, it tends to screen out exactly those who most need insurance.
The often-repeated mantra on the "center left" that we need to sit down, crunch numbers, and try anything and everything that might "work" is disingenuous. All of this faux-pragmatist garbage from Obama is not only false, but patronizing. We don't need to sit around and listen to 'all the best ideas' and continue to be 'open minded'. We need to realize that the 'conversation' going on right now isn't a discussion among fair-minded participants all aiming at getting things right; the 'conversation' is merely a proxy for a political struggle between divergent interests (e.g. maintaining the economic power of some vs. realizing universalizable interests like securing universal coverage).
The "pragmatic" truth here is that it is obvious what a rational, just, efficient health care system would look like. Despite the complications introduced into the discussion by Obama and co., this is not a complicated issue whatsoever. The only complicated question here should be how to most effectively fight against powerful industry interests and free-market fundamentalism.
Here's a simple question that we are publicly barred from asking: what purpose should our health care institutions serve? In other words, what should be the raison d'etre of insurance as an institution?
Answer: to provide the best quality health care to the greatest number of people for the lowest cost.
This seems painfully obvious. But think about what this 'purpose' is not: ensuring that doctors and hospitals earn maximally high amounts of money, ensuring that the interests of health industry investors are put above all else, etc.
The first principle of insurance is that the larger the pool of people inside, the lower the risk for all. A trivial feature of market exchanges is that when you buy in larger quantities, you get lower prices because you have more bargaining power as a consumer. Whole-sale is cheaper than retail.
The obvious next step would be to conclude that a rational and efficient health insurance scheme would include everyone (to minimize risk) and would use its massive purchasing power to get better deals with health providers. In other words, the obvious conclusion is that single-payer is the most rational and efficient means of attaining the ends identified above as the purpose of health insurance (to cover the most people for the lowest cost). The fact that single-payer would completely eliminate the absurd bureaucratic waste (from screening, advertising, unnecessary forms, overhead, etc.) required by having tons of different private insurers is only icing on the cake.
Here's another question: what is the purpose or raison d'etre of the massively fragmented web of private insurance companies that constitute a large bulk of our system?
Answer: they exist to make profit for those who own them, full stop.
The incentives driving the organizational structure and actions of these institutions are reducible to a drive to make money. Everything else is instrumental in realizing that obvious goal. What benefits the system may yield for some are merely incidental.
Why then is anyone surprised that our health system does such a terrible job? It isn't even designed to do what any reasonable person agrees is the raison d'etre of health insurance. But what it is designed to do, it does quite well.
Getting upset that our health insurance system is 'flawed' is like getting angry at pencil sharpener for not being a toaster.
Our system is irrational, inefficient, unnecessarily labyrinthine, and unjust. A 'reform' effort that countenances any of these profound problems is anything but. As Krugman put it in 2006:
So what will really happen to American health care? Many people in this field believe that in the end America will end up with national health insurance, and perhaps with a lot of direct government provision of health care, simply because nothing else works. But things may have to get much worse before reality can break through the combination of powerful interest groups and free-market ideology.