TWO MODELS OF HEALTH INSURANCE
Part of the current debate over national health insurance is rooted in two conflicting visions of how the cost of health care should be shared. We can designate one as the casualty insurance model and the other as the social insurance model.
Casualty insurance, which usually refers to automobile collision, residential fire, and similar risks, is premised on the idea that premiums should (to the extent feasible) be set according to expected loss. Other things being equal, policyholders with better driving records or with smoke detectors in their homes pay lower premiums; poorer risks pay higher premiums.
Social insurance, which is the basis for national health insurance, provides for extensive cross-subsidization among different risk groups; it ignores expected loss in allocating costs.
Advocates of the casualty approach argue that, as applied to health insurance, it is more efficient and more equitable than the social insurance model. They assert that use of care depends, to some extent, on personal behavior and choice. If premiums vary with expected use, individuals have an incentive to choose healthier behavior and to make more cost-conscious decisions about their use of care for any given health condition. A clear example is charging cigarette smokers higher premiums than those charged to nonsmokers. This may decrease the number of smokers, and even if it does not, advocates of the casualty model argue, it is fair for smokers to bear the extra cost of their unhealthy habit.
Even when there is no possibility of altering behavior, and even if use of care is unrelated to insurance coverage, the casualty model still offers an efficiency advantage in any system of voluntary health insurance. The alternative - a uniform premium for all individuals, including those with major health problems -will discourage purchase of insurance by those without such problems because the premium would be unreasonably high.
Advocates of the social insurance model rely heavily on arguments that appeal to one’s sense of justice or collective responsibility. In earlier times, these feelings of mutual responsibility were often evident within families and within religious communities. In modern times, many countries have extended the concept to encompass the entire nation. The philosophical foundations for such arguments can be discerned in John Rawls’s discussion of making choices behind a veil of ignorance.
For example, suppose that before you were born you did not know if you were going to be rich or poor, sick or healthy; you might (assuming some risk aversion) prefer to be born into a society that would provide health care on the same basis for, say, persons born with a genetic disease as for those born without such a problem. Advocates of the social insurance model also point to efficiency arguments. Because everyone must participate, there can be savings in sales and administrative costs that offset other efficiencies achieved through the casualty approach.
Whether one model or the other is more conducive to an efficient health care system is primarily an empirical question (interwoven with value judgments) that cannot be answered a priori. Which approach is more just is primarily a value question (individual versus collective responsibility), but empirical information concerning the reasons for variation in use of care is relevant.
In my experience, the same audiences that overwhelmingly approve charging smokers a higher premium because they use more care strongly oppose a premium surcharge for individuals whose high use is attributable to genetic factors. If cigarette smoking should turn out to have a significant genetic component, opinions concerning the smoker surcharge would presumably change. One consequence of the genetics revolution may be to shift public sentiment toward the social insurance model.
according to the article «National Health insurance» by Victor R. Fuchs (the journal «THE SENIOR ECONOMIST»)
VICTOR R. FUCHS is the Henry J. Kaiser Jr. Professor at Stanford University. He holds joint appointments in the Economics Department and the School of Medicine’s Department of Health Research and Policy. He has been a Research Associate of the National Bureau of Economic Research since 1962.