Saturday, April 16, 2011

Standardizing health insurance is a bad idea

Is this one size fits all? (Daniel Barcelona)
In a letter to the editor in USA Today, Uwe Reinhardt of the Woodrow Wilson School of Public and International Affairs at Princeton University put forth the idea that health insurance companies could achieve economies of scale if health insurance policies were standardized across all fifty states into a few basic models.  Reinhardt compares his “one size fits all” model for health insurance to the business model of such restaurant chains as KFC, McDonald’s, and Burger King or hotels such as Holiday Inn and Marriott.

What Mr. Reinhardt fails to appreciate is that while these companies have standardized their own business, they do not represent the entire market.  For example, while KFC has standardized its chicken recipe across its entire chain and a McDonald’s burger and fries tastes the same from New York to L.A., consumers are not limited to those choices.  Instead, consumers have their choice of hundreds of restaurants, both standardized franchises and nonstandard Mom-and-Pop eateries. 

Even within the chains that Mr. Reinhardt cites, consumers are not limited to one choice.  In KFC, diners can choose from original recipe, extra crispy, grilled, chicken strips, chicken sandwiches, pot pie, or wings.  Once you finally decide on your chicken, deciding on side dishes can be equally difficult.  If the KFC is also a combination Taco Bell, then there are even more options.  Restaurants are also constantly innovating and introducing new products to entice customers, which further expands the choices available.

In Mr. Reinhardt’s world, consumers would be limited to a standardized and limited menu.  They would not be able to choose from foods that are limited only by the restaurateur’s imagination and the diner’s daring.  It would be a choice between the bland but reliable menu of burgers and fries versus the ability to go wherever and eat whatever you want.  Thanks to competitive markets and innovative entrepreneurs, diners can choose from burgers, pizza, steaks, seafood, Mexican, Indian, Chinese, Thai, or practically any food that they crave.

In different parts of the country, diners have different tastes.  In Georgia, we appreciate good barbecue and fried chicken.  A hometown company, Chick-fil-a, is one of the most popular chains in Atlanta, but can scarcely be found in the north and west.  In other parts of the country, such as the northeast, seafood is king.  New York is known for its thin-crust pizza.  In Miami, you can find great Cuban and Latino food.  In Texas, they like their barbecue, but with beef instead of pork.  In the southwest, you’ll find a Mexican flavor.  When you get to California, you might be stuck with vegetables and tofu unless you can find an In-n-Out Burger.  Would it be possible to try to standardize the different tastes, desires and needs of a country of 300 million people into a single standardized menu?  Would it be wise to even try?

In the health insurance world, having nonstandard policies means that consumers can choose what is important to them.  If a young person only wants coverage for emergency accidents or illnesses, then he can choose and inexpensive, high deductible plan.  Seniors might want a lower-deductible plan with more coverage for prescriptions and preventive care.  If you are a man or woman who cannot have children, then you would probably not value maternity coverage in a health policy and might well object to paying for a coverage that you will not need.

Likewise, people in different parts of the country have different health concerns and needs. gives a synopsis of the health situation for each state.  Georgia ranks 36th due to air pollution, a high incidence of infectious disease, and a low high school graduation rate.  This is a sharp improvement over Georgia’s 43rd place rank last year.

Allowing companies to innovate and bring nonstandard polices to the insurance marketplace is the best way to expand health insurance coverage.  Governments should allow consumers to choose the plan that best meets their health insurance needs, not be forced to buy the plan that a bureaucrat deems to be the best value for everyone.  People are individuals.  They have different wants and needs.  Regulators need to realize that.

Instead of limiting choices to a few standardized policies, governments and health insurers should take a cue from the restaurant world and expand the available options to let people buy the coverage that best suits their needs.  As the Burger King would say, “Have it your way.”

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