Tuesday, November 10, 2009

Milton Friedman on How The Changing Meaning of "Insurance" Has Contributed to Our Current Mess

Employer financing of medical care has caused the term insurance to acquire a rather different meaning in medicine than in most other contexts. We generally rely on insurance to protect us against events that are highly unlikely to occur but that involve large losses if they do occur—major catastrophes, not minor, regularly recurring expenses. We insure our houses against loss from fire, not against the cost of having to cut the lawn. We insure our cars against liability to others or major damage, not against having to pay for gasoline. Yet in medicine, it has become common to rely on insurance to pay for regular medical examinations and often for prescriptions.

This is partly a question of the size of the deductible and the copayment, but it goes beyond that. "Without medical insurance" and "without access to medical care" have come to be treated as nearly synonymous. Moreover, the states and the federal government have increasingly specified the coverage of insurance for medical care to a detail not common in other areas. The effect has been to raise the cost of insurance and to limit the options open to individuals. Many, if not most, of the "medically uninsured" are persons who for one reason or another do not have access to employer-provided medical care and are unable or unwilling to pay the cost of the only kinds of insurance contracts available to them.

If the tax exemption for employer-provided medical care and Medicare and Medicaid had never been enacted, the insurance market for medical care would probably have developed as other insurance markets have. The typical form of medical insurance would have been catastrophic insurance (i.e., insurance with a very high deductible).

~Milton Friedman in his 2001 article "How to Cure Health Care"


At 11/10/2009 1:56 PM, Anonymous Anonymous said...

At least three families among my fairly close relatives do not have health insurance by choice. They've joined various medical co-ops instead.

Result: They don't have health insurance, but they receive good healthcare. There are tens (maybe hundreds) of thousands of people like them who aren't interested in getting traditional health insurance and aren't interested in government-run healthcare either.

At 11/10/2009 3:31 PM, Anonymous Rand said...

I guess that they are part of the 47 million uninsured that the 0bamabots keep talking about and under the new proposals will have to go to jail.

At 11/10/2009 3:31 PM, Blogger juandos said...

"At least three families among my fairly close relatives do not have health insurance by choice"...

Hmmm, in Obama's socialist utopia that's potential jail time for those folks...

At 11/10/2009 3:51 PM, Blogger KO said...

Wait anonymous, you're confusing things. Having health care isn't the goal, everyone has to have health insurance. Otherwise, we have to hold our heads down in shame among the industrialized countries.

At 11/10/2009 4:06 PM, Blogger Mark Dodson, CFA said...

I've tried to use analogies to say this to friends and colleagues, but I failed miserably compared with how Friedman has worded it in this excerpt.

Milton Friedman, God rest his soul, could flat out make a case just about better than anyone.

I will be using this excerpt to make the case from now on...

Thanks for posting this Mark.

At 11/10/2009 4:33 PM, Anonymous gettingrational said...

Milton Friedman's ideas on healthcare make good common sense, so no wonder they have not been widely implemented.

Health Reform for my 2 two cents:
1. Medical savings accounts
2. Catostrophip gov't insurance
3. Tort case monetary limitations
4. Drug store health clinics to
lessen emergency room visits.
5. Universal on-line medicial
records to attack paperwork.
6. All people on medical public
assistance participate in well-
ness programs or lose benefits.

At 11/10/2009 7:15 PM, Anonymous Anonymous said...

How is it that you are unwilling or unable to pay when no contract is even offered?


At 11/10/2009 8:15 PM, Anonymous Anonymous said...

In a Jake Tapper interview I heard today with Obama, Obama supports sending people to jail over not having health insurance.

I heard Pelosi say the house bill will cover 96% on Americans. Once we get the rouge 4% in prison, we'll be at 100%

At 11/10/2009 9:00 PM, Blogger W.E. Heasley said...

Reagan-Friedman 2012

At 11/10/2009 9:48 PM, Blogger QT said...


was wondering why catastrophic insurance would mandatorily have to be "government provided"?

6. smacks of totalitarianism. Do you propose cutting off benefits to the most vulnerable in society if they do not conform to your wellness program? Is it not also true that lecturing and badgering are the least effective methods of persuasion?

People need to be motivated in order to change their lifestyles. One of the best that I heard was a physician who said that the average American family uses about 10-12 favorite recipes and that if he could give families 12 new recipes that were delicious, and easy to prepare in place of your favorite dishes, he could improve the health of your family. That sounds like a lifestyle change that would be easy, work for busy professionals and allow families to meet the goal of eating healthier. see www.drgourmet.com

Recently attended a prostate cancer seminar. Apparently, a heart smart diet is also a prostate friendly diet. Also learned that ED surfaces in men 2 years before the diagnosis of advanced arterial schlorosis. If one was to ask the average man whether he wanted to retain high sexual functionality, I am guessing that heart smart diets would seem like a winner. Just a guess.

At 11/11/2009 1:11 AM, Blogger Jarod Wachtel said...

Friedman is a genius. I discovered him a few years ago and watched every video of him I could find online. Before I was exposed to him I had no clue about how amazing and moral the free-market is.

This piece is on the exact same topic that I blogged about a few months ago. (I have never read this piece before) It amazed me how much he influenced my thinking when I read his piece and compared it to my own thoughts on the matter.

Here is the link:

Also I have written more on the flaw of our insurance system in a more lengthy piece:


At 11/11/2009 6:58 AM, Blogger juandos said...

"All people on medical public
assistance participate in well-
ness programs or lose benefits

Got a better idea, just do away with the expensive and completely useless 'public assistance programs'...

At 11/13/2009 4:25 AM, Anonymous Investing 101 said...

This sounds a lot like existing high deductible health insurance plans. In short, it's only there to protect you against large expenses that would wipe you out financially. But most people don't see it that way, unfortunately


Post a Comment

<< Home