... (0 comments)A conservative friend of mine popped up a question to me on Facebook:
Maybe you can answer this, Today it costs some $7k a year for a pretty comprehensive stand alone health insurance policy. Why can’t the Feds and states pool their money and offer an insurance company $2,500 a head per year? We would reduce the cost and give everyone good care and just let insurance companies compete for the contract.Here’s my answer:
I really can’t make it any plainer.Hint: Because the insurance companies are the primary problem in the equation.
Just do the math:
First, take (x), the blanket antitrust exemption that health insurance companies enjoy (so, e.g., they can gobble up 90%+ of a state’s health insurance market), which allows them to exercise abusive monopolistic practices without any fear of accountability.;
Then multiply by (y), the levying of up-front health insurance premiums for health insurance paid through businesses, which are able to shoulder obscene rate hikes year-over-year more easily than individuals (who would otherwise revolt);
And, finally, subtract (z), the inescapable and nefarious incentive to do as much as is legally possible to deny as much coverage, and quickly dump anyone that becomes sick from their paid-for insurance coverage based on a flimsy and transparent pretense, in order to maximize profits for their shareholders (which is made all the worse due to the fact that health insurance companies are shielded from civil liability from any claims based on denial of coverage).
Maths!
The clear and indisputable core business model of a “health” insurance company is to:
- take in as much money in premiums as you can; then
- deny as much coverage as you can.
The general construct isSo, yes, I hereby demand that we pump hundreds of billions of taxpayer dollars into the coffers of the health insurance companies. Because, of course, they will simply just cover people and then pay for their claims when they’re sick. RIGHT!?PROFIT = REVENUES – EXPENSES
i.e.,
HEALTH INSURANCE PROFITS = PREMIUMS COLLECTED – (CLAIMS PAID – CLAIMS DENIED*)
Sigh…
* By “Claims Denied”, I of course mean “People Killed”.
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(DOWN THE VINE
Syndication
Meh, the problem remains lack of consumer choice. Another criterion is supposed to apply:
PREMIUMS COLLECTED α (CLAIMS PAID / CLAIMS DENIED)
(Where α means "is proportional to").
This is because if you get a reputation for not paying claims that most people think should have been paid, your customers should be hearing about it and taking their business somewhere else.
Unfortunately the status quo's proportionality constant is very low, because people get health insurance through an employer and cannot easily switch insurers. This helps near-monopolies flourish.
We'd be much better off if we had a robust individual market on exchanges (ala Wyden-Bennett) instead of our incredibly stupid notion (brought about by government wage controls and unionization from the 40s) that employers ought to negotiate health coverage for their employees (be it for civic, moral, or competitive reasons)
you're not serious, are you? do you think that companies actually give a second thought to the quotient of claims paid. ALL they care about is the cost of the annual premium they'll be signing up to per employee, period.
as a result, the revenues are generally completely divorced from the outcomes.
in a system like auto insurance where people bought it themselves, a company with a really bad history of paying claims would be pilloried and driven out of the business.
in health insurance, the companies just pay for whatever plan seems nice and has a reasonable cost.
when their employees get sick and have their claims denied, time after time, that's for the person to bear.
You don't appear to be discussing anything in my comment. Customers are the ones who should be paying attention to the quotient and shunning bad insurers. Insurance companies would only care insofar as they lose business (thus, fewer premiums collected). Presently the companies care little, because they lose little business, because of the stupid employer-based system.
The point I was making is that your mere revenues-expenses equation was ignoring the essential feedback of consumer choice that is what makes private competition work so well everywhere else (not so much for health insurance, because of the absurd employer middleman).
well, in a perfect world, I suppose we could just tear down the edifice of employer-paid insurance and build up a customer-choice-centric utopia. or we could tear everything down and do single payer.
my comment above is dealing with how things generally are right now, which is about all we're going to get due to the corporatist dems and repubs in congress. the most we'll get is some anemic public option with a doubtful chance of survival
The public option has always been a bad approach to better customer choice, generally supported by people whose distrust of insurance companies is greater than their understanding of economics.
You're right that we can't just tear down the edifice, this not being a perfect world--and indeed it would probably be harmful to transition away from employer-based health insurance too quickly. That's why the W-B bill is designed to be gradual.
Hopefully what Democrats end up passing through congress and the exchanges it sets up will also be a gradual step in the right direction, in that they could eventually be opened up to more people once they're working well.
But there are a number of factors that could still fuck things up:
- The types of plans allowed to be offered on the exchange may be too limited (e.g. high-deductibles with HSAs aren't allowed)
- The combination of mandates and new implicit marginal income tax rates of around 50% for a family of four making around 50K/yr. is a really big disincentive to work more.
- The present bill includes planned future Medicare payment cuts as an accounting gimmick--Congress will repeal these when they're close to happening, like they do every time.
-more stuff I'm forgetting…
Is it better than the status quo? If you value expanding insurance to 13% of the population (17% of which is presently uninsured) more than you value decreasing market distortions for long-term quality results, it's pretty good.
But for those of us who don't consider health insurance a positive right and are more concerned about fixing the market, the present Democratic bills seem like they may be close to a wash. And there's a real (I hope not probable) possibility that they'll make things significantly worse.
perhaps you could be right, if we did not already have this huge monster already controlling the market place. However, we do have it there and we do not have a magic wand to wish it away, and it is using millions of its ill gotten gains to buy politicians to keep it in power, so how else do we get rid of it?
Whoever fights monsters should see to it that in the process he does not become a monster.
-Nietzsche
The "strong" (as opposed to "anemic") public option favored by the left is essentially a new, different sort of monster designed to fight the first, with different but nonetheless deleterious monopsonistic effects.
If progressives instead put their heft behind appropriate market reforms like W-B, they would be joined by conservative economists, libertarians, etc. Insurance companies and health providers invested in the status quo, and GOPers whose loyalty is to party over results, would be left alone.
Unfortunately progressives are more interested in championing a government-run insurance plan available only on exchanges to the few people who don't presently have insurance—-rather than gradually making the exchanges accessible to everyone as W-B does, which would be real reform (as opposed to merely another unsustainable coverage increase)
Politically, perhaps what Democrats are doing makes sense. I'm skeptical, but who really knows? I only know it doesn't make economic sense.
Your second point is just faith-based gospel that has been refutedtime and time again when it comes to studies on the effect of marginalincome tax rate changes on high earners (within a certain band). Nearmillionaires had a lovely incentive to work during the Reagan andClinton years with rates like that (especially since we're onlytalking about taxing the amounts made over around 300k at the higherrate). Not to mention the fact that Bush's tax cuts pumped hundreds ofbillions of dollars into the pockets of high earners for the past 8years. Largely due to the Bush/Republican-led irresponsible spendingand tax cut bonanza ( during a time of war that will ultimately costus trillions that we didn't need to pass of onto another generation),taxes are gonna need to rise in order to clean up the mess they madeand pay down the debt. The first to get hit will be the top 2% ofearners, then later we'll all have to bear some of the pain.
Yes Tyler Cowen and Gregory Mankiw, purveyors of faith-based gospel. Pointing out that an additional 23% implicit marginal rate is a significant disincentive and the implied quintessential economic insight that "incentives matter". Sheer faith-based gospel there.
Who said anything about high earners? Oh, I see we're throwing in totally unrelated nonsense about Reagan and Bush's tax cuts and irresponsible spending while we're at it.
How is it unrelated? How else are we going to cut the debt without raising taxes? Spending cuts alone? No chance.
Sigh. The point #2 you were addressing is completely unrelated to cutting existing debt. It's a matter of NEW spending and NEW taxes (the Obama administration calls them "contributions", but political word plays won't save us from identical economic effects).
As Mankiw explained, imagine a family of four with an income of $54,000. They would be required to pay $9,900 for health insurance, covering about half the cost. Government subsidies pay the rest.
Now suppose a teen in this family earns an additional $12,000 by working a full-time summer and goes out and buys himself car or something.
Great for him. Unfortunately his family now has to pay an additional $2,800 for health-care, which is an implicit marginal tax of 23% on the $12,000 he just earned. That's in addition to any other taxes he and his family were already paying.
Now you can make the argument that the moral cause of ensuring near-universal health insurance justifies this new work disincentive and deadweight loss to the labor economy. But it's a real loss.
Hmm, it seems we might be talking past each other. Probably a result of me doing this through email :).
- The present bill includes planned future Medicare payment cuts as an accounting gimmick--Congress will repeal these when they're close to happening, like they do every time.
Ezra and Jonathan Cohn have some interesting answers to this point.
Unfortunately I do not have the faith in the market that you seem to have. From what I have constantly observed the companies in the market will continually try to subvert the market and make it a weapon to further their interests.
Of course companies will try to further their own interests. That's their purpose.
The key is consumer choice, such that they must compete for the interest of consumers. We don't have that.
We know the market works quite well for non-health products and services, including insurance ones. An approach like Wyden-Bennett to phasing out employers' stranglehold on health insurance and offering people real choice requires no leap of faith in markets. It's basic economics.
To observe good results in practice, look no further than Switzerland or the Netherlands, which have well-functioning markets. They systems do have some harmful things like price controls on certain services, but overall there's no mystery to the efficacy of competitive markets in private health insurance. And no case to be made for government-run insurance, unless you prefer Canadian-style rationing by waiting time instead of market price.
It is an interesting prospect but I think the rot just runs too deep.
*shrug* I've explained the fundamentals as well as I know how…
If the extent of your response is that companies-are-boogiemen and "the rot just runs too deep", I dunno what more I can say. It smells a lot more like a "faith-based gospel" to me than my analysis and observation of places like Switzerland and the Netherlands that have sane private health insurance markets.
And the market is so controlled by the companies that we will never have it unless we have the government step in.
Only to the extent we've allowed it to be controlled by delegating our choices to employers, which was always insane.
First, remember government and organized labor created the problem to begin with in the 40s. It stands to reason that government might help us fix past mistakes.
But the way for it to do so is a regulate-and-subsidize approach like Wyden-Bennett's. Trying to compete with its own plan in the market it regulates is not a solution to anything, and is just asking for trouble.
And do you really think your proposal will have a chance to get passed and undo all the pain, greed, and suffering? Really?
I'm not promising perfection, nor do I see it passing so long as progressive Democrats remain stuck on their patently absurd "reform without a public option is no reform" conniption.
But if it were to pass, I do promise more progress at relieving pain and suffering.
As for greed, there is no cause for its "undoing". It just needs to be directed constructively with competitive choice.
Then do you see it being passed by a resurgence of Republican conservationism?
They're not boogiemen. They're corporations that are driven by profitto kill people.
Which is why, as I've explained, they should instead be driven by profit to preserve their customer base.
There's nothing holy or unholy about profit motives. They can be channeled into abhorrent practices like slavery, and they can do wondrous things live create these here intertubes.
The key is to have a basic framework of law and individual rights and choice.
There's nothing mysterious about how this country's status quo in healthcare and primary education offers a terrible lack of competitive choices. It's why our systems are so expensive and inefficient for their price.
To bemoan corporate profits as killing people is to notice a symptom, not its cause. The cause is a sorry lack of competitive consumer choice.
I'm not bemoaning the profit motive, just the sad result that it leadsto people dying
Right..as I said:
"To bemoan corporate profits as killing people…is to notice a symptom, not its cause."
Fair enough point but it's a symtom tied to a nearly impossible tocure disease. The only solutions I see are tearing down theemployer-provided health care system (with a public option safetynet), implementing a robust public option or (the most unlikely)single payer
Greed is fine so long as (as with any huge industry) the properregulation construct is there.Proper risk pooling by making recission and denial of coverage basedon preexisting conditions illegal.A requirement that 95% of any public subsidy goes to the actualprovision of care.Revocation of antitrust exemption and the revocation of immunity fromcivil liability for deaths based on denial of care.And an oversight board (similar to what we have in the financialsector) to oversee compliance and pursue federal action againstoffending companies.All would be a great start.
Everything is good news for the republicans! /snark
What is missing in the discussion is that our Federal government granted the anti-trust exemption and all 50 states have passed laws favoring the one or two largest health insurance providers in their states. The states also disallow the consumer to purchase health insurance across state lines. Our governments should not have such power to bestow favors on companies and industries.
Businessmen are not free-market proponents. They will always lobby for regulations that favor them over their competition. This is why we need the government to ensure free markets.
The government needs to take strong steps to see that the health insurance market becomes a free market, allow consumers choice and allows insurance companies to develop and offer options. In order for markets to do their good work, entry of new competitors should be allowed and failure of existing companies should be a real possibility.