There's no money in selling insurance to sick people: more reasons free markets don't work in health care

In my last post I wrote about why health insurance doesn’t work as a private industry because of insurance companies’ incentive to avoid medical costs. Revoking your coverage only once you get very sick and need to use it is profitable, but it defeats the purpose of having insurance.

There’s another reason I hadn’t thought of: once you get sick, it becomes impossible to shop around for better coverage. What made me think of this is an email I got from a list I somehow ended up on:

Dawn [Smith] is a few years younger than me. She lives in Atlanta. She's an aspiring playwright. And four years ago, she was diagnosed with a rare, but treatable brain tumor.

Dawn's doctors are ready to treat the tumor, but they can't. CIGNA, her insurer, refuses to pay for the care she needs because the only hospitals qualified to treat her are out-of-network. And after years of fighting, Dawn just received her final denial letter.

For me, the scariest thing about Dawn's story is that it could happen to any of us - to a friend of mine, or someone in my family. After all, Dawn has insurance. But as long as private insurers are the only game in town, they'll continue to have the power to deny Americans the care they need.

Dawn is fighting back. And while CIGNA may be able to ignore Dawn, they won't be able to ignore millions of us standing together with her. I'm joining Dawn's fight to shine a light on Big Insurance's abusive tactics, get Dawn the care she needs, and make sure they don't do this to anyone ever again. Will you join me by signing a statement of support?

…

The heart-breaking part is that her condition is treatable. But CIGNA's refusal to treat her has brought her to "the end of my rope," as she puts it. CIGNA gladly accepts Dawn's premium payments, but when she needed care, they refused to pay for it, coming up with new reasons as they went.

The libertarian response to this would be to invoke free market platitudes: “the free market solves Dawn’s problem because no one would sign up for an insurance plan that refuses to cover the treatments they need. A company can’t ‘ignore’ its customers as the story suggests, because competitors would quickly swoop in to scoop up the dissatisfied customers. As long as people are free to choose between competing providers, they will always get the best service at the lowest cost.”

The problem with this reasoning is that in the health insurance market, there is no ability to shop for better providers after you’ve become sick; just as no one insures a house that’s already burned down, there’s no money in selling insurance to sick people. Once you know for certain that you will need costly medical treatments, no rival insurance company will cover you because doing so would be a guaranteed money loser. Once you become sick, you’re stuck with the company you’ve got, and the free market assumption of many buyers and sellers no longer holds true. When you’re in a market of one, it’s very easy for the insurance company to ignore your needs.

Now the free market fundamentalist may respond, “That makes sense, but what about your responsibility to make a good initial choice of insurance providers? Why would anyone pay for insurance they knew in advance wouldn’t cover the treatments they need? Dawn should have known better when she made the decision, even if she’s stuck with it now.”

But that’s exactly the problem - you don’t know in advance which treatments you will need. No one buys insurance hoping to use it - the point is to insure against the risk of an unexpected disaster you hope never happens. In other insurance markets, these disasters’ identities are relatively straightforward, so it’s easier to compare costs and benefits of different policies in advance. You buy home insurance in case your house is destroyed and you need to buy a new one. You buy auto insurance in case you wreck your car and need costly repairs.

Health insurance, on the other hand, is more complicated, because you have no idea what disease you may get or what the treatments would be. When you are shopping for plans and comparing the various treatments they will cover, you have no way of telling which plan fits your needs, because you have no idea which diseases you need to insure against. If you did know, then the insurance company wouldn’t sell you coverage. And that doesn’t even mention how fine print and technicalities make it difficult to assess what will actually be covered when you get sick. Thus, the other basic assumption of free markets, that buyers and sellers have perfect information, breaks down as well.

Any intro economics course will teach you that for free markets to work, two things must be true: there must be many buyers and sellers, and each must have perfect information. Without the first, one party can unfairly wield disproportionate bargaining power, and without the second, it’s impossible to make rational choices that reflect your self-interest. Because neither of these conditions hold true in the health insurance market, there is no such thing as a free market for health insurance.

Of course, most people on the Right don’t like to bother themselves with assumptions, exceptions, or other forms of complexity, preferring to believe in elegant, unchanging “truths.” By definition, conservatism is opposition to change, and that includes changing ideas. If you believe that markets always work, for example, then Dawn Smith’s story or other observations suggesting that there are times when markets don’t work, simply cannot be true. Once you start looking at the exceptions to the rules, and examining the assumptions on which rules rely, the world suddenly seems less black and white, and you can’t apply the same eternal truths to every situation. Thus, you preserve your beliefs, and reject observed facts. After all, changing your ideas based on new facts would be, well, progress.

RELATED POSTS:

WSJ inadvertently supports case for health care reform: do you want to trust your health to profit and loss?

The Catch-22 for Opponents of Health Care Reform

The Takeover: What opponents of health care reform don't get

Are Sarah Palin and Martin Feldstein closet universal health care supporters?

WSJ inadvertently supports case for health care reform: do you want to trust your health to profit and loss?

Yesterday's WSJ has a piece defending the health insurance industry practice of rescission against "demonizing" by the President. You'd think it would be pretty hard to defend companies for revoking sick customers' insurance policies after the fact, but the Journal does a surprisingly good job. It's a utilitarian case - insurance companies mostly trust people to report their health histories truthfully; after-the-fact rescission is much less costly than the alternative to the honor system - extensive verification of every applicant's medical history prior to approving a policy.Moreover, the article cites testimony by insurance company CEOs noting that the 20,000 policies rescinded over the last 5 years, though seemingly a large number, amounted to only 0.5% of the total policies issued over that period. And of those that were rescinded, many were done so legitimately - i.e. the patient had actually concealed medical information which, if it had been known when the person first applied for insurance, would have prevented the insurance company from issuing the policy in the first place. Very few rescissions, then, were truly egregious.

The implication, if true, is clear: if you sign up for health insurance, you have a very low risk of losing it.

But that's a misleading way to look at it, since calculating the percentage of policies that get rescinded from the total number of policies includes mostly healthy customers. In any given period, few policies will be rescinded, simply because few people will file for major medical expenses. Remember, rescission is only triggered when a patient files a claim that threatens insurance company profits - cost-savings from not having to screen everyone upfront is the argument for the practice in the first place. The proper question to ask is therefore not, "if I have insurance, what are the chances I will lose it," but rather, "if I get sick and need to use my insurance, what are the chances it will be taken away?" (Note: this only applies to people who get their insurance on the individual market or through a small business.)

As long as you're healthy, you don't need to worry about losing your coverage - insurance companies are happy to keep taking your premiums as long as you aren't filing for expensive benefits. It's when you get seriously sick, and you actually need coverage, that you need to worry about rescission. And since the purpose of insurance is to pay for unexpected major medical expenses, the proper population to look at is the number of people who lose their insurance when they find themselves in a dire situation.

So now that we're asking the proper question, what are those chances? If we're unrealistically generous and assume that insurance companies target the most expensive 10% of all insurance claims for rescission, 5% of people will lose their insurance if they become sick. But it's probably more realistic to assume that insurance companies target only the most expensive 1% of claims, in which case you would have a whopping 50% chance of having your insurance revoked - a far cry from the 0.5% cited by the CEOs. This blog explains better than I can - I recommend you read the whole post:

An individual adult insurance plan is roughly $7,000 (varies dramatically by age and somewhat by sex and location).

It should be fairly clear that the people who do not file insurance claims do not face rescission. The insurance companies will happily deposit their checks. Indeed, even for someone in the 95th percentile, it doesn’t make a lot of sense for the insurance company to take the nuclear option of blowing up the policy. $11,487 in claims is less than two years’ premium; less than one if the individual has family coverage in the $12,000 price range. But that top one percent, the folks responsible for more than $35,000 of costs – sometimes far, far more – well there, ladies and gentlemen, is where the money comes in. Once an insurance company knows that Sally has breast cancer, it has already seen the goat; it knows it wants nothing to do with Sally.

If the top 5% is the absolute largest population for whom rescission would make sense, the probability of having your policy cancelled given that you have filed a claim is fully 10% (0.5% rescission/5.0% of the population). If you take the LA Times estimate that $300mm was saved by abrogating 20,000 policies in California ($15,000/policy), you are somewhere in the 15% zone, depending on the convexity of the top section of population. If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%, the folks with over $35,000 of annual claims who could never be profitable for the carrier – then the probability of having your policy torn up given a massively expensive condition is pushing 50%. One in two. You have three times better odds playing Russian Roulette.

The WSJ's reply would be, "yes, of course, but that still beats the alternative, which is to extensively investigate EVERYONE for preexisting conditions. They have to screen people somehow - after all, the insurance company can't make money if it has to cover expensive patients."

And that, right there, is the rub: a health insurance company can only stay profitable so long as it excludes the people most in need of its services. The problem isn't just the existence of rescission - the very fact that insurance companies have to exclude anyone is an indictment of unregulated private health insurance, proof that free market principles don't apply to health care.


Standard economics teaches that the best way to predict the behavior of a firm is to understand its incentives. An insurance company's incentive is to collect as many premiums as possible while minimizing the amount it pays in health care costs. Paul Krugman explains:

Actually paying for your health care is a loss from an insurers’ point of view — they actually refer to it as “medical costs.” This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems.

According to basic economics, then, leaving health care to the free market will result in a nation of healthy people who can afford health care and sick people who cannot - the exact opposite of what's best for society. This, in fact, is why Medicare exists. Conservatives like to use Medicare's looming bankruptcy as proof that government can't run a health insurance program, but Medicare's problems stem not from government inefficiencies but from the nature of its patients: the oldest, sickest, and most expensive Americans to cover. 65+ Americans spend 3.3 times as much per capita on health care as Americans in the 19-64 age group (and 85+ spend 5.7 times as much - more than $25,000 per person). Medicare exists because no private insurer can cover senior citizens and remain profitable - leaving health care to the market would mean old people dying in the streets or crushing financial burdens on their families.

And it's not just in insurance companies' interest to exclude sick patients from the beginning; it's actually more profitable to sign them up and then maximize the number of rescissions, stringing patients along and extracting premiums for as long as possible before revoking their coverage right when they make a claim for benefits.

To illustrate the point, imagine a hypothetical insurance company that can see perfectly into the future. A woman is applying for health insurance, and the company knows in advance that in 5 years she will get breast cancer and need $50,000 in treatments. The company also knows that she has failed to disclose a medical condition on her health history questionnaire, justifying rescission once she applies for breast cancer treatment. Because the company knows it will not have to pay for her treatment if it so chooses, it is in the company's best interest to sign her up anyway, soak her for 5 years of premiums, and then rescind the coverage to avoid the $50,000 charge.

In fact, the incentive for the insurance company is to make the woman's health care questionnaire as confusing as possible in order to maximize the chance that she makes a mistake - it's an escape hatch that allows the company to cancel an expensive policy, a way to guarantee a few years of premiums without the risk of ever incurring medical costs. It's not the moral thing to do, but it is the most profitable.

People who work for health insurance companies are good people. But the system creates powerful financial incentives to do bad things.

We've been conditioned to believe in the Invisible Hand, that if each individual is allowed to pursue his or her own self-interest, everyone will benefit. But in the health care market at least, what's profit-maximizing is by definition not socially optimal - in what other market can a company take back a product you've paid for, just as you need to use it? Insurance's role in society is to ensure that, in exchange for a predictable fee, society's members will not be ruined by an unexpected calamity. Instead, our system ensures that those who become the sickest are the least able to afford treatments they need to get better. In a free market, a health insurance company that does its job to society cannot stay in business.

State Farm made headlines at the beginning of the year when it announced it would withdraw from the Florida property insurance market - it was simply too expensive to cover houses that kept getting destroyed by hurricanes. Of course, you can choose not to build a million-dollar home on a hurricane-prone beach. You can't choose not to get pancreatic cancer. Do you really want to trust your health to a corporate P & L?

RELATED POSTS

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There's no money in selling insurance to sick people: more reasons free markets don't work in health care

The Takeover: What opponents of health care reform don't get

Are Sarah Palin and Martin Feldstein closet universal health care supporters?

A different perspective on "You lie!"

Rep. Joe Wilson’s outburst of “you lie!” during the President’s health care speech has garnered a lot of media attention. But the most interesting thing about the outburst was not the fact that it happened, but the topic that sparked the outburst in the first place: President Obama’s explanation that health care reform would not pay for illegal immigrants’ health care.

In his apology, Rep. Wilson claims that the outburst was “emotional”:

This evening I let my emotions get the best of me when listening to the President’s remarks regarding the coverage of illegal immigrants in the health care bill. While I disagree with the President’s statement, my comments were inappropriate and regrettable. I extend sincere apologies to the President for this lack of civility.

The emotional nature of the outburst is crucial—this wasn’t a calculated political ploy, but rather a gut-level reaction to someone who challenged his beliefs. What’s interesting is that, out of all the bombs lobbed at health reform, “coverage of illegal immigrants” was the one that triggered his most visceral reaction. What does that say about Joe Wilson?

First, he is at least unconsciously racist. The President debunked a number of incendiary claims (including death panels) that night, and the one that got to Wilson the most was… health care for illegal immigrants? The thought of forced euthanasia of old people was less worthy of an outburst to Wilson than the thought of helping sick Mexicans get medical care? It doesn't make you racist to oppose tax dollars for illegal immigrants - it's a legitimate position - but when Wilson reacts to the prospect with that kind of fury, it does raise some questions about WHY he is so viscerally opposed to it. Like these town hall protesters, this guy has some serious issues to work out.

(This also raises the moral question of whether we should cover illegal immigrants. Sure, it seems wrong to spend taxpayer money on people who shouldn’t be in the country, but is it really right to turn away a dying person who can’t pay for treatment just because they came here illegally trying to make a better life for themselves and their family?)

More interesting is how Wilson’s outburst shows just how utterly facts have no place in the right-wing worldview. A number of dubious claims have been made about health care reform, from “death panels” to a “government takeover of health care,” but these are at least “truthy”—they are distortions of something that has basis in reality rather than outright fabrications. “Death panel” rumors do stem from language in the bill related to funding for end-of-life counseling, and a reasonable person could argue that a public health insurance option would force private insurers out of business. If there was a time to shout "you lie," it was when President Obama said he would refuse to vote for any bill that added "one single dime" to the deficit - even I'll admit that sounded like a whopper.

The statement which Rep. Wilson did single out as a “lie,” however, is completely, 100%, factually correct; the bills being considered would in no way fund health care for illegal immigrants. All you have to do is look at the actual text of the House bill, which explicitly forbids this:

Nothing in this subtitle shall allow Federal payments for affordability credits on behalf of individuals who are not lawful ly present in the United States.

Does Wilson think the text of the bill is lying? Worse, when he apologized for his incivility, he explicitly did not apologize for being wrong—in fact, he reiterated his belief that the bill will cover illegal immigrants, saying that “I disagree with the President’s statement.” Sorry Joe—you can’t “disagree” with a fact.

And that’s what’s so disturbing: this is only one instance in which conservatives have “disagreed” with known facts as if they were opinions. Because in the right-wing of the conservative worldview, there are no such things as facts and knowledge, only opinion and belief. A friend once asked me if I “believed” in global warming. I responded, Do I “believe” in global warming? Well do you “believe” in gravity? Do you “believe” that the earth revolves around the sun? We’re talking about science here—that manmade greenhouse gas emissions are warming the planet is a scientific fact that we can prove to be true, not an opinion that you can choose to “believe in” or “disbelieve in.”

A core American value is the primacy of individual choice, but the modern conservative movement has elevated it too far, extending choice power over knowable truth. The First Amendment guarantees the right to choose your beliefs about God, morality, and the proper role of government, but you don’t “choose to believe” that 2+2=4: it simply is.

The reduction of facts to mere opinion is incredibly dangerous, because it means that no amount of rational argument can persuade you to accept different policies. Admittedly, liberals can be stubborn too, and indeed, almost everyone tends to discount facts that don’t support their preexisting worldview. The difference is that most liberals will at least usually engage with the other side’s facts—we may not change our mind, but we’ll at least counter fact with fact. Some conservatives, on the other hand, will discount facts out of hand without even considering that they could be possibly true. (Of course this is not all conservatives - although I do predict that the thoughtful, open-minded conservatives will gradually be pushed out of the Republican Party as the anti-intellectual Palin/Limbaugh wing takes over completely.)

Hence Rep. Joe Wilson’s reiteration that he “disagrees” with the President’s statement, despite the bill’s itself explicit prohibition on funding for illegal immigrants. How do you respond to someone like that? (Similarly, check out the comments on this WSJ blog post, covering a study showing that cap-and-trade’s benefits outweighed the costs. One comment says, “Complete nonsense. I cannot believe this garbage is being reported in the WSJ.” TWO others say, “What is this, Mother Jones [a liberal magazine]?” The commenters aren’t saying that the study is wrong based on its factual merits, but that it CANNOT be right because its implication would support policies the commenter disagrees with.)

Now, it’s entirely possible that Rep Wilson does not actually believe the bill will cover illegal immigrants, and he is simply lying about it to score political points by continuing to “disagree” with the President. But what’s telling is the nature of the outburst during the speech. This was not political calculation, but an uncontrolled outburst. He has so completely convinced himself that the bill will fund illegal immigrants’ health care that the debunking of that claim transformed into a challenge to Wilson’s deepest beliefs, triggering a visceral emotional reaction.

In any case, given the reaction to his outburst (Republicans and Democrats booed him, and the outburst has netted his opponent $175,000), I don’t think it was a premeditated move. This is not the face of political calculation:

Obama's Speech: Why health care reform is pro-America

Hopefully everyone got to watch Obama’s amazing speech on health care last night. I was taking notes—not quite “live blogging,” more like a “tape-delayed” blog—and here are my takeaways:

First, Obama was wearing a red tie. Nancy Pelosi and Hillary Clinton were wearing red pantsuits. Clearly, code for all the socialists out there watching: “we’re with you comrades.”

Second, the Republicans clearly have no plan for health care other than the status quo. I was giving them the benefit of the doubt that they were saving up a surprise proposal to unveil during their response, but the response ended after five minutes and four vague principles. The most attention-grabbing part of the speech was when it ended and the abrupt shift to Wolf Blitzer’s voice jolted me out of my fantasy football draft.

Third, one genius moment was Obama’s remark that insurance companies’ immoral actions aren’t driven by evil executives, but rather by “Wall Street's relentless profit expectations.” Good job connecting the problem he’s solving to the imminently unpopular Wall Street.

Finally, as always, the key to Obama’s effectiveness is tying policies to basic American values—personal responsibility, entrepreneurship, choice, and competition. The strongest passage in the speech was:

He [Ted Kennedy] repeated the truth that health care is decisive for our future prosperity, but he also reminded me that “it concerns more than material things. What we face,” he wrote, “is above all a moral issue; at stake are not just the details of policy, but fundamental principles of social justice and the character of our country.”

I've thought about that phrase quite a bit in recent days - the character of our country… On issues like these, Ted Kennedy's passion was born not of some rigid ideology, but of his own experience. It was the experience of having two children stricken with cancer. He never forgot the sheer terror and helplessness that any parent feels when a child is badly sick; and he was able to imagine what it must be like for those without insurance; what it would be like to have to say to a wife or a child or an aging parent - there is something that could make you better, but I just can't afford it.

That large-heartedness - that concern and regard for the plight of others - is not a partisan feeling. It is not a Republican or a Democratic feeling. It, too, is part of the American character. Our ability to stand in other people's shoes. A recognition that we are all in this together; that when fortune turns against one of us, others are there to lend a helping hand. A belief that in this country, hard work and responsibility should be rewarded by some measure of security and fair play; and an acknowledgement that sometimes government has to step in to help deliver on that promise.

Obama is at his best not when he’s not talking about “material things,” but when he’s explaining how policies implicate the “character of our country.”

And it’s still something most liberals don’t get. Western liberalism’s basic premise holds that people are basically rational creatures—lay out the facts, fortify them with statistics, and people will be persuaded, satisfied that your policies advance their material interests.

This is rubbish. It’s not just that policies which seek only to advance the majority’s material well-being are unsustainable, as people will vote themselves both tax cuts and spending and bankrupt the country. It’s not just that people don’t have the time and mental aptitude to sort through the facts. More importantly, rational thinking is not how our brains typically process information. We don’t start from a blank slate, evaluate facts, and come to rational conclusions; judgments of value and worth are entirely subjective.

Rather, we evaluate information relative to a preexisting frame of reference. Effective persuasion is less about comparing costs and benefits, and more about establishing the frame of reference for comparison. In Sales, which is my job’s main field of research, this is a negotiation technique called “anchoring.” Start by quoting an expensive option which you never expected the prospect to buy, and you effectively “anchor” that price as the prospect’s reference point for evaluating the other options as “cheap” or “expensive.” (This is why restaurants will include expensive menu items that don’t actually sell well—the purpose is not to sell them, but to make other items appear less expensive.)

In politics, people’s values are their reference point for evaluating policies and politicians. On complicated issues like health care, it’s not particularly effective to cite studies estimating health care reform’s impact on the deficit or on premiums—the other side can tweak your model’s assumptions to produce an entirely different result. Unless the observer has the data (and the statistical training to analyze it), it’s difficult to evaluate whose numbers are right. Naturally, you accept whichever numbers confirm your worldview. Numbers are a particularly poor method for getting your point across. For that matter, so are facts.

So when President Obama says, “not a dollar of the Medicare trust fund will be used to pay for this plan,” the Republican simply asserts that the plan “cuts Medicare by $500 billion.” Who is right? Are you actually going to read the 1,000 page bill to find out? Of course not—few people know the exact text of the bill. It’s telling that when you ask Americans about “Obama’s health care plan,” a majority oppose it, but when you ask about the specifics of the plan—“the option of being covered by a government health insurance plan that would compete with private plans”—a majority supports it. People are too confused to make a rational choice.

Facts are fungible, but values endure and inspire. And that’s where President Obama excels. In one line, he was able to sum up the basic value that undergirds his policies: “A recognition that we are all in this together; that when fortune turns against one of us, others are there to lend a helping hand.” Below, I’ve broken it down further, highlighting where his speech nails why health care reform is fundamental to core American (and Judeo-Christian) values: personal responsibility, choice, and competition (today’s post), entrepreneurship, moral courage, and love for your neighbor (coming soon). And I’ve included some supporting facts for the liberals.

PERSONAL RESPONSIBILITY

Now, even if we provide these affordable options, there may be those - particularly the young and healthy - who still want to take the risk and go without coverage. There may still be companies that refuse to do right by their workers. The problem is, such irresponsible behavior costs all the rest of us money. If there are affordable options and people still don't sign up for health insurance, it means we pay for those people's expensive emergency room visits. If some businesses don't provide workers health care, it forces the rest of us to pick up the tab when their workers get sick, and gives those businesses an unfair advantage over their competitors. And unless everybody does their part, many of the insurance reforms we seek - especially requiring insurance companies to cover pre-existing conditions - just can't be achieved. That's why under my plan, individuals will be required to carry basic health insurance - just as most states require you to carry auto insurance. Likewise, businesses will be required to either offer their workers health care, or chip in to help cover the cost of their workers.

Beautifully said. I’ll substitute in a quote from the great socialist classical political philosopher John Stuart Mill:

Every one who receives the protection of society owes a return for the benefit, and the fact of living in society renders it indispensable that each should be bound to observe a certain line of conduct towards the rest. This conduct consists, first, in not injuring the interests of one another… and, secondly, in each person’s bearing his share (to be fixed on some equitable principle) of the labours and sacrifices incurred for defending the society or its members from injury or molestation.” (On Liberty and Other Essays. Oxford: Oxford University Press, 1991, p. 83).

I mean, if that doesn't scream socialism, what does? Obama’s genius is to recognize that personal responsibility encompasses not only taking care of yourself, but also fulfilling your duties to society. Both he and Mill recognize that the conservative ideal of self-reliance is a myth, that no matter our individual talents, Man is a social creature who relies on community for support and protection, and that we must reciprocate that support by looking out for others. Absolute liberty is balanced by duty.

Health care is a fine example. Hardcore conservatives rail that “socialists are making me pay for other people’s health care,” but in reality, that already happens. People who don’t have insurance and get seriously ill are of course not turned away by emergency rooms to die on the street. That would be evil. But those unpaid-for emergency room visits cost hospitals money, and the costs are necessarily passed through to the rest of us. Moreover, insurance risk pools with fewer health people have higher premiums because a greater percentage of the risk pool incurs health care costs. One person’s choice not to buy health insurance affect’s another person’s premiums.

In the same way that no one should be allowed to drive a car without insurance (otherwise you could wreck someone else’s car and leave them to pay for the damages), why should people be free to gamble with others’ ability to afford health care by not purchasing insurance themselves?

CHOICE

Now, if you're one of the tens of millions of Americans who don't currently have health insurance, the second part of this plan will finally offer you quality, affordable choices… We will do this by creating a new insurance exchange - a marketplace where individuals and small businesses will be able to shop for health insurance at competitive prices. Insurance companies will have an incentive to participate in this exchange because it lets them compete for millions of new customers. As one big group, these customers will have greater leverage to bargain with the insurance companies for better prices and quality coverage.

Key words: choices, marketplace, shop, competitive prices, incentive, bargain. These are all words fundamentally associated with business. But even more fundamentally, they underlie the basic premise for why Americans are the most pro-business people on earth: we believe that individuals should be free to make choices that best reflect their interests. Allow people to choose from a variety of services in a free marketplace, and they will naturally select the goods and services most suited to their preferences and budgets. Whether this assumption is an accurate basis for government is another story, but this post is about messaging, and the President’s (accurate) message is clear: health care reform is about giving you more choices.

COMPETITION

My guiding principle is, and always has been, that consumers do better when there is choice and competition. Unfortunately, in 34 states, 75% of the insurance market is controlled by five or fewer companies. In Alabama, almost 90% is controlled by just one company. Without competition, the price of insurance goes up and the quality goes down. And it makes it easier for insurance companies to treat their customers badly - by cherry-picking the healthiest individuals and trying to drop the sickest; by overcharging small businesses who have no leverage; and by jacking up rates… Now, I have no interest in putting insurance companies out of business… But an additional step we can take to keep insurance companies honest is by making a not-for-profit public option available in the insurance exchange. Let me be clear - it would only be an option for those who don't have insurance. No one would be forced to choose it… [but] the insurance companies and their allies don't like this idea. They argue that these private companies can't fairly compete with the government. And they'd be right if taxpayers were subsidizing this public insurance option. But they won't be. I have insisted that like any private insurance company, the public insurance option would have to be self-sufficient and rely on the premiums it collects.

In the same way that Americans love choice, we also love competition and detest monopoly. If businesses are allowed to compete fairly, the best should rise to the top; if you can’t compete, you don’t deserve to be in business. The effectiveness of Obama’s speech is not just in highlighting the anti-competitiveness of our current system, but in his framing of the public insurance option as a little healthy competition—a challenge to insurance companies to be better. It’s a catch-22 for opponents of the public option. If you say that private insurance will be driven out of business by a public option, you’re implicitly suggesting that private insurance firms can’t compete like good capitalists and don’t deserve to be in business; but if you don’t think they’ll be driven out of business, then the “government takeover” argument makes no sense. Either you’re a socialist who believes that government runs things better than private companies, or you have no problem with the reform program.

It is late, and I can’t write anymore. Check back in the coming days for more on Obama, health care, and American values.

Global warming the beach

I will be heading to Dewey Beach, DE this weekend to enjoy the warmest ocean temperatures ever recorded. Maybe in a few years I'll be lounging on the shores of northern Canada!

The National Climatic Data Center, the government agency that keeps weather records, says the average global ocean temperature in July was 62.6 degrees. It is the hottest since record-keeping began in 1880. The previous record was set in 1998.

Meteorologists blame a combination of a natural El Nino weather pattern on top of worsening manmade global warming. The warmer water could add to the melting of sea ice and possibly strengthen some hurricanes.

The Gulf of Mexico, where warm water fuels hurricanes, has temperatures dancing around 90 degrees. Most of the water in the Northern Hemisphere has been considerably warmer than normal. The Mediterranean is about three degrees warmer than normal. Higher temperatures rule in the Pacific and Indian Oceans.

It's most noticeable near the Arctic, where water temperatures are as much as 10 degrees above average.

(Must be the urban heat island effect.) I guess even global warming has its benefits.

While there, I guess I should eat as many crabs as possible before ocean acidification destroys the ocean's ability to support them - increased ocean acidity, caused by CO2 dissolving and becoming carbonic acid, disrupts the process of "calcification," which sea animals like crabs use to build their shells. Better enjoy them while they last!

Check back next week for posts on ocean acidification, my analysis of the conservative grand strategy for defeating the President, the unbeatable global warming argument, and the ubiquitous health care debate. In the meantime, here's a good Paul Krugman article on the failure of economists, mostly because of their ludicrous belief that humans make decisions rationally.

The Takeover: What opponents of health care reform don't get

U-S-A, we runnin’ this health shit

Obama, we runnin’ this health shit

Death panels, we runnin’ this health shit

Get zipped up in plastic—when it happens, that’s it.

It’s the takeover, the break’s over. They’re coming for you, so take cover.

The President and his panel of experts think they know better than you and your doctor how to treat what ails you. The government takeover of health care will put a bureaucrat in charge of deciding what health care you get—decisions which are best left between you and your doctor!

More insidiously, the experts think they can pick out which individuals are most valuable to society, and therefore most deserving health care. Fail to make the productivity cut, and that’s it—you get zipped up in plastic, no matter how badly YOU think you deserve to get that expensive lifesaving treatment.

That’s what health insurance companies Republicans want you to believe, and that’s what countless misguided people at town halls across the country are shouting.

The obvious flaw in this line of thinking is that no one is talking about having government decide which treatments would be allowed, but rather which treatments would be paid for by the government under a public option. That’s not a “takeover” of health care. Doctors would not be employed by the government. Private insurance companies would still exist, and you could still buy insurance from them—and if you didn’t like your coverage or couldn’t afford it, you’d now have the option of buying insurance through the government.

Even if the government insurance option did drive private insurers out of business (I’ll post later on this), you’d still have the option of paying out of pocket for treatments the government opted not to cover. Only if you were BANNED outright from buying health care beyond what the government covered could reform be considered a “government takeover.”

And in fact, when people understand that the public option is government insurance, not government health care, they overwhelmingly support the President’s plan. As Nate Silver points out, most people don’t understand what a “public option” is, but when you explain it clearly as this poll does, asking “Do you support or oppose giving people the option of being covered by a government health insurance plan that would compete with private plans,” 62% support the plan, versus 32% opposed. Defeating health care reform thus DEPENDS on people believing LIES.

That’s strike one.

The other absurdity in the “bureaucrats making health care decisions” argument is that, well, that’s what happens in private insurance too. Your insurance company already makes decisions about what treatments it will and won’t pay for, which is why doctors have to spend up to a third of their time filing paperwork, battling to convince the company bureaucracies to cover your treatments. In fact, the insurance company bureaucracies unnecessarily waste $286 billion PER YEAR.

So extreme are insurance company efforts to ration treatment that they’ll even revoke your coverage after you’ve paid years of premiums, a practice called “rescission.” Reposting from an earlier entry:

This has happened 20,000 times over the past 5 years (at least one company evaluates its employees on savings from rescinded policies). Here’s how it works. When you get a diagnosis that will require expensive treatment, it triggers a processso-called “denial engine” software, to see if you forgot to report any illness on your initial health status questionnaire; if there’s been even one mistake, no matter how small, they revoke coverage from you and your entire family (of course, without refunding all those premiums you paid). You can have your coverage rescinded for something as simple as shortness of breath or hay fever. Health care rationing indeed. by which your insurance company scours your medical records, using

Unsurprising considering the insurance company bureaucrat has a profit motive to provide as little care as possible. Rationing care is how insurance companies make money!

Simply put, the idea that health care decisions are solely between you and your doctor assumes that there are no constraints on your ability to pay. Otherwise it’s not a choice made freely by you and your doctor, but one limited to the treatment options you can afford—you’re consulting your doctor, your own preferences… and your budget.

Arguing against universal coverage on the grounds that it leads to “rationing” is like arguing against food for the homeless because they aren't deciding what food or how much of it the charity gives them. Creating a public option can only give people MORE choices, not fewer.

So my question for reform opponents is: why is it worse for a government bureaucrat to make these calls than an insurance company bureaucrat?

RELATED POSTS:

There's no money in selling insurance to sick people: more reasons free markets don't work in health care

The catch-22 for opponents of health care reform

WSJ inadvertently supports case for health care reform: do you want to trust your health to profit and loss?

Are Sarah Palin and Martin Feldstein closet universal health care supporters?