health care, the insurance version

I had a bit of a revelation on this. I started out trying to classify the utility of private insurance within health care as an industry. It occurred to me that part of the problem, indeed, a major problem, is that health insurance controls much of how health care is run, or not run. There are various examples used by conservative pundits on how health insurance is supposed to work. Generally the most common is the example of a car and your auto insurance. Your automobile coverage doesn't cover oil changes and tires, it covers accidents and the physical or medical damages involved in those. So why would you need health insurance to cover every little thing? Now that's a sensible analogy (to a point) on how health insurance is indeed supposed to function, as a means to distribute emergency or unexpected health costs through risk pools in the same manner as other forms of insurance on our property do. But that's not what it actually does. The reason is that health insurance is not a different industry from health care provision. It's basically like a giant billing department for the health care industry as a whole, with its own independent powers able to command both patient and doctor.

Rather than operating as a independent agent that you send the bill for an emergency event to and they pay it (or quibble over, just like every other type of insurance), they tell you what YOU will pay. In other forms of insurance, you select how much you will pay as a deductible and that's pretty much it. And they'll pay whatever but they have some people they prefer you to send it to so it'll be cheaper for them. Health insurance is presently set up such that you don't get to make those choices, they command you if you want the use of their service where you will go and pre-determine a price as a result. It would be like instead of car maintenance, the actual purchase of a car was controlled by some car insurance company. You could say you wanted a particular car, but they say no, that costs too much and won't let you buy it. Or if you do go ahead and buy it, they won't insure it. Or something like that.

This is more among the pressing needs for reform. Health care is idyllically defined by conservatives as residing between a patient and doctor, without any government bureaucrats in the way. But it already doesn't exist in that space. That's the real reason we need a reform. Because there are bureaucrats already intervening into that space. It would be fine if an insurer negotiated prices the way auto insurers do with body shops and recommended you go within a pre-arranged network. But what if you want, or indeed must, go outside? In automobile insurance, they generally pay up for you to take it somewhere else, and grumble over the amount like a good financial entity is supposed to when they give you back some of your own money. They don't let you do that in health insurance. That's a main reason people are pissed.

The secondary reason is that a market option in this way doesn't operate the way people have come to expect for health insurance. We think of health insurance as health care coverage, in the way that health care programs in other developed nations pay for pretty much everything. That's not how insurance works however. As demonstrated by the inadequate analogy earlier. Or at least, if that's how it will work, it will be pretty damned expensive and not everyone will be able to afford it. Which is the situation we find ourselves in now. The problem with even a perfect market efficiency that controls costs and aligns incentives between patient and doctor (in a way that our current system does a terrible job of), is that not everyone will be able to afford a product which minimizes or at least helps manage the cost of having that health care provided when needed (or when demanded). With the cost of many procedures and drugs mounting, it remains then to have a means of providing more universally that coverage to those who cannot afford it. Subsidizing it through our employers has its own problems, portability going without saying as a huge problem. But also relating to the persistent complaint that insurers are implausibly denying coverage payments. Because most people purchase their coverage through a group rated plan at work, they were never examined in any risk pool, nor have many health insurers had to pursue a means of evaluating such a pool. As a result, claims that could be paid, but at say an increased cost of insuring someone, go denied because health insurers do not adequately assess the risk of insuring any individuals that they actually pay for. Standardizing plans would be of some use to doctors and health care administrators, but still wouldn't reduce costs at the lowest end of the spectrum without high deductible options that most poor people wouldn't be able to afford in the event of a real problem. Universal coverage doesn't automatically shift the system from the supposed disincentived profitability of health insurers to providing adequate care, but might at least resolve the issues of coverage for the poor or pre-existent condition problems.

The basic problem of cost for such a plan is resolving the issue of a scarce resource and its distribution. The current setup being touted to study efficiencies of outcomes or value. And indeed, that's a valuable economic behavior that doesn't exist in our current system. It is not clear that it couldn't exist outside of a universal coverage program or initiative either. That's the reason for my resistance to a public plan. I have no problem with the existence of a public plan on health care for the purposes of helping provide health care to some people, namely people who cannot afford it any other way or to some extent the elderly whose health expenses have grown and incomes have largely stopped. But we already have such programs and they have clearly not controlled costs in a general sense yet. Why not see if valuable cost control programs can work in them before presuming them to work in a general economy?

I'm going to back up a second and go over what presently exists, and what's clearly wrong with it that the people demand some repair for

1) Our present system, operating through market efficiency, necessarily doesn't cover everyone (because of scarcity and in a few cases, individual assessments of risk versus value). There is a viable economic argument that suggests having coverage of some sort for nearly all people would be of some utility to lowering costs generally. More importantly, the public feel that health care access is a basic right and with health insurance or coverage being a gatekeeper preventing it, there must be a reform that allows all people to have access (or at least reasonable access, not emergency room access).

This is known in economics as a distributional problem, not a market failure. It would be a simple problem to repair through subsidizing care or incentives for the purchase of medical insurance for a large percentage of the people who are presently uninsured. Providing care or access to say illegal immigrants or upper-middle class individuals who have chosen not to buy or prioritize health insurance is another matter, and that's still about 10-20 million people between those two groups. The proposed mandate to have insurance and with an associated fine, it might be cheaper for some people to simply not buy insurance still and just pay a fine. There are of course lots of ways to provide coverage as well which would not satisfy the public's conception of insurance care. MSAs or HSAs for example operate in a very different way than, say, Canada's health insurance system which seems to be the direction the public wants to move in. We could very easily use government funding to provide HSAs to everyone so they'd all have universal health insurance and would be covered in the event of a catastrophic health emergency, exactly the sort of risk that insurance as an industry was designed to help manage. But that's probably not what people would want. And in some cases, such as chronic care requirements, families with young children or about to have one, that probably wouldn't be the best financial decision for the individual in mind anyway.

2) People generally feel that their current system, with health care provided through employers is acceptable or that the coverage they personally receive is ok. However there are significant minorities who have inadequate coverage or receive inadequate care as a result of the types of coverage they do have, suggesting that there are necessary regulatory reforms to the way insurance is marketed, used, or mandated. The most significant complaint is the denial of coverage for "pre-existing" conditions. This leads to an argument over adverse selection or moral hazard positions within insurance. The problem with all of these arguments is that most people receive insurance as a benefit through their employer, without a real medical examination or personal history to determine where they might fall in a risk pool of some sort.

It should be easy by now to decide actuarial cost tables for the likelihood of disease A, and its likely average cost to treat, and then assess a premium over and above for insuring a person who has a higher likelihood of getting that disease. We cannot do that presently, both because the insurance is paid for by a third party and because there are specific states' regulations that prevent doing so. Since it is after all insurance, if someone has a higher risk of a heart attack, I'd rather they cost more to insure. People may complain that this sort of pricing would make it difficult to insure some people. That may be true. However, many of the costs of diseases that require chronic care, such as diabetes, are best managed by the habits of the person who requires that care. If they have no incentive to manage their own care better, I'm greatly concerned that this increases the general cost of health care. We can see this all the time with cholesterol or heart disease. These are almost chronic conditions requiring medications or in some cases, invasive surgery to repair. But a good portion of the cause is the diet of the people involved. Because of the incentives at present, it is cheaper for them personally to eat whatever they want and let the insurer cover the cost of their health rather than to exercise some personal control. Somewhere along the line, our incentives must be aligned with our doctors or our insurer (regardless of whether that is the government, our employer, or a third party payer) to lead a healthy life. If we want to live an unhealthy one, and eat whatever, drink to excess, smoke, not exercise, etc, that should be fine too. But those cumulative decisions should cost us something extra if we want to then have someone else clean up the mess. I'd agree that we shouldn't simply deny outright the access to coverage. That seems like a poor long-term marketing strategy for one thing. But if you're going to tell insurers that they have to take people as they are, they're going to charge everyone a higher rate. I want coverage cheap and affordable for healthy people, and not as cheap or affordable for less healthy people. That's either being specifically denied or specifically ignored by this present process of reform. I think the idea that everyone should pay more just so some people don't have to is ridiculous, particularly relating to the conception of health as a personal decision. If you are poor and cannot afford health care, that's one thing. I might be willing to help that out. If you are just stupid or irresponsible with your health, fuck you. I'm not willing to help that out with my money. I'll offer advice to maybe help you make it cheaper on your own, but I'm not paying extra so you don't have to. I've previously offered ways to get around that part of the problem, even in the event of a "universal" health care system. It would be easy enough to tax the goods that people purchase and are prone to abuses of our bodies through the formation of complications. Cigarette taxes just went up. Alcohol probably should go up, particularly at the state level (Wyoming hasn't raised their alcohol tax since the repeal of Prohibition for example). Other tobacco products should go up. They could tax and legalize marijuana (I'd suggest doing the same for other banned narcotics, but nobody ever take that seriously, at least there's a shadow of a chance at doing so with pot). These taxes would go directly into subsidies for say, health insurance, treatment/prevention programs, building new clinics, etc. If the cost to insure me was still higher even in the presence of such a program, I'd probably have nobody to blame but myself. The real problem with that sort of idea is that it is not enough to properly fund the cost of insuring all people, but I think it at least offers some structural cost control.

3) The assumption seems to be that having all people with insurance, and fixing goofy problems with adverse risk selections would also somehow lower costs. There are other efficiency problems being addressed to help lower costs being put forward, but these are not serious issues relating to controlling the continuing inflation of medical costs. the basic realization runs that our costs are increasing at an unacceptable rate. Why? Well depending on your persuasion, you have a different beast to blame. Insurers are milking the beast and getting profits off of the health care system. Subsidies that currently exist do not offer incentives for individuals to manage their care, such as with medicare/medicaid. We need to emphasize preventive medicine, and so on. Probably some combination of these things is the actual answer, but the first one is the one that I feel a particular need to address. Even in the event of a universal health care program there will be things that won't be insured. Some of these are voluntary health procedures and nobody seriously thinks that, for example, a breast enhancement should be covered. Even something like Lasik is considered voluntary, since you could just get glasses or contacts instead. But there is still a gap between what we could afford to cover and provide and the gold plated insurance that some people have right now. That gap will be covered by private insurers. They're not going anywhere because they fill a vital role in the marketplace. They may shrink, they may not be as profitable, they certainly may need some better regulatory attentions, but they're not going to be killed off. In fact, I haven't seen any well-considered plan put forward that will attempt to transfer the power of insurance coverage from them to begin with. If anything, the idea that we need to insure millions of uninsured people is just going to increase the pot of money that they could compete over. What we really need to do is make sure they're actually competing over that pot of money and that their profits are seen as legitimate. The disconnect here is that many people don't think their health care should be a matter of profit. Well, that may be true, regarding their health CARE. But since we employ a third party to pay for that health care, that's a totally separate industry. I don't see anyone complaining that your car insurance company is profitable. Or your life insurance. There are of course reasonable complaints about the way insurance companies relate to the public, such as how they pay back on claims or the amount of control they exert over where you can go (especially with health care). I agree completely that the conception of managed care as controlled by the insurer is a stupid economic decision. I don't think they should exert that much influence that they could refuse to pay for something just because it will cost them more for you to go to a different doctor or have a different but better procedure done or because it was a pre-existing condition. Those are all valid complaints. They exist for various reasons, but they don't exist by default because these are profit-seeking companies. That's a stupid argument. A profit-seeking company that fails to serve its customers, ie an insurer that doesn't pay its claims or haggles unnecessarily, is an company that goes out of business in the long run. People will stop doing business with them because there's always in the market an entity that will realize it can profit by offering a higher quality of service, drawing more customers to it at the expense of its most vile competitors. Look at cell phones, Verizon or T-Mobile routinely score pretty well on customer satisfaction surveys. They seem to be doing reasonably well financially. Sprint on the other hand has had a notoriously terrible reputation on customer satisfaction. And at one point they were losing a million customers a year. There are still lots of players in the medical insurance business, despite the notional oligarchy it has created from large scale barriers to entry and the present system of tax free transfers of wealth to augment their profits (which has a further effect usually of increasing the economy of scale problems). People could shop around if they were unsatisfied. Even under the current system, where our employers pay for this, if enough of the employees are displeased with a benefit, wouldn't it be likely that the employer would seek to change it, by maybe going with a different insurer or at least a different plan?

I don't imagine that I have much sympathy for the public's demands. I don't really have much sympathy period for most things. But since it is inevitable that something be put forward to resolve these problems, here's the one I'm most pleased with
1) Require those who do not already have health insurance coverage, and who do not oppose health insurance on religious grounds, to enroll themselves and their children in a public/private funded plan.
I can live with this simply because there doesn't seem to be a way around getting everyone covered. At least make it an individual decision to do so.
2) Make employer-provided insurance portable by converting the current tax exclusion for health benefits into a tax deduction for individuals.
It is absolutely essential in my view, and that of many economists, that employer coverage be made a voluntary process rather than the current system where it is the norm. We could also see the amount currently paid by employers in health benefits transferred into real wages as a result of this bill. Which would be a huge boon for people who could afford cheaper plans or would need somewhat less coverage than what is presently provided. The default rate of coverage should also be that provided to our Congress. Some people have better plans than that, and they are welcome to pay for them if that is their wish.
3) Medicaid, SCHIP, basically all disappear.
This appeals to conservatives in some sense. But the reality is that if everyone has coverage, you don't need these programs.

The basis of that bill was these findings
1. Ensure that all Americans have health care coverage;
2. Make sure health care coverage is affordable and portable;
3. Implement strong private insurance market reforms;
4. Modernize federal tax rules for health coverage;
5. Promote improved disease prevention and wellness activities, as well as better management of chronic illnesses;
6. Make health care prices and choices more transparent so that consumers and providers can make the best choices for their health and health care dollars; and
7. Improve the quality and value of health care services.


The only problem is that despite a blizzard of rational people from both sides of the political aisle saying that this (Wyden-Bennett) looks like a decent idea, nobody is talking about it in Washington. No major lobbyists like it. Unions probably despise it. The public hasn't really heard about it. Even if they had, it's a rather radical change to go from employer based coverage to individually purchased coverage anyway (about as radical as going to a single payer system). Major change isn't likely, despite the evidence being that we precisely need only a major change (and isn't that sort of the embodiment of Obama's phenomenon anyway, Change is good?). I'd rather have a single payer or that than whatever we seem destined to end up with. Some sort of half-breed that doesn't fucking work to address the problems involved. No thanks.