Obamacare

You May Hate the Player, But the Game Deserves the Blame

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Ezra Klein, noting the latest insurance industry study showing that insurance premiums are likely to increase if health-reform passes, writes:

This is the house they've built: an insurance market where plans are written for the healthy and all legal efforts are made to exclude the sick. That's meant premiums are somewhat lower than they'd otherwise be, but only because the people who most need health-care insurance aren't able to afford it, or in some cases, aren't able to convince anyone to sell it to them. Now that arrangement is ending and they're scared that they can't provide an affordable product to the people who need it. They may be right, but it's evidence of how deeply perverse their business has become, not of what's wrong with health-care reform.

That's one way to look at it. But Klein's conclusion rests on the assumption that the insurance industry exists to provide inexpensive protection and support to those deemed "in need" rather than a service business built to help provide a safety net against genuine catastrophe—you know, insurance—to those who want to pay for it. Essentially, this view entails seeing insurance as a social good rather than as a business, which explains why many reform advocates see a single payer system as their ultimate goal.

Now, that's par for the course for folks with a preexisting liberal worldview. And none of this is particularly surprising given that a) Americans tend to understand insurance as medical prepayment rather than actual insurance and b) the country has built its medical system around third-party payment.

To be clear, I'm no fan of how the insurers have conducted themselves in this debate, and I suspect certain industry policies are likely to irk people no matter how they're presented. But I'd say that concerns about rising premium costs (which seem legitimate to me, even if the insurance industry studies are somewhat dubious) are not primarily the fault of insurance company practices, but instead, should be seen largely as the consequence of our employer-based, third-party-payment medical payment system—a system that reform advocates want to expand rather than dismantle.

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  1. Americans tend to understand insurance as medical prepayment rather than actual insurance

    I’ve argued with co-workers who would rather have a policy with $1000 more in premiums than an otherwise-identical policy with a $500 larger deductible. Some of them argue from the “payroll deductions are better because I can’t be trusted to save money” bit.

  2. Klein openly admits here that the point of the reform proposals out there now is to force healthy people to pay more than they should, in order to make sure sick people pay less than they should.

    This is so “obvious” to him that he considers anyone who thinks differently to be “perverse”.

    This is the essential point that has to be rammed home over and over: the point of the proposed health care reforms is to make healthy people – the MAJORITY – pay more for insurance. Probably much more.

    If you’re healthy and your beef with the current system is that you think your premium is too high – the “reform” will make that situation WORSE. Probably much worse.

    1. This is the essential point that has to be rammed home over and over: the point of the proposed health care reforms is to make healthy people – the MAJORITY – pay more for insurance. Probably much more.

      Good point, Fluffy.

    1. I thought we all agreed never to bring that site up on these hallowed forums. You got to obey the unwritten rules, man.

  3. There’s nothing wrong with Ezra Klein that a weekend with Steve Smith wouldn’t fix.

  4. I don’t understand why employer provided insurance has such a grip on the American consciousness. And I don’t understand why (it appears that) only libertarians are hammering home the need to decouple insurance from employers. Why is this not at the top of everyone’s list of talking points? Both the Obamamaniacs and the Rushaholics seem to be dismissing this outright. Why? I just don’t get it.

    1. If it comes out of your paycheck and you don’t see how much you’re really paying, then you don’t worry about it or get bent out of shape. It’s like income taxes. Even GOPers who want to reduce taxes (if there are any left) don’t suggest that paying income tax be decoupled from work.

      1. As I said below Lamar, people are risk averse. I suspect that decoupling insurance from employment would affect what people pay for insurance less than many think.

        1. I agree with you. But they still don’t want to see the price tag.

          1. Yes, they want to push a button that says “more” with their eyes closed and have someone else pay the price.

    2. People see employer-paid insurance as “free”. They like to get things for free. They like someone else to pay for things. They don’t don’t understand the concept of “you get what you pay for”. They don’t get that the “you” is not themselves, but the employer. The employer gets what HE wants, not what YOU want.

    3. well, I am not a libertarian, and I have been saying this for years, so…

  5. The arguments over reform have convinced me that most of the people talking don’t understand even the dictionary definition of “insurance,” much less real-world practice. Vexing.

  6. “Essentially, this view entails seeing insurance as a social good rather than as a business…”

    Isn’t this the whole reason that health care reform is on the table? And isn’t it a bit disingenuous to say that “insurance” is seen as a social good when it is really the health care that is seen as the societal good? I tend to think that reminding everybody over and over how insurance companies bring in billions of dollars every year is counterproductive. I prefer arguments that focus on how good our system actually is, rather than putting the focus on “business is business”. That’s what makes people want to reform the system in the first place. Not everybody has such a big boner for big business.

    1. Lamar:

      Health care reform is on the table because the average person thinks their premiums are too high.

      They are under the mistaken impression that the reforms being contemplated are designed to make them pay less.

      That’s the only reason this stuff has any chance to pass whatsoever.

      I meet many, many people who grouse that their payments are too high. I have never met a single person who had a horror story about being denied coverage. The number of people motivated to complain about the health insurance system and demand reform based on coverage issues is vanishingly small compared to the set of people who just think they’re paying too much. The only way to turn that set of people against reform is to show them the reasons they’re paying too much, and warn them about the fact that the reforms will make them pay even more.

      1. “Health care reform is on the table because the average person thinks their premiums are too high.”

        I don’t think 80% of insured people even know what their premiums are. I don’t.

        “They are under the mistaken impression that the reforms being contemplated are designed to make them pay less. “

        A lot of the rhetoric focuses more on the uninsured and duty to mankind and womynkind, and vegans or something. They say they can pay for it through savings, but I haven’t seen much of anything saying that I will save money out of my pocket. Then again, I seem to miss all the big stories.

        Put us both together, and we might make a complete picture.

        1. I don’t think 80% of insured people even know what their premiums are. I don’t.

          Which might have something to do with why premiums are rising. If you get a third-party to pay for things, and then proceed to ignore entirely the cost of the services you are consuming, prices are going to rise, because you have absolutely no reason to know or care what you are spending.

          And doctors and hospitals can charge whatever they want, because you, the customer, neither knows no cares how much they cost.

          And then you get pissed off when your insurance company says “oh wait a minute, is this really necessary?”

      2. Health care reform is on the table because the average person thinks their premiums are too high.

        I have to disagree. Most people don’t know what their share of their premium is, much less what the total premium cost (including the employer share) is.

        What’s more, most people don’t even really want the kinds of reform now being swatted around in Washington.

        I meet many, many people who grouse that their payments are too high.

        Except for a week every couple of years or so when the employee share gets bumped up, I never hear anyone mention it.

        Make no mistake. Health care reform is on the table because the Democrats in DC see it as their golden ticket to permanent political hegemony.

    2. Insurance, the protection from a catastrophic loss in exchange for a premium, is by itself a social good. How would an unexpected and probalistically rare event be paid for without insurance? Savings or charity? Both are much less efficient and loss cost-effective than

      Our current health insurance system doesn’t cover health expenses resulting from random, rare and catastrophic events. The current system covers about every health expense (other than plastic surgery and experimental treatments, though not covering the latter often gets insurers into a PR nightmare) with very low member cost-sharing. Meanwhile, utilzization and service mix go up annually at rates greater than CPI. Why wouldn’t premiums be expensive and ever more so year-after-year?

      Despite Peter Suderman’s repeated claims that insurers are at least partly to blame for the current situation, I don’t see how any fair person who understands how health insurance “works” and the reason it exists in its current form can say that any entity, group or profession is at fault other than the federal and state governments. People respond to incentives and the incentives created by government intervention into the health care and health insurance markets have done nothing but provide employers, providers, patients, drug companies, equipment manufacturers, etc. with the incentive to increase health service utilization and cost.

    3. Health care reform is on the table because the average person thinks their premiums are too high.

      Nope. Health care reform is on the table because of the barriers that the current system puts between people and their health care. The current system reduces access and quality and forces people to deal with an implacable bureaucracy at some of the most vulnerable moments in their life. Those who think this is about premiums don’t interface with the health care system on a regular basis (cuz they are healthy, perhaps).

  7. I suspect a lot of those “single payer” advocates are really “single provider” advocates.

    ———

    Now that arrangement is ending and they’re scared that they can’t provide an affordable product to the people who need it.

    Am I the only one who thinks this is gibberish?

  8. STEVE SMITH TEACH LITTLE EZRA HOW TO USE NETFLIX. THEN BEND HIM IN HALF FOR A FEW HOURS

    1. And you know Steve Smith would call again.

      1. Who’s Steve Smith?

  9. Any insurance industry honchos out there? Where do insurance companies make their money? Is it from premiums? Investments made with those premiums? Somewhere else?

    1. Premiums for the most part. Investment incomes have been negative for the last couple of years.

  10. Peter,

    You seem to have a problem with insurance as a whole because it is third part payment. Medical expenses are too high to ever be paid strictly out of pocket. Getting really sick and running up a big medical bill is a risk that cries out for pooling. I am not sure I buy the whole “employee based insurance is the root of all evil” stuff. People are risk averse and will generally take out more coverage than they need. For this reason, I suspect that the tax exemption `doesn’t make as much difference in the amount of insurance people buy as many think.

    As far as Klein goes, he is an idiot. It doesn’t suprise me in the least that he has no idea how businesses actually operate.

    1. Insurance isn’t the problem. The problem is that because employers pay for a big chunk of the insurance, it is a hidden cost to employee and this shifts the cost-benefit analysis in favor of buying more coverage.

      For example, both my current and most recent former employer pay a fixed percentage of the employeess health insurance premiums. One effect of this is that single people subsidize the insurance purchased by families. More insidious is that people have little motivation to consider catastrophic coverage.

      As a result, if I switch from my comprehensive plan to a high deductible plan, my realized savings are less than 1/3 of the increase in deductible. As it is, I can’t come out far ahead by choosing catastrophic coverage. As such, I buy comprehensive and make the most of it.

      1. But that makes no sense. Your employer has just as much incentive to pay as little as possible for as much as possible as you do. Sure employers pay for some of it. But that doesn’t mean they print their own money. Employers have an incentive to get good coverage to keep their employees happy. But they also have an incentive to get the best deal.

        1. It can make sense for other reasons for the employer to set things up this way. My current employer rates highly in lists of “family-friendly” employers and we hire a lot of women relative to others in our industry.

          Beyond that, the tax treatment of employer provided health insurance encourages me to seek compensation in insurance over cash. It also enourages my employer to prefer to compensate me in the form of insurance rather than cash.

          1. “It can make sense for other reasons for the employer to set things up this way. My current employer rates highly in lists of “family-friendly” employers and we hire a lot of women relative to others in our industry.”

            And they still would do that regardless of the tax laws. Yeah, if you are trying to hire women employees having great maternity coverage is probably a good idea.

            “Beyond that, the tax treatment of employer provided health insurance encourages me to seek compensation in insurance over cash. It also enourages my employer to prefer to compensate me in the form of insurance rather than cash.”

            That is true but people are risk averse. I seriously doubt that changing the tax structure would cause people to change their behavior much. They would just spend more and get the same coverage.

            1. “They would just spend more and get the same coverage.”

              Yeah healthcare isn’t like most other commodities, it’s like gasoline or housing. It’s inelestic.

              No matter how high the price goes, people will consume it at a steady, predictable rate. It’s not like when gas ran up, consumption went down, and then when housing got really stupid, people kept right on paying the insanely high real estate prices.

              Oh. Wait…

        2. But they also have an incentive to buy coverage that has low maximum payouts, or which excludes people who get too ill to work.

          Moreover, companies that try to cut costs by buying such insurance will have a competitive advantage, and insurance companies that offer such coverage will have a competitive advantage. There isn’t a whole lot of incentive for companies to buy insurance that will take care of employees for years of a terminal illness.

  11. I don’t think even the single-payer advocates are serious about single-payer, since most of them don’t seem to advocate (or even realize) that a true single payer system means making private insurance or direct payments illegal.

    I suspect most of them are simply guided by an empty headed, poorly considered belief that everyone should get free health care. That health care should be a “right”. Never having this belief challanged means they don’t have to think through the consequences of it, or really thnking about it’s implications.

    1. How many single-payer advocates also advocate single-payer for auto, fire, life, and homeowner insurance?

  12. I don’t think even the single-payer advocates are serious about single-payer, since most of them don’t seem to advocate (or even realize) that a true single payer system means making private insurance or direct payments illegal.

    I suspect most of them are simply guided by an empty headed, poorly considered belief that everyone should get free health care. That health care should be a “right”. Never having this belief challanged means they don’t have to think through the consequences of it, or really thnking about it’s implications.

  13. Argh … what’s with the double posting ?

  14. Argh … what’s with the double posting ?

    STEVE SMITH BOUNCING SERVER SQUIRREL ON DICK BRB

  15. I thought we all agreed never to bring that site up on these hallowed forums.

    I am altering the agreement. Pray i don’t alter it further.

    1. Bwhahahaha. Lando Calrissian = insurance industry.

      1. Don’t you defame Lando. He took out the Death Star in the Pancake Kid!

        1. How do you know the insurance industry won’t redeem itself by coming out guns blazing against health reform?

          Er, On second thought … let’s not kid ourselves.

      2. Soooo racist.

  16. Where do insurance companies make their money?

    A combination of cost control (through claims management and provider contracting), premiums, and investment returns.

    Keep in mind, health insurance company margins are historically less than 4%. They ain’t making a lot of money.

    I don’t understand why employer provided insurance has such a grip on the American consciousness.

    Because we love us some entitlements, and employer-provided health insurance is regarded as a God-given right by most people who have it.

    1. “A combination”

      You son of a gun. I was thinking that their money is made from investments, because it seems like every time the Dow goes down, insurance companies complaint that premiums need to go up. Oh well. Another BS Lamar theory down the drain.

      1. Health insurers have to make positive margins on the premiums they collect. Because of the short term nature of the insurance contracts they don’t have time to make much in the way of investment returns on premiums between the time they are paid and when the claims come due.

        The insurer would have capital in addition to the premiums collected that it may invest aggressively. If the returns on captial are poor, the insurer may need to fatten its underwriting margins to help keep the company solvent.

  17. Keep in mind, health insurance company margins are historically less than 4%. They ain’t making a lot of money.

    This is largely because insurance-based cost control is ineffective. Any time the insurance companies have made a serious effort to control costs people complain that the meanies are trying to kill grandma and get the government to intervene to mandate what the insurance companies MUST pay for (whatever the hositals charge). Thus, the bargaining position of the insurance companies is extremely weak. They can’t negotiate for lower prices by threatening not to pay for something.

    1. Clearly, what we need, and what Congress is about to give us, is insurance companies wearing jackboots.

  18. Clearly, what we need, and what Congress is about to give us, is insurance companies wearing jackboots.

    Not really. If anything the current proposals weaken the insurance companies bargaining positions further.

    When they propose is government review boards that will decide which treatments are most “effective”, meaning that anything else is “ineffective” and therefore doesn’t have to be covered.

    Naturally this opens up all sorts of possibilities for rent-seeking, influence-peddling and abuse. Since the government is effectively granting a kind of quasi-monopoly to makers of the “effective” drug, or providers of the “effective” treatments. And since the members of these panels wil be obscure political appointees, it’s likely they will be terribly unaccountable to patients, and easily swayed by political considerations.

    The insurance companies, if they don’t go bankrupt in a few years, will end up being merely accounting gimmicks, since they will have no authority over who they sell a policy to, what the policy costs, or what it covers – all of that will be decided by legislation.

  19. …an insurance market where plans are written for the healthy and all legal efforts are made to exclude the sick. That’s meant premiums are somewhat lower than they’d otherwise be…

    Not somewhat. A lot.

  20. And I don’t understand why (it appears that) only libertarians are hammering home the need to decouple insurance from employers. Why is this not at the top of everyone’s list of talking points?

    Liberals used to talk about it, too. Of course, a lot of the time the method they proposed decoupling it by having the government take over all health care, but not always.

    A few years ago, Nancy Pelosi espoused some of the same reforms that John Mackey is being boycotted for. Of course, she’s now in line with the current talking points, more or less.

  21. There is an essential weakness to what the Democrats are selling. The Dems think the big problem with healthcare is that not everyone is formally covered. The public thinks the costs are too high and the services they think they’ve paid for will not be delivered on. What the Dems want to do does little or exacerbates the public’s wants.

    1. Yup, that’s what I’ve been arguing for a while. The general public cares about cost escalation. They don’t care about universal coverage.

  22. Liberals used to talk about it, too. Of course, a lot of the time the method they proposed decoupling it by having the government take over all health care, but not always.

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