Health insurance

The Health Insurance Trade-Off Game

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Last month, I noted that, in Massachusetts, price controls designed to reduce health insurance premium prices had pushed health insurers to offer plans that, according to the Boston Globe, "largely bar consumers from receiving medical care at popular but expensive hospitals." The paper called this a "radical" and "once unthinkable" idea that, thanks to the state's aggressive crackdown on insurance premium hikes, was becoming a trend—despite the fact that "Massachusetts consumers and employers have long cherished choosing from a broad range of providers." Unthinkable or not, though, it's an outcome that should have been entirely predictable to any student of the most basic elements of supply and demand: Price controls result in service cuts.

Wheel of Misfortune

Now, we're seeing the flip side of that equation: New insurance mandates mean higher premium prices. Starting later this year, the Affordable Care Act will require insurers to cover children until they are 26 years old. That will push plan prices up by an average of just under 1 percent, according to the AP. It's a relatively small hike, but as the article notes:

That premium increase will come on top of hikes employers already expect for next year. Large companies forecast that premiums will rise between 6.5 percent and 7 percent without the impact of the health care overhaul, according to an early survey by the National Business Group on Health and benefits consultant Towers Watson.

Not surprisingly, the new rules come with a host of business-side complications. From The Wall Street Journal:

Insurance coverage for a person in his or her mid 20s is likely to cost the health-insurance provider more than coverage for a younger dependent. But the rule specifies that companies can't limit the benefits package for a young adult so that it's narrower than what's offered to other dependents.

The rules could pose a challenge to insurance companies, which had pushed for wider latitude to vary premiums based on age. Insurance providers could end up passing on the cost by raising premiums for all younger enrollees.

Prices determine quality of service, mandates drive prices up, and regulations make implementation more difficult; none of this is terribly shocking or controversial. Yet supporters of the Affordable Care Act have largely dismissed these concerns as trivialities.

Not the game of Life.

Take, for example, the New York Times' unsigned editorial on health insurance rate hikes yesterday. It goes after insurance giant Anthem for big proposed hikes in California, and makes a reasonable point about some errors in the company's accounting. But factoring in those accounting errors does not remove the need for large rate hikes to cover the company's insurance losses in the individual market. And the Times admits that the "reason the company lost money on the individual market is that it lost heavily on policies issued to participants in two state programs that required Anthem to cover people with pre-existing conditions and capped the premiums it could charge." Rather than hike individual-market premiums, the Times says, "Anthem could have spread its losses more broadly to protect its individual buyers."

Well, it could have. But, as the Times also notes, pushing the cost of those losses onto its employer plans would likely have affected its competitive position. That could have meant less business, which would have meant a smaller insurance pool, which, in turn, would probably have made premiums even more expensive.

No matter what, though, the point is that the state's regulations made the cost of business more costly and thus drove prices up.

Naturally, no one wants to pay for these increases. But someone has to.

Those in government who want to regulate insurers and impose mandates on their products seem largely uninterested in dealing with these trade-offs, preferring instead to layer endless rules and regulations on top of each other in hopes that eventually a working system will emerge. That's not likely to happen. They might not worry much about the trade-offs and costs of their policies, but it increasingly appears that the rest of us will have to.

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  1. Lame-ass alt-text.

    1. This is a perennial Suderman problem. Just send preview articles to me. I’ll punch them up gratis.

      1. What are you trying to do Saccharin Man, break the InterTubez?

        1. I just feel compelled to help. It’s like seeing a drowning child. You may not be able to swim great, but you’ll still jump in.

      2. Sorry to disappoint. How about I start using “Suderman-alt-text-fail” as my default alt-text?

        1. That would be funnier.

          1. That would be awesome.

    2. At least he tries. There’s nothing more disappointing then hovering over a pic on H&R with no alt text. Except being a Cubs fan in October.

      1. Completely
        Useless
        By
        September

      2. I surf with only cached images displayed, so I always see the alt-text by default.

        What bugs me is when people use unresized pictures and they’re grossly large, like that 900+KB Bruce Lee photo. I’m out in the sticks where the only high-speed Internet you can get is satellite, and you don’t get unlimited bandwidth!

        1. Don’t worry! The Federal government is here to rescue you with a high speed broadband!

  2. Well, in fairness, the NYT hasn’t run a profit in so long, it may have forgotten that most private businesses prefer to do so.

    Anecdote != Data, but as an healthy, self-employed individual, my premium climbed 7% this quarter. I was pleasantly surprised, but wouldn’t be surprised if it continued to increase at 7% per quarter for the next 10 years. What’s the cap on the non-insurance fine again? 2% of income? I’m only about $300/year in premiums away from the tipping point.

    1. The NYT made .44c a share in the 4th qtr of 2009 and has a multiple of 11 going forward.

      Quit listening to redneck radio, dumbass.

      1. More currently, for 1Q 2010:

        That helped the [NYT] post net income of $12.8 million, or 8 cents per share, compared with a year-earlier loss of $74.5 million, or 52 cents per share.

        Excluding special items, the company earned 11 cents per share versus analysts’ average estimate of 5 cents a share according to Thomson Reuters I/B/E/S.

        So profits are down, a lot, from 4Q 2009. Not sure if they made a profit for 2009 as a whole.

      2. Yeah. When they sell property they net out. If they were in real estate that would be great. The paper ain’t profitable.

    2. The NYT made .44c a share in the 4th qtr of 2009 and has a multiple of 11 going forward.

      Quit listening to redneck radio, dumbass.

      1. Because they can keep that up with revenues declining, right? And when was the last time the revenue growth number for the Times was positive, anyway?

      2. It is the strangest thing about reading Shrike. He always makes a great half a point, but doesn’t really get it beyond that as the other half is where the real action lies. Reminds me of Michael Lewis in many ways.

        1. Michael Lewis comes across as a likeable person though.

  3. For those who may prefer old-school WoF, here’s Chuck and Susan in ’76.

  4. No matter what, though, the point is that the state’s regulations made the cost of business more costly and thus drove prices up.

    Peter, there is another factor you neglected to mention and that is artificial demand for services, in addition to increased demand for “free care.” Specifically, “preventative care” mandates that also drive up the cost of health care, but not only have the CMS overlords considered this, a la “Nanny State” laws, e.g. salt bans, HCFS bans, smoking bans, but that medicine is on the paternalistic bandwagon too. Preventative medicine drive up costs as well by mandating care, but then if services are to be cut, what happens to the patients that need the expensive care after using resources to diagnose disease proactively? The government CMS overlords completely disregard the failure that is Medicare and Medicaid.

    Linky

    The ideal situation would be for physicians and their local communities to work together to link personal/clinical preventive medicine, with community/population-based prevention. These interventions should be linked to state and local health policy. The Centers for Disease Control and Prevention is beginning to report the findings of the U.S. Community Preventive Services Task Force. The future looks promising for community-wide prevention.

    Rationing folks, It’s here.

    1. Your linky is broke.

      1. The proper linky! Sorry, I SF’d the link.

  5. Insurance coverage for a person in his or her mid 20s is likely to cost the health-insurance provider more than coverage for a younger dependent.

    It’s not so much about the age as about the fact that this is elective coverage, which means that a disproportionate number of these kids will be really sick and running up large claims, while the healthy ones decline to pay the extra premiums.

    Also, since most insurers based dependent coverage on one price regardless of the number of children covered, this law means the insurers have to pay the claims for someone who often is not paying any extra premiums because of other dependent children enrolled.

    1. Lets not forget that, when you insure women in their 20s, you are going to start picking up pregnancies and other OB/GYN issues.

      1. How long until we go whole-Sweden and offer women an entire year or two of pay to stay home and raise babies?

        Not that I think its a bad thing to raise your kids, but I don’t expect to pay for someone else’s daycare, whether it’s paying them to watch their own kids or subsidizing their daycare costs.

      2. I suspect that’s already factored in. One of the things that drives me crazy about the health care debate is that nobody brings up the fact that “progressives” have worked hard for at least a generation to make health insurance more expensive. They don’t think of it that way, of course, but we now have mandates that insurance must cover birth control, pregnancy, drug abuse, psychological problems, acupuncture, etc. etc. And now they complain how expensive health insurance has become. Well, duh.

        1. A lot of my liberal friends just don’t get that insurance companies more or less are forced to provide exactly the plans that they do for exactly the price that they do by regulations. And their profits are not terribly high.

        2. Not to mention closing down the non-white low income medical schools and killing off lodge practice.

          1. Indeed. Plus restrictions on nurses, pharmacists, more power to the FDA, etc. etc.

      3. And those maternity costs wouldn’t be so damned high if the process of giving birth weren’t so medicalized.

        I pay through the nose for my coverage, and after $1k I’m completely off the hook for my maternity costs. That’s ridiculous.

        For what it’s worth, I plan to do my part to lower health care costs by birthing at home, with an extralegal midwife, who will be paid in full from my own wee li’l pocket.

        1. The problem with coverage for pregnancy is that it is something you want to have happen. Insurance is supposed to insure you against things you hope will never happen. Any other type of insurance you hope never to need. Health insurance cannot function as insurance as long as it is required to cover things that people actively seek to have happen.

          1. And the over-medicalization of birth is a bit much too. The c-section rates these days are astonishing.

          2. I agree, completely. I want health insurance that looks like my car or homeowner’s insurance.

            Here in KY, the C-section rate is something like 35%, the breastfeeding rate is embarrassingly low, and there are NO Commonwealth-licensed CNMs.

            1. Of course the breastfeeding rate is low, that’s what Mountain Dew is for.

              Central Appalachia is the number one spot in America for tooth decay to due to their poor diet, lack of access to dental care, and widespread addiction to Mountain Dew. They say it’s used as a kind of anti-depressant, thanks to its high-caffeine and sugar levels. Good Morning America visited and found they even put it in baby bottles. Some 2-year olds have 12 cavities in their baby teeth. They discovered an 11-year old Dew-drinker boy who hadn’t brushed his teeth in several weeks because they hurt too much.

              1. Wow. For shit’s sake, people, breastmilk is FREE! You’re dirt poor, but you’ll spend money to put Mountain Dew in your baby’s bottle?

                That’s just a million kinds of stupid.

        2. My mother (yes, I have a mother) found the bill for my delivery the other day. In the early ’60s, they were billed for Eight Dollars and seventy-five cents ($8.75).

          Of course, I was born in the Naval Hospital in Quantico, which may have had something to do with it.

          1. I get to pay $2400 for the privilege of having assistance while I birth in my own bathtub/bed/wherever I wind up.

  6. Rather than hike individual-market premiums, the Times says, “Anthem could have spread its losses more broadly to protect its individual buyers.”

    It takes a liberal to think it’s a good idea to let a segment of your book of business lose money while letting those losses create a drag on your profitable lines, thus causing your profitable business to cancel in order to increase your market share of money-losing business.

    Any competent actuary or underwriter would roll their eyes at this idiocy.

    1. Any competent actuary or underwriter sentient human being would roll their eyes at this idiocy.

    2. It just isn’t about the dollars and cents anymore; it isn’t about the logic either…

      It’s just about the kind of world they want to live in, and who’s willing to do whatever it takes to get there.

      We have to start contesting their healthcare take on those terms too, or losing the healthcare debate is just gonna be the first of a lot of lost battles.

      I’m not willing for reality to weigh in and settle the matter either, by then it’ll be too late.

      1. “I’m not willing [to wait] for reality to weigh in and settle the matter either, by then it’ll be too late.”

        Fixed.

        1. It’s already too late.

    3. Oh come on, surely some news paper editor in new york knows better about pricing and revenue than all the actuaries, economists and accountants Anthem has working on this.

    4. “It takes a liberal to think it’s a good idea to let a segment of your book of business lose money while letting those losses create a drag on your profitable lines, thus causing your profitable business to cancel in order to increase your market share of money-losing business.”

      Really, its almost a watered down fascist view of private enterprise. Private firms may still exist, but only if they serve some kind of state purpose.

  7. Barack Obama told me his shiny new health plan would bend the cost curve down, or something, so this is all just out of date and academic, and refers to the Bush error.

    1. I dont know what a cost curve is, but someone(e.g. anyone who pays taxes) is getting bent over and lubed up pretty well.

  8. “Starting later this year, the Affordable Care Act will require insurers to cover children until they are 26 years old.”

    Further evidence we are infantilizing our whole society. 26-year old children?

    Sorry, but I have to get on the moral high horse here. When I was 26, I was done with college and living solo, paying rent and working a job that paid well and included benefits but sucked on my soul, just so I did not have to join the welfare class.

    1. “When I was 26, I was done with college and living solo, paying rent and working a job that paid well and included benefits but sucked on my soul, just so I did not have to join the welfare class.”

      And now you want every other child to have to suffer the same cruel abuse too?

      …actually, I moved out of the house and got my first real jobs when I was under 14. I hated being treated like a child even then.

      That is a great argument against child proofing the world, actually–we don’t want to live in a child proof world ’cause that’s the world we live in too, and we don’t want to be treated like children.

      That’s the kind of competition we need for the New York Times’ and Barak Obama’s vision of the world–they want to treat us like children!

      I do not want Barak Obama as a surrogate father. …very few people do. I think that argument’s a winner.

      1. I agree, good argument to use, but so many refuse to see it as such. It’s not being “treated like children” to them. It’s about fairness and high standards of living, and not having anyone say “no” or limit you in any way.

        My experience working with adolescents is that they become used to being able to go to anyone and ask for thirdsies and fourthsies and so on and on to make up for work they haven’t done or deadlines they’ve missed. With so many chances to delay real responsibility, they take being treated like children as a granted fact of existence. Real “responsibility” will come when they graduate high school and then college, and get jobs.

        But they won’t even have to worry about that, really, because most of the pressure to get a job comes from the fact that you are flying without a safety net once college is over, and your parents’ health insurance can’t cover you anymore. That little bete swatted, and the knowledge that EBT cards will buy steak and organic asparagus, makes a body loathe to really work.

        1. That should be “loath” not loathe. Either one would really fit, though, no?

    2. When I was 22, I made twice the family of four median income. I owned a car, a truck and a converible. Had my own place and traveled well.

      My mother, during this period, worked for little more than minimum wage. I’m sure she’d have given anything for the privilegde of paying for my health insurance.

    3. Was providing insurance to adult-aged children prohibited before? If it was not prohibited and, there was sufficient demand for it, I’m sure the insurance companies would have offered such a product.

      Also, was there (is there?) any law preventing parents from paying for a separate policy for their adult-aged children?

      1. GIMME!!!!

      2. but the goal here by the dems is that they wish to socialize the cost of said insurance, making everyone collectively pay for these kids. Its not that this kind of insurance wasnt available before, its that it wasnt “free.”

      3. The point is to make it part of every plan, so that everyone has to pay for it (but it’s not a tax, honest).

      4. It was not tax deductible, and therefore rarely part of employer provided healthcare, which is the market driver.

    4. I wonder how soon until employers stop insuring employees under 26?

      1. Wouldn’t that be illegal under the new health reform laws?

  9. Rather than hike individual-market premiums, the Times says, “Anthem could have spread its losses more broadly to protect its individual buyers.”

    “We meant for you to steal from ALL healthy people to fund the people with pre-existing conditions. Not just the healthy people in the individual market! Don’t let ANY of those healthy people get away! Steal from them ALL!”

    1. I’m not sure the Times is in a position to give anyone else business advice. Though I’m sure they could give great tips on finding a Mexican sugar daddy.

      1. Another idiot.

        Carlos Slim put money into the Times to MAKE money.

        1. That may be what he intended, but that ain’t what’s gonna happen.

        2. Yes, I’m sure that’s it, you fucking moron.

  10. Oh, Vanna!

    1. Is she your Chani, Pro’L Dib?

      1. No. I was just quoting Pat. My Chani is my wife, which is convenient.

        1. Fortuitous and very uncanon, Pro’L Dib. You mean you don’t have an Irulan running around and quoting your every word and being a general pest?

          1. My life is like a made-for-TV movie, where characters disappear or get merged.

  11. Well one thing you can always count on will be the insurance companies coming out on top! Never fails. Stick it to the people, its the American way.

    Lou
    http://www.online-anonymity.tk

    1. I love it when annon bot trolls.

  12. Arithmetic is for market fundamentalists!!

  13. In related news, the First Lady’s White House Childhood Obesity Task Force has released its report on The Nation’s Fat Kids, and their plan to Do Something About It, including bans on advertising (screw the First Amendment!), further erosion of property rights (you WILL post those calorie counts!), forcing kids to walk to school (Gangs? Traffic? Freezing weather? Suck it up, fatties!), “empowering” more working women to breast-feed (what the fuck?). Michelle Obama promised (threatened?), “No one gets off the hook on this one from governments to schools, corporations to non-profits all the way down to families sitting around their dinner table.” Several members of the Task Force were visibly obese, and all of them seemed uneasy and embarrassed at the oddly subdued press conference.

    1. I must say I am in favor of forcing kids to walk to school (or at least not providing buses for kids who live within reasonable walking distance). Why should we pay for buses for kids with perfectly good legs? If their parents want to arrange transport, they can.

    2. Watch every Goddamn locals new affiliate and every Goddamn Network nightly news report have a segment on this as if it were actual news instead of the vanity project of someone whose actual accomplishments are jack and shit. I hate the Royalist in our country who treat the presidency as as a symbolic quasi-religious matter above and beyond the offices Constitutional functions. It doesn’t matter if they are the ones who get teary eyed at the mention of ‘Ronnie’, the nutty sluts who dreamed of giving Clinton a blowjob, or the freaks in the airports who cut off there hair, put on white robes, and tap tambourines in the airports in the name of Obama, in every case they really make the world a worse place.

  14. Just more evidence to embrace “single-payer”.

  15. Starting later this year, the Affordable Care Act will require insurers to cover children until they are 26 years old

    “You keep using that word, et c”

    1. All the nation’s people are children. That’s why they elected us to take care of them. Go to sleep, now. Everything’s gonna be all right. Trust Mommy and Daddy.

  16. Those in government who want to regulate insurers and impose mandates on their products seem largely uninterested in dealing with these trade-offs, preferring instead to layer endless rules and regulations on top of each other in hopes that eventually a working system will emerge.

    More cowbell always helps.

  17. We should be pushing for Tort Reform and medical law suit caps. Go to the root of the problem of why healthcare is expensive.

    Best,

    James Nash
    Mystic Capital Advisors Group
    http://www.mysticcapital.com
    http://www.linkedin.com/in/jnash1

    Note – Mystic Capital Advisors Group is an investment bank providing merger & acquisition advisory services, valuation, and due diligence strictly to firms in the insurance industry.

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  20. Those in government who want to regulate insurers and impose mandates on their products seem largely uninterested in dealing with these trade-offs, preferring instead to layer endless rules and regulations on top of each other in hopes that eventually a working system will emerge. That’s not likely to happen. They might not worry much about the trade-offs and costs of their policies, but it increasingly appears that the rest of us will have to.

  21. Those in government who want to regulate insurers and impose mandates on their products seem largely uninterested in dealing with these trade-offs, preferring instead to layer endless rules and regulations on top of each other in hopes that eventually a working system will emerge. That’s not likely to happen. They might not worry much about the trade-offs and costs of their policies, but it increasingly appears that the rest of us will have to.

  22. This is good info. I did have an accident before, lucky i had insurance for it. I crashed my car and didn’t have the proper safety stuff 🙂
    car shop.

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