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December 06, 2008

Health insurance lobby: No competition, thanks

A major lobby group for the health insurance industry is trying to drum up support for a predictably self-serving plan:

1. Force everyone to buy our expensive product. 2. Don't let the government sell the same thing for less, 3. Cut taxes to help people afford what we're selling:

America’s Health Insurance Plans, the industry trade group, rolled out a plan Wednesday that embraces some of Obama’s ideas and signals dissent with others.

The industry’s proposal would require individuals to carry insurance and insurers to cover pre-existing conditions. And it would strengthen the health care safety net and provide tax credits to working families to help buy insurance.

The insurers say their plan would build on the employer-based system that provides most Americans with their health insurance – also an idea Obama supports.

What it doesn’t include is a public health insurance option that would compete with private plans, a concept supported by Obama and progressive groups such as Health Care for America Now.

“We don’t see that there will be a need for an additional public option. We don’t think there will be a need to get the government in the insurance business,” said the group’s spokesman, Michael Tuffin. [Politico]

The only "concession" is that the industry will promise to sell insurance to everyone, even the sick and the old. They don't promise to do so at an affordable price. According to the article: "The industry addresses the affordability issue by calling on Congress to reduce health care costs by 30 percent."


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Using the UK or Canada as a model makes more sense than letting the US insurance industry write a bill.

Congress let the US pharmaceutical industry write a prescription drug bill in 2003 and that didn't turn out well.

"'It’s the Marshall Plan for insurance industry profits, because they use all the arms of government to force people to buy their failed product,' she said. 'What their proposal does is privatize profits and socialize risk.'"

That's what we call the "free market", baby. Haven't you learned anything this past year? There's no reason for the government to be involved, except for shelling out tax revenues for costs the insurance companies don't care to pay themselves, and using its coercive power to force all of us to subsidize Gulfstream trips to Monaco and a vast, pointless private bureaucracy. (I can hardly wait for the proposed penalities for individuals or families unwilling to sell body parts, or go into indentured servitude to buy the garbage they're selling.)

It looks like our future healthcare system will be the result of a battle between the greedy and the stupid.

We don't need health insurance in this country, we need health care.

The insurance companies should be cut out completely.

No the insurance companies should not and will not be cut out. Single payer is out.

Even in countries like Britain private insurers play a very important role.

If the government creates something that is simpler and fairer and cheaper, then more power to them - the private companies should not be permitted to stop that.

One of the main beefs anyone with insurance has is the great complexity of the private system. Its really hard to understand. If the government can compete with a simple and comprehensive plan, people might flock to it even if it was more comprehensive.

--more expensive--

These parasites are in Canada drumming up business and Canadian governments, particularly the current federal one, as well as numerous provincial governments, are courting privatization. Canada's medical doctors (the head of the CMA) are also mostly for private health care (because they can make even bigger bucks).

Canada's public health care service is on a precipice as funds are continuously reduced. Ironically, the more governments cut back the more people scream to be allowed to pay for it. I shudder to think of our future under increasingly conservative governments (the Liberal Party hasn't been truly liberal for at least 15 years).

I don't see why the US should limit itself to only looking at the UK or Canada for examples.

Look at *all* first world countries. Maybe Japan has figured out some of the solution, France some other part. I kind of doubt that there's any country that has the "perfect" answer, except in the minds of those who are so prejudiced that they just know the answer regardless of evidence.

The US actually has an opportunity here. "Early adopters" often get locked into a poor system (yeah, we sort of have that right now), while later on one can make a more rational choice.

That's true in a technical context (NTSC v PAL, AMP v GSM) and I think true in general: the more experience you have, the better decision you can make IF you can make the decision objectively.

The insurers say their plan would build on the employer-based system that provides most Americans with their health insurance – also an idea Obama supports.

What are the arguments in favor of having an employer-based system of health insurance? How did the US end up with this arrangement?

Using the UK or Canada as a model makes more sense than letting the US insurance industry write a bill.

It really doesn't. Even Ezra Klein, hardly a free marketer, will tell you health care in Britain is worse than in the US, and waits in Canada are onerous. The good systems aren't found in the Anglosphere - the good public systems are in France, Sweden, Italy, and Japan; the good private systems are in Switzerland and Singapore.

In France, the case I know the best, there are plenty of private insurers. In fact, a higher proportion of the population has private add-on insurance in France than does any insurance in the US. (And conversely, the prices without any insurance seem to be lower than those in the US with insurance.)

Lindsay Beyerstein -

Thanks for pointing out the ridiculousness of the insurance industry proposal.

They're basically offering to quote a price to anyone. They may tell a sick person, "you can have our insurance if you pay us a billion/year," but theoretically that person can buy insurance.

What are the arguments in favor of having an employer-based system of health insurance? How did the US end up with this arrangement?

The second question was the subject of a fascinating article by Milton Friedman.

The first question has an answer in several parts. First, medical care requires insurance, since most of the spending on health comes from a relatively small number of patients, who have unexpected medical conditions or have been in accidents. Completely out-of-pocket spending makes sense only for relatively small or predictable medical issues, like routine visits to the doctor, which only make up a small percentage of total health spending; anything bigger would bankrupt most uninsured people.

Second, while most health spending isn't expected, not everyone has the same risk. A thin 20-year-old with no prior medical conditions has a smaller risk of suffering a heart attack than an overweight 45-year-old who has high cholesterol. In fact, the 20-year-old's risk is so small she might choose to forgo insurance, because of its high cost relative to the benefit to her. This will make the pool of insured people sicker, requiring the insurance company to raise premiums, which will cause more people to forgo insurance, and so on, in a vicious cycle. The insurance company can attempt to discriminate in rates between people of different risk groups, but to even partially offset the above effect, it needs to either refuse to insure high-risk people or charge them exorbitant rates, either of which will mean they will often be uninsured. Thus there will still be a large pool of people who need health care but can't pay for it, leading to either massive funding problems for hospitals, or severe public health crises.

The employment-based system is a crude way of imposing a community rating. The insurance company charges a single rate to a company, based on the average risk of the entire population. The healthy 20-year-old has to work, and it's almost certain that her coworkers have diverse ages and medical backgrounds; thus, she is forced to pay the community rate for insurance, and cannot opt out. This protects the 45-year-old with cholesterol problems from having to pay exorbitant rates; he is in effect subsidized.

A universal health care system provides another community rating, since the government can't discriminate in premiums. In fact, it is better, since a company might try to skirt the law and discriminate against unhealthy individuals, so that its worker base is healthy enough that it can pay lower premiums. For example, Wal-Mart does this by requiring sales associates to lift heavy crates, winnowing out some of the less healthy applicants. However, while universal health care is better here than employer-based health care, the difference is tiny compared to that between employer-based and private health care.

Nice explanation Alon. I would add that some of what we call health insurance isn't really insuring people against risk. It's just a (legal) tax dodge.

If the average family has routine health expenses of $1000/per year, private insurance coverage wouldn't save them any money because insurance companies would have to collect $1000/year/family to cover the expected $1000/year/family outlay. (Assuming the investment income and administrative costs are a wash.)

That's generally okay for the family, because $1000/year in direct medical costs probably doesn't exceed their ability to save. On the other hand, small medical expenses aren't tax deductible. Assuming a 20% tax bracket (to keep the math simple), they pay $250 in taxes on gross income of $1250 to have the $1000 for medical costs.

If, instead of paying their own medical expenses, their employer spends $1000/year on insurance that pays 100% of routine visits, they can get the remaining $250 as gross income, paying a 20% tax of $50. They get the same medical care as before, plus they get to pocket $200 that would have gone to taxes.

Essentially, the government is paying people to buy employer-paid health insurace for routine care instead of going it alone. Thus, we have a lot of employer-paid health insurance.

Cutting back on this system is the motivation for various kinds of healthcare spending accounts. You get the same tax deduction without the complex risk management of insurance.

For those seeking a more definitive history of the rise of employer funded health insurance, see The Risk Pool, a New Yorker article from a couple of years ago. The short answer is that employers did not want labor unions to organize and implement a health insurance plan for their membership, as that would give workers and unions too much power. Employer supplied health insurance under-cut the unions and made them much easier for Reagan to defeat in the 80s. Now that the unions no longer pose a threat, employers no longer have much incentive to maintain their employees' health insurance anymore. Business journalists have even blamed the employer funded health benefits for lack of competitiveness of U.S. businesses in general and the collapse of the "big 3" auto companies in particular.

We're going to lose employer funded health care soon. What will replace it remains anybody's guess.

The Risk Pool is about pensions, mostly. The health insurance system was already in place by the end of World War Two; the question afterward was whether to expand it or not. Since Southern Democrats struck down universal health care on the grounds that it would cover blacks, workers had to keep using employer-based health insurance.

Let's hope Obama doesn't get his way. Universal healthcare sounds good on paper. But when you have to settle for inferior care and long thanks.

Really good post. I liked it... Great!

Well something needs to be done and at least Obama is trying to make a difference. Unfortunately the whole healthcare situation is bittersweet because the long term economic effects from profits lost to pharmacuetical companies will be enormous.

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