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Tilting at Windmills

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February 12, 2008
By: Kevin Drum

LIVING WITHOUT THE HEALTH INSURANCE INDUSTRY....The LA Times reports on the latest from the health insurance front:

Blue Cross of California is sending physicians copies of health insurance applications filled out by new patients, along with a letter advising them that the company has a right to drop members who fail to disclose "material medical history," including "pre-existing pregnancies."

....The letter wasn't going down well with physicians. "We're outraged that they are asking doctors to violate the sacred trust of patients to rat them out for medical information that patients would expect their doctors to handle with the utmost secrecy and confidentiality," said Dr. Richard Frankenstein, president of the California Medical Assn.

Blue Cross may or may not be within its rights to send out this letter, but they aren't doing anything either illegal or unusual. After all, any profitmaking insurance company is going to do its best to avoid covering people who are likely to incur large medical expenses. It's just the nature of the beast. If they don't do it, they'll go out of business.

So let's get rid of health insurance companies. They cherry pick clients, add huge administrative costs to the system, and do nothing to drive innovation or bring down costs. What good are they? Tyler Cowen answers:

Let me be clear: the incentives today are screwy. Let me also tell you my ideal world. Insurance companies are judged by honest third party intermediaries. Insurance companies compete like heck to make customers satisfied. Insurance companies monitor doctors, read Robin Hanson, and require evidence-based medicine. Insurance companies which fail at these pursuits either go bankrupt or they must abide by an ex ante contract to permit the exile of their CEOs to Greenland. Every year prices would fall in real terms, quality would improve, and coverage would be expanded. Imagine the whole health care sector working like laser eye surgery or cosmetic surgery.

....I believe we know why insurance companies don't work this way, namely monitoring problems; they screw you over instead of serving you and they can get away with it. Go ahead, call me a pollyanna, but modern information technology and measurement can indeed resolve many monitoring problems. We can now monitor central bank performance quite well or show up in Sicily with a credit card and rent a car. Neither was the case forty years ago.

Maybe. But I'm pretty skeptical. The problem is that the incentives to make money the old-fashioned way are huge, and the level of monitoring by "honest third party intermediaries" — i.e., the government, in any realistic scenario — would have to be fantastically onerous to keep insurance companies on the straight and narrow. It seems likely to me that the only way to provide universal coverage and keep insurance companies from cheating would be regulation so heavy that you'd end up with something more like a public utility than a private corporation.

But if it's price signals and competition you're after, why not cut out the middleman and have consumers pay doctors directly? For example, imagine a national healthcare plan that paid 75% of all medical expenses but required you to pay the other 25%. Your maximum out-of-pocket expense each year would be capped at, say, 5% of income at low income levels, 15% in the middle, 30% at the next level, and 50% for the rich. Or something like that. It covers everyone, it limits catastrophic medical expenses, and it eliminates insurance companies and their bloated administration costs. But the copay is high enough that it gives consumers an incentive to shop around and doctors an incentive to compete.

This kind of single-payer system obviously requires lots of government funding, but on the regulatory front would probably be more conducive to competition and innovation than desperately trying to bring down ever-bigger hammers on private insurance companies who are gaming the system. And since the government would basically just be in the check writing business, not the spending business, deadweight costs would be fairly low.

Obviously libertarians would (I assume) prefer that the government not be in the business of providing universal healthcare at all. But if you're willing to entertain the idea, why not a simple single-payer system with copays instead of a massive new regulatory structure designed solely to keep health insurance companies in business? What's the point?

Kevin Drum 12:48 PM Permalink | Trackbacks | Comments (74)

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Insurance companies are "judged" by "honest" third-party intermediates. Hmm. Reminds me of rating agencies in the financial sector. They do a great job, right?

Posted by: Joshua on February 12, 2008 at 1:02 PM | PERMALINK

But think about all those poor insurance sales-pesons who would be out of work!

Posted by: MNPundit on February 12, 2008 at 1:02 PM | PERMALINK

Most people who write about insurance don't even know that states regulate insurance, not the federal government. The federal government has no system in place for insurance co. monitoring. That would have to be created from scratch, which could take years of commissions and hearings and lots and lots of delay.

States regulate insurance. Their bureaucracies in many states, especially republican administration states, are laughably inadequate. A few states do have a credible record of licensing and monitoring, but not many. And those who do a good job, only do so for property and casualty insurance, not health and life insurance. Because state regulators have not put teeth in the laws governing that type of insurance. The system of laws regulating health and life insurance are thin and weak.

So much of the discussion of health insurance is based on fantasy, not reality. Ever so. Again.

If you're going to create a federal bureaucracy from scratch, for god's sake rearrange the billions being spent now on health care, which is enough by itself to cover everyone, if it's done single payor.

Posted by: Jan in Stone Mtn on February 12, 2008 at 1:03 PM | PERMALINK

Thom Hartmann, author of What Would Jefferson Do?, wrote that, according to a study in the New Endgland Jornal of Medicine,

"...if all of America's health insurance companies, HOMs, and other middlemen were eliminated, and the government simply paid your medical costs directly to whomever you chose to provide you with health, the savings would be so great that without increasing the health-care budget we could provide cradle-to-grave health-care cost to every American."

Frankly, it makes sense on a gut level. The middlemen have ratcheted up the cost of getting well in America because they want to make a profit on that getting well. Sure, there is waste, fraud and inefficiency in the health care provider business, too, but controlling that would be a lot easier if we didn't also have to control the waste, fraud and inefficiency of a whole additional industry on top of it.

I'm paying taxes, dammit! I want them to heal people, not kill them.

Posted by: Riggsveda on February 12, 2008 at 1:13 PM | PERMALINK

The idea that there should be a market place for gatekeepers that is independent of the product I'm purchasing is crazy. I'm supposed to shop around for the company that is least likely to prevent me from seeing the doctor of my choice, and from following that doctor's orders to the letter. Why not do the same for car dealers--set up a gatekeeper who makes sure that I only buy cars that are appropriate for my time of life?

WTF is up with that?

I'm way better off with a single payer government plan funded by taxpayers. The way to introduce competition is at the service provider level, publishing performance statistics for providers.

You can't do that without a single entity processing patient encounters. You can't do outcomes based research to enhance health care quality without a single payer. It's uneconomic to introduce long term treatment like diet based management of lifestyle illnesses, because the customer may leave the plan at any time. When there is only one plan, the problem goes away.

The only reason the health insurance industry even exists is an intervention by the government during WWII make such benefits tax free.

The really simple free market solution is to rescind that exemption, and tax insurance premiums paid as normal income.

If he's serious about the free market, he should start there.

Posted by: jayackroyd on February 12, 2008 at 1:18 PM | PERMALINK

What is ESPECIALLY ANNOYING and DISGUSTING about the BC/BS plans is that, until about 1988, they were non-profit and owned by physicians. At that point, a bunch of evil asshole venture capitalists convinced the trustees of the plans to vote the plans private and for-profit. The billions of dollars of goodwill went into the pockets of the trustees and the venture capital folks. They sold the public down the river.

Posted by: POed Lib on February 12, 2008 at 1:21 PM | PERMALINK

Frankly, it makes sense on a gut level.

No it doesn't. It is a well established fact that government funded, government supervised health care is cheaper and better than the US system. This is not a matter of debate or dispute. The rest of the OECD spends half of what the US spends per capita and provides better care by every objective measure.

This may have been an open question in 1993. But it is not an open question now. The impact of a taxpayer funded system of universal health care on the typical American's take home pay would be an increase. And then you can add in the value of the copays that would no longer exist.

The only people served by maintaining Insurance companies' role as authorizers of medical care prescribed by doctors are the shareholders and executives of those insurance companies.

Posted by: jayackroyd on February 12, 2008 at 1:22 PM | PERMALINK

As I understand what the healthcare economists are telling us, the problem with any high-copay plan is that it gives people the incentive to be chintzy on routine preventive care that keeps them healthy. Once they get really sick they blow past the expense cap and we all pay the bill. So gov't provided catastrophic care insurance would need to be supplemented with free or "better than free" things like cancer screenings, cholesterol monitoring, etc. Once you've paid for all the high-value routine preventive care and insured people against catastrophic illness there's not much left for people to pay out of pocket.

Posted by: DCreader on February 12, 2008 at 1:22 PM | PERMALINK

Kevin,

read up on the Swiss health care system which is to a large part based on private insurance.

Insurances are not allowed to cherrypick their clients, cannot refuse a client for preexisting conditions and have to offer a reasonably priced plan. In short, this can work.. question is if it can work at the scale of the US...

Posted by: evermore on February 12, 2008 at 1:23 PM | PERMALINK

The only reason for keeping insurance companies in the mix is that attempting to eliminate the health insurance market would be political suicide. But overly complicated schemes designed to benefit the insurance industry aren't the answer either.

The proven, peer reviewed fact is that ON AVERAGE, medical interventions offer little if any improvement in patient health. I know the anecdotal evidence says otherwise, but the science is sound. So the answer is to only pay for medical interventions that actually improve patient health. Require physicians to guarantee their work and not only will patient outcomes improve, but doctors will have no incentive to perform unnecessary procedures.

Posted by: Dave Brown on February 12, 2008 at 1:25 PM | PERMALINK

why not a simple single-payer system with copays instead of a massive new regulatory structure designed solely to keep health insurance companies in business? What's the point?

The most rapid way to achieve health care reform would be to deny Congress, the President, and the federal judiciary access to the current federal system and to require them to rely exclusively upon the private market.

Posted by: Duncan Kinder on February 12, 2008 at 1:25 PM | PERMALINK

...gives consumers an incentive to shop around,
You have got to be kidding. This arguement always blows my mind. If I have a shattered leg I am not going to call five doctors and get competetive bids while I'm bleeding all over the garage floor.

Posted by: Bill H on February 12, 2008 at 1:25 PM | PERMALINK

Single payer is the only thing that makes true sense ... in a world where them with the gold didn't make the rules.

Posted by: Gore/Edwards 08 on February 12, 2008 at 1:27 PM | PERMALINK

"...a massive new regulatory structure designed solely to keep health insurance companies in business? What's the point?"

MONEY!!!! CAMPAIGN CONTRIBUTIONS!!!!PROFITS!!!!!COMPULSORY CUSTOMERS FOR INSURANCE COMPANIES!!!

Posted by: Neal on February 12, 2008 at 1:28 PM | PERMALINK

I like the simplicity of your plan Kevin. It is a single payer idea without the administrative burden of needing to determine what the "plan" is for everybody. Theoretically, you have got all the choice in the world... But there wouldn't be any limits/standardization on what a physician/hospital could charge for a given service, and that could lead to gentrification of medical care. It is kind of tough to do doctor/hospital shopping in a crisis and switching around providers all the time for cost reasons complicates long term management. Medicare has limits on charges and only 2% overhead. I think Medicare for all would be a better single-payer plan.

Posted by: Doc at the Radar Station on February 12, 2008 at 1:28 PM | PERMALINK

America's corporate elite especially mfrs like GM, know that single payer health care in America would help their bottom line. They could export products instead of losing hundreds of billions trying to sell cars to depressed america. But instead of using their political influence to save their companies, they're laying off thousands upon thousands of older insured people so they don't have to continue paying health care expenses.

The corporate elite have consulted with the republican elite who have told them that even though it would save your business you can't ask for govt. action on this.

Because you can't give the american public the idea that they can ask their govt. for something that benefits consumers. If the american public ever got the idea that their govt. could actually do something to benefit them in general, their whole political party would go down the drain so fast it'd make your head spin.

Posted by: Jan in Stone Mtn on February 12, 2008 at 1:29 PM | PERMALINK

The only reason for keeping insurance companies in the mix is that attempting to eliminate the health insurance market would be political suicide.

Why is that? Who is in favor of the current system? Do you really think a campaign based on preserving insurance companies roles in Americans' lives would work?

Or, rather, that it would not be possible, this time, to refute the "socialized medicine" narrative? That's getting kinda old. And, you know, people hate the insurance companies.

Posted by: jayackroyd on February 12, 2008 at 1:29 PM | PERMALINK

As has been often pointed out before, consumers often aren't in any position to make a "free market" choice when it comes time to make medical decisions. If I've gone to the ER with chest pains I'm not going to be able to get bids from a set of cardiologists to deal with my situation.

Even in cases where there's lead time, how are consumers supposed to evaluate the medical professionals we are choosing between? Is there some sort of reliable statistical evaluation of different specialists' historical results? Any way to get a bid on the final costs of a procedure at different hospitals? (Bear in mind that any medical procedure ends up generating endless nickel-and-dime bills from a bewildering collection of entities.) How do I know I won't pick the wrong specialist based on price and end up worse off than I began?

It's a measure of the American commitment to mindless libertarianism that we're even talking about this.

Posted by: jimBOB on February 12, 2008 at 1:31 PM | PERMALINK


I don't think the answer to a bloated healthcare system is to add yet another layer of regulatory reporting oversight, at the cost of another few GDP points. We need to eliminate that whole insurance middleman infrastructure, whose sole reason to exist is to find excuses not to pay.

Posted by: kis on February 12, 2008 at 1:31 PM | PERMALINK

Good points by several of the early posters. Those "honest third party intermediaries" will always be vulnerable to Regulatory Capture (go ahead and Google that term or look it up on wikipedia). This problem will persist as long as there is an insurance industry with an incentive to inflate its profits by undermining / co-opting the regulatory agency.

Posted by: citizen on February 12, 2008 at 1:33 PM | PERMALINK

These companies cannot be regulated. As was pointed out above, it's done at the state level by law and that makes it easier for the Insurance industry to get its way. Even if it were to be done at the Federal level, there is nothing to stop another Bush type regime from appointed industry lobbyists and execs to 'regulate' it as Bush does with so many other industries currently.

Insurance does not make money paying out claims. It makes money from investments and taking in premiums.

.... government funded, government supervised health care is cheaper and better than the US system.... jayackroyd at 1:22 PM

Even US government funded programs like Medicare are better and cheaper than the US system. Medicare has a 2% overhead, the health insurance industry around 15%.

Mandating coverage will remove the underwriters ability to reject clients or deny coverage, but it will not reduce costs significantly. The only reason to use such a hybrid system is that the power of the industry's lobbies make alternatives all but impossible.

Posted by: Mike on February 12, 2008 at 1:36 PM | PERMALINK

i like the idea of no more health insurance companies. i'd like to see some of those fat cat jerks and coverage denyers retooling their careers during a recession.

you have the pre-existing condition of being an insurance claim denyer. you're fired!

Posted by: Trypticon on February 12, 2008 at 1:39 PM | PERMALINK

It's pronounced "Fronk-en-steen". Just thought I'd clarify.

Posted by: Dr. Richard Frankenstein on February 12, 2008 at 1:39 PM | PERMALINK


'Mindless libertarianism' is right on the nose.

As a registered libertarian, even I can see the social benefits extending something like Medicare to everyone. Its really no different than having some uber-insurance-corporation managing a huge risk pool. What difference does it make if I spend $10k in insurance premiums vs $10k in health-taxes? (And the reality is that the 'health-taxes' would probably be less than what I'm currently paying in premiums.) Besides, it doesn't prevent the existing insurance organizations from providing premium services to those looking for choice and willing to pay extra.

Posted by: kis on February 12, 2008 at 1:39 PM | PERMALINK

Last I checked, the Swiss health care system was the next most expensive after ours. There are cheaper alternatives that score about as well on health outcomes. Sweden and Japan do better, Italy and Spain a little worse (this is "healthy life expectancy" at nationmaster.com).

Spain, in particular, is very cost-effective; they spend much less of their GDP (8.1%, versus our 15.4%) and much less money per capita ($2000, versus our $6100), but get first-class results by most metrics. How they do this, I do not know, but I wish I did. If we spent our money as efficiently as Spain does, we could cover everyone in North, South, and Central America and have a bit left over.

This, by-the-way, is why I have utterly no patience with these free-market-health-care "economists". They're wasting time constructing airy-fairy markets that might perhaps work slightly better than the busted system we've got. There's no need to invent a new solution, when we can steal an existing one. The really interesting question is, "what the hell is Spain doing, and can we copy it?" They're spending less than ONE-THIRD what we do per capita , and getting (much) better results.

Posted by: dr2chase on February 12, 2008 at 1:42 PM | PERMALINK

There's a doctor in my area of suburban Dallas who actually specializes in patients without insurance. Runs a clinic for mild and moderate levels of medical needs.

Posted by: SocraticGadfly on February 12, 2008 at 1:44 PM | PERMALINK

The very notion of "health insurance" in the private sector is deceiving, as the letter from BC/BS to physicians indicates. Implicit in the idea of insurance is the notion of "sharing" -- i.e., the "sharing" of a burden.

Yet, health insurance companies are structured to obtain profit rather than provide health care. Profit is primary; health care is secondary. For this reason, such companies have distorted the very notion of insurance. Their approach is predicated on a view of the autonomous, atomistic individual. The common good and the universal goal of health care is trashed.

It is because of this distortion that insurance companies can "cherry pick" those whom they insure. While such a strategy may maximize profit for shareholders, it diminishes the quality health care provided to American citizens.

There should not be any doubt: profit is the controlling principle in the health insurance industry, not health. Health and insurance in this context are contradictory opposites.

It's time to eliminate the health insurance companies altogether or, at the very most, pay them a simple fee for services rendered. The objective of profit has no business competing with and diminishing the objective of health care.

Posted by: Gerald L. Campbell on February 12, 2008 at 1:50 PM | PERMALINK

There's a doctor in my area of suburban Dallas who actually specializes in patients without insurance. Runs a clinic for mild and moderate levels of medical needs.

What's your point? Lots of medical clinics in america treat the uninsured for a moderate cost. But only for basic vaccinations and mild viruses. But if you're in a car accident and you don't have insurance, go to an emergency room and you'll pay $15000 for a broken leg. You don't have the power to negotiate cost, so you'll pay top dollar.

Not to mention the little discussed hazard of going bankrupt and on welfare if you have any long term serious diseases like diabetes or cancer.

Posted by: Jan in Stone Mtn on February 12, 2008 at 1:50 PM | PERMALINK

The name of the President of the California Medical Association is Dr. Frankenstein!!!!

Posted by: The Sophist on February 12, 2008 at 1:52 PM | PERMALINK

Competition? As an employee, I can go with my one or (if I'm lucky) two options, if I'm covered, or maybe my spouse's option (again, if I'm lucky, and this ofter carries an extra premium). Choices? Huh?

Posted by: K on February 12, 2008 at 2:01 PM | PERMALINK

Trying to save the private insurance industry is insanely stupid. They do not compete on price but on their various approaches to obfuscation. They present a nightmare of highly structured policies that try to make you believe you are protected from much, while not actually doing that much for you.

The way to put this whole thing in perspective is to ask why we shouldn't go ahead and privatize our fire and police departments? What would our lives be like if we were to turn to the private sector for the provision of such services? The answer is that none of us would like it.

Let's say your house catches fire and you live in a country that relies on private sector police and fire-fighting companies. If you were to call one of them, they would first ask you to prove that you have paid for their service before sending anyone out to help you. If you could not afford their fire insurance rates, then too bad. Too bad, that is, for your insured neighbors, who watch as your burning house catches theirs on fire.

And can you imagine how frustrating it would be if whenever you needed to call the police, they would first interrupt your request for help long enough to determine if you had paid for police protection? Or maybe they would first have to determine if the protection you paid for actually covers the kind of police services that you are requesting? Would any of us actually enjoy living in such a society? I think not.

A government-run health care industry would eliminate many perverse incentives that currently exist in our private sector approach. Even if it were to cost the majority of us more---and it wouldn't---to have the government provide us with a quality healh care service, it would be worth it if we no longer had to worry about financial concerns at those times when we or our family members are in need for health care assistance. If we no longer had to pore over the insurance policies and try to figure out how they compare to those offered by competitors, weighing the premiums vs. the deductibles vs. the co-pays vs. the % of coverage. It's a freakin nightmare.

It's time we joined the rest of the civilized world in becoming a more humanitarian society.

Posted by: James Kroeger on February 12, 2008 at 2:04 PM | PERMALINK

Kevin Drum: "What's your point?"

The point is to keep insurance companies in business and making a profit for their shareholders.

Why not nationalize all these companies and merge them into on company, or vice versa.

Or just force them to merge into one big monopoly that is highly regulated (like the bell system circa 1979).

This way the shareholders of health insurance stocks get bought out, and with it, the opposition to change.

The efficiency from a single operation would pay for the buy out.

Remember, it's always about the money.

Posted by: Bub on February 12, 2008 at 2:05 PM | PERMALINK

As much as young Richard might've been teased for being named "Frankenstein," why did he imagine he'd be more respected if he made himself a doctor??

Nothing else to say.

Posted by: Grumpy on February 12, 2008 at 2:05 PM | PERMALINK

We already have a workable system for medical care in this country. Its called medicare!
Why not just drop the age of medicare coverage gradually? Notice that each drop in enrollment age picks up healthier (i.e. younger) people which reduces the average medical cost per person. We could even make joining the program voluntary with an associated fee (perhaps adjusted for income) for the libertarians out there. There is even an insurance industry offering so-called supplemental medicare coverage that benefits frm this and presumably might supprot it.

Posted by: Bruce Rosner on February 12, 2008 at 2:09 PM | PERMALINK

Posted by: dr2chase: This, by-the-way, is why I have utterly no patience with these free-market-health-care "economists".

If we adopted free market reforms such as letting anyone practice medicine without all the government regulation and licensing red tape, prices would drop. Why do we need FDA approval for drugs? Please, not the old Thalidomide canard. We have used immigration to lower construction wages to 10% of their 60's rate in real terms; why not do the same with doctor immigration? We have to step up the pace of legal and illegal immigration to drive down wages across the board. How about electing Obama, Hillary, or McCain?

Posted by: Luther on February 12, 2008 at 2:09 PM | PERMALINK

I don't think medical work is a good place for a system of competition. We are not talking about electronic gadgets with clear specifications (and even then: how many people understand those?).
To "shop around" you have to know a lot about the commodity you are going to buy. And a) you usually don't, and b) my health (and the care for it) is not a commodity.
A system based on price competition among physicians would put business peopla at an advantage over committed physicians. Very dangerous on the long run!
In Germany we have a small disincentive against abuse: 10 Euros, payable with your first visit to a doctor per quarter. (You only pay once, even if you see five different doctors.) Children are free. It works.

Posted by: Jörgen in Germany on February 12, 2008 at 2:20 PM | PERMALINK

Gerald Campbell

Actually, the idea of insurance is to pool risk about unlikely events, ranging from weather events to auto accidents. The US was entirely fee for service before the war (to my knowledge). You had your family doctor. He treated you. You might have a different doctor for your kids.

During the war, the government was looking for some way to allow workers to receive compensation increases despite a wage freeze. They decided to make some benefits tax-free.

The form these benefits had taken by the 60s was "major medical." Essentially, in-patient care was covered, with a copay or deductible, while out-patient care was fee for service. In-patient care was also fee for service, but reimbursed by the insurance carrier.

Now this fits fine within in an insurance model; inpatient care events are rare, and serious ones are very rare. Everybody has a fender bender or two, but only a few of us have totalled a car, and almost none of us have totaled more than a couple. (I have this uncle, ex-pilot...)

However, this fee for service model was creating perverse incentives for inpatient surgical care. There was a strong incentive for unnecessary surgery to be performed. Tonsilectomies and hysterectomies, in particular, were clearly being performed too frequently.

This was costing insurance companies money, and so they wanted things changed. The narrative, of course, was not insurance company profits, but out of control health care costs.

Economists like Alain Enthoven thought up the idea of prepaid group practice. The idea was that health care provider would provide all services, from routine checkups to in patient care, for a single fixed payment. This would reverse the perverse incentive, and create an incentive for effective preventative care. Implicit within this model was an assumption that patient rosters would be stable over time (remember, people still had their family doctors at this time) at these PPGPs (or HMOs). People would only leave if they had a bad HMO. The current massive collection of insurance carriers with huge networks with no relation to each other was not part of the original model.

When the insurance companies took over the administration of these HMO programs, the incentive was for the insurance company to manage the patient roster. This was unexpected (silly,naive economists) and things have deteriorated from there.

Now, the big push is to "reduce costs" by forcing young people who do not benefit from participation into the system That is, to make the insurance companies' rosters more profitable, and for the government to subsidize the participation of citizens who can't afford to pay the premium.

This is a terrible idea. But it is not "politically feasible" to simply recognize that the participation of a third party to authorize treatment with a profit incentive to deny such treatment is a terrible idea. It is a terrible idea in principle, and we have history to show it is a terrible idea in practice.

What makes the OBE plans acceptable to various people is that they all, Obama less than the others, make it possible that people will opt for a government plan rather than a private insurance plan.

This seems like very lily-livered policy making to me--starting at the worst compromise available between atrios' "send everyone a membership cared" and the current system. Also, running against the insurance companies would be popular.

Posted by: Jayackroyd on February 12, 2008 at 2:20 PM | PERMALINK

Trying to save the private insurance industry is insanely stupid. They do not compete on price but on their various approaches to obfuscation. They present a nightmare of highly structured policies that try to make you believe you are protected from much, while not actually doing that much for you. James Kroeger

James has actually tried to read insurance policies. Listen to him. Obfuscation is the main point. That's why state insurance regulation is so thin. Because health ins. cos. speak a specific kind of legal language that's designed to confuse, on purpose.

Imagine your local lawyer state legistator or his junior staff trying to fathom this, it's like trying to solve a chinese puzzle. Your normal average lawyer isn't even an expert on property and casualty insurance, which they deal with in litigation all the time. So when they come up against health insurance, they have no clue, they throw their hands up and give the insurors whatever the hell they want.

Posted by: Jan in Stone Mtn on February 12, 2008 at 2:23 PM | PERMALINK

The person who asked about Spain's health care costs might want to consider that it is not only insurance companies that benefit from the current system. Our doctors are paid much better than those in other countries, because they are paid by the insurance companies... (and since we don't subsidize their training, they become rich only after having been in debt for a long time, which does not, I think, make them ideal candidates to change the system...)

Posted by: elisabeth on February 12, 2008 at 2:27 PM | PERMALINK

If we adopted free market reforms such as letting anyone practice medicine without all the government regulation and licensing red tape, prices would drop. Why do we need FDA approval for drugs? Please, not the old Thalidomide canard. We have used immigration to lower construction wages to 10% of their 60's rate in real terms; why not do the same with doctor immigration? We have to step up the pace of legal and illegal immigration to drive down wages across the board. How about electing Obama, Hillary, or McCain?

More immigration, less regulation, that'll solve the problem. More chinese toxic fake drugs, maybe?

The problem with cost is the uninsured. Those people who can't pay their bills. That's why an emergency room will charge you $15000 if you're uninsured. They've escalated and averaged their cost, because they hope to collect enough from you to cover their losses from others who aren't paying their bills. The more uninsured the worse the insurance system gets also, the higher premiums go. The doctors and hospitals demand higher and higher payments to offset the uninsured people who aren't paying.

The transfer effect. You can explain it over and over again and some people just can't understand it. Too complicated - this happens, then this happens as a result, then the cost goes up. By the time you get to the last effect, you've lost them, they can't hold onto the thought process long enough in their brains. Sad.

Posted by: Jan in Stone Mtn on February 12, 2008 at 2:34 PM | PERMALINK

Speaking as a small-l libertarian, I find your proposal refreshing. The details may not work out, but the themes are good.

There are two things that get my back up. First, the notion that excellence and efficiency will arise without marketplace competition to spur them. Second, the notion that government-provided health care is a "right" a la freedom of speech rather than a practical, humane plan a la Social Security. Your proposal doesn't push either of those hot buttons.

Posted by: Creamy Goodness on February 12, 2008 at 2:41 PM | PERMALINK

elisabeth

You talked to your doctor recently?

Administrative costs are killing them, too.

Posted by: jayackroyd on February 12, 2008 at 2:49 PM | PERMALINK

We could even make joining the program[Medicare] voluntary with an associated fee (perhaps adjusted for income) for the libertarians out there. -Bruce Rosner

Yes! I wished this was possible. I don't give a DAMN if I have to pay a full premium (if I'm self-employed), at least I would KNOW what the hell I'm getting: "pre-existing" conditions wouldn't matter, there would be one premium for everybody (ideally), no doubling or tripling of premiums when they feel like it or for petty reasons, no "rescinsions", completely portable, I can see who the hell I want. There's a good chance I will be self-employed again at some point in the near future and if that's the case, a Medicare opt-in paying the full premium would suit me just fine.

Posted by: Doc at the Radar Station on February 12, 2008 at 2:51 PM | PERMALINK

Medicare for all. Sometimes we just have to do the simple, practical things that make sense.

Posted by: Commons Sense on February 12, 2008 at 2:54 PM | PERMALINK

elisabeth,

Our doctors are paid much better than those in other countries, because they are paid by the insurance companies...

Partly that but mostly because the AMA has an absolute monopoly power on restricting the number of licensed doctors. As previously pointed out the AMA position is firmly entrenched because the bar was very high and expensive for the Doctor's of today to get licensed and so they would fight anything that lowered their pay.

In the long run, though, we'd be better paying off those Doctor's for their training costs and busting up the monopoly. It would cost some upfront but pay off down the road. If only we didn't have politicians sold to the highest bidder.

Posted by: Tripp on February 12, 2008 at 3:00 PM | PERMALINK

"honest third party intermediaries"

Sounds a lot like "assume a can-opener", doesn't it? I take it most economists have heard that one before...

Posted by: Ben Mealey on February 12, 2008 at 3:23 PM | PERMALINK

Doc at the radar station

No, not voluntary. Medicare for all. You get a membership card. you pay your taxes. When you need to go to a doctor, you go to a doctor.

Everyone is in the network.

Posted by: jayackroyd on February 12, 2008 at 3:38 PM | PERMALINK

ben and joshua at the top of the thread.

Kevin assumes that the government is the trusted third party referred to in that formulation.

However, the plural alone belies that understanding. What Tyler believes is that in a truly free market the need for a trusted third party would lead to such third parties arising through market forces. Kinda like Morningstar for mutual funds.

This truly does illustrate the depth of libertarian analysis.

Posted by: jayackroyd on February 12, 2008 at 3:41 PM | PERMALINK

Health insurance is certainly one area in which free-market competition is not effective, as so many posters have noted so well. The voting public is in effect subsidizing competition, because so far we find that ideal somehow more attractive than the ideal of universal, affordable health care. The debate has been ideological rather than practical, so far. In this as in so many other areas . . .

Posted by: J. Myers on February 12, 2008 at 3:45 PM | PERMALINK

Alrighty then. It sounds good to me. I'm unemployed and on COBRA now paying about $400 a month and eligible for the HCTC. When the COBRA runs out I don't want to be in the situation of "purchasing an individual plan" from a private insurer and running the gauntlet the LAT article alludes to. Kevin brought up the idea here before of a VAT dedicated for health care. I think that would be the ideal way to fund a Medicare for all system.

Posted by: Doc at the Radar Station on February 12, 2008 at 3:47 PM | PERMALINK

Doc

One of the things that drives me crazy in all this is that universal health care encourages entrepeneurship and risk taking. All the the stuff they always talk about, but don't mean. It's crazy to have a system that traps people in jobs they don't like because they're afraid their kids may get the mumps or that they won't be able to afford their blood pressure meds.

It's crazy for someone who is unemployed and trying to find either a new job or a new direction to have to spend time trying to make sure that if he slips and falls on an ice patch, he won't be bankrupt.

It's simply crazy to ask people to worry about this in a society large enough and rich enough to make sure that people can take as given that if they are sick, they'll be able to go a doctor.

Think of it as an infrastructure issue. that's what the rest of the OECD does. The current system's message is that if you are really sick, then you have to liquidate all your assets, and then go on medicaid, because you can't get private coverage, and medicaid won't cover you if you have money.

That's crazy. It's an enormous deadweight loss to the economy all because of the existence of entrenched interests that arose (as they always do) from a regime of government intervention.

Posted by: jayackroyd on February 12, 2008 at 4:16 PM | PERMALINK

Why do we need a VAT? My employer is currently paying $1000+ per month for my health care insurance, plus a few dollars from me. Certainly that could be redirected to a similar premium for medicare, or otherwise to my 'health-care-tax'.

We are already spending the money - it is just coming from employers in many cases as a 'benefit', so we don't always see it.

If people are afraid of new taxes, we just need to re-brand it as a 'premium' for a gov't provided health insurance alternative, and make it easy for companies to offer it as an option.

Posted by: kis on February 12, 2008 at 4:28 PM | PERMALINK

"Insurance companies are judged by honest third party intermediaries. Insurance companies compete like heck to make customers satisfied. Insurance companies monitor doctors, read Robin Hanson, and require evidence-based medicine. Insurance companies which fail at these pursuits either go bankrupt or they must abide by an ex ante contract to permit the exile of their CEOs to Greenland. Every year prices would fall in real terms, quality would improve,"

...and a pony!

Posted by: swio on February 12, 2008 at 4:30 PM | PERMALINK

This Cowan's an economist? And he talks like that? Like a dewey eyed HS girl falling in love with his prince charming technology that the insurance industry will adopt to make things all peachy by some kind of magic? Why? And why would this techology make any difference in insurance companies hounding doctors for confidential info they could trump into pre-existing conditions? What difference would fancy technology make? The docs know a hell of a lot more about any conditions the patient has, and what that says about future health care utilization that the insurance company. What difference does it make if the docs are forced to cough it up some ICD-9 code on a piece of paper on in electronic bits.

Read a real economist on a market based proposal that would solve many of the problems (though not all) but would provide some acutal economic incentives for adopting better technology and evidence based medicine:

Time-Consistent Health Insurance, JH Cochrane - The Journal of Political Economy, 1995

Posted by: cantbelieveit on February 12, 2008 at 4:48 PM | PERMALINK

Why do we need a VAT? My employer is currently paying $1000+ per month for my health care insurance, plus a few dollars from me. Certainly that could be redirected to a similar premium for medicare, or otherwise to my 'health-care-tax'.-kis

The trend is for employers to STOP providing health care benefits for employees because of "competitive pressures". The employers feel they are unduly burdened. The cost of medical benefits is higher than wages for some industries and for some employees.

So, if the employers stop providing health care coverage, where is it going to come from and how will it be funded in that case? Both HRC and BHO mandate that employers cover their employees or pay a tax. Well, if the employers stop the coverage, its YOYO time and you will then need to either buy a private plan or join a public plan.

If the premiums for these plans are not deducted *by the employer* from the employee's paycheck to pay for this and the employee becomes responsible for paying a monthly premium (even with subsidies) it is going to be a disaster because the premiums won't be withheld from paychecks involuntarily.

So, that's where the VAT idea comes in. You could do it through payroll taxes instead, but then you have to deal with the self-employed, the unemployed, fight over what share the employer would pay, etc. A VAT would be more ubiquitous and work with all these various groups if you are going single-payer, IMO.

Posted by: Doc at the Radar Station on February 12, 2008 at 5:41 PM | PERMALINK

The trend is for employers to STOP providing health care benefits for employees because of "competitive pressures".

Because insurance costs are going up 15% per year lately, and we are competing with products from other countries that don't have $12k per employee of insurance costs built into the price.

Regardless, the point is that 'people' (employers, individuals) are ALREADY paying for insurance (or out of pocket), except in the cases where they can't afford it (in which case the cost of their care is ALREADY coming out of our premiums/taxes). So the money is already being spent, and mostly getting wasted by the bureaucrazy between the patient and doctor.

So the question is really whether the added costs (universally covering the rest of the un/under-insured) is more/less the potential savings (eliminating a vast majority of insurance admin costs). From a macro-economic perspective, the bet is that single-payer costs a smaller % of gdp.

Ultimately, my concern with the VAT, or any other perceived new tax, is that it makes changing the status-quo a political non-starter.


Posted by: kis on February 12, 2008 at 6:01 PM | PERMALINK

Ultimately, my concern with the VAT, or any other perceived new tax, is that it makes changing the status-quo a political non-starter.

That's what I initially thought when Kevin brought up the idea. It's a NEW tax, so it's going to be DOA. But, you are also going to run into possibly a similar amount of resistance with Medicare payroll taxes being increased a lot to compensate for employer plans going away. I think they will have to go elsewhere for funding in additioin to increased payroll taxes and that creates other possible hurdles and resistance.

Posted by: Doc at the Radar Station on February 12, 2008 at 6:44 PM | PERMALINK

The Archimedes Movement is interested in designing a new health care system, and we think that universal coverage can be provided using funds that are already spent on health care (Medicare, Medicaid, and the tax break granted to companies that provide health insurance for their employees).

This idea is in line with the Thom Hartmann quote that Riggsveda posted farther up thread. There's plenty of money being spent on health care, but we aren't spending that money wisely. Check out http://wecandobetter.org.

Posted by: Chris Greiveldinger on February 12, 2008 at 6:54 PM | PERMALINK

You want change start pushing goverment funded elections.Our poltico's have sold us down the river, it is time to rein in the corparate funded elections, after all who ever heard of a honest politican they need to be policed.

Posted by: john john on February 12, 2008 at 7:15 PM | PERMALINK

We need to get a huge amount of Americans to sign up as a group 150 million strong group could have a impact on the Insurance biz.Oh never mind they already had ther private politicans put forth laws from us getting together as a group.

Posted by: john john on February 12, 2008 at 7:21 PM | PERMALINK

jayackroyd:" Even if it were to cost the majority of us more---and it wouldn't---to have the government provide us with a quality healh care service, it would be worth it if we no longer had to worry about financial concerns at those times when we or our family members are in need for health care assistance."

Returning to the US last October after living in France for a year, I was startled by the everyday anxiety that Americans have about paying for health care. In France, people just went to the doctor if they had a concern. Pas problem. In the US, every conversation turns to anxiety about health care: the underemployed college grad on a $400 a month COBRA, someone without health insurance experiencing gall bladder symptoms, the grad student who had been refused coverage for treatment after a serious bicycle accident in which he broke his jaw, and so on. Such needless anxiety! We pay more, we worry more, we get less, and we think we are lucky.

A single-payer system is the only way.

Posted by: PTate in MN on February 12, 2008 at 8:04 PM | PERMALINK

If they don't do it, they'll go out of business.

Total bullshit. They may not be able to pay the CEO $100million, but they won't go broke.

Posted by: craigie on February 12, 2008 at 8:53 PM | PERMALINK

Regarding how to pay for the self-employed and unemployed (among others):
The current rate for Medicare (for the worker) is .015%; matched, I understand, by the employer. Even should the rate be raised to 15% (a ten-fold increase), it would still be less than the present costs of Medicare and health insurance combined. Someone with a weekly gross of $800 (employee or self-employed) would pay $120 per week for complete coverage of that person and any dependents.
For an unemployed person receiving benefits, the Medicare deduction would just be taken from their check. An unemployed person not receiving benefits might be required to pay a token amount (to stress that it is a service and not a "gift"?).
For those whose income (or a portion of it) comes from interest or dividends, a "Medicare Surcharge" could be enacted. Rates would be the same as for "earned" income.
There would be screams of outrage, naturally, since a single parent earning $9/hr and with two dependents would pay $52 per week for full coverage for three people, while a single person earning $100,000/yr would pay $15000. I have no idea what someone making that amount would actually have to pay today for health insurance; there could be a "cap" or deduction if absolutely necessary.
Now, try getting this past the various lobbies...

Posted by: Doug on February 12, 2008 at 9:37 PM | PERMALINK

Medical insurance is a scam for those not on Medicare! Even the elderly on Medicare get scammed for 'supplemental coverage'. Word is it is even worse than the automobile insurance industry. Am I glad that I belong to the association! Then there is the mortgage guarantee insurance that has worked so well to protect the housing bubble. Insurance, you gotta live it.

Posted by: capitalistpig on February 12, 2008 at 9:43 PM | PERMALINK

Doug, that's why I think a national VAT (at X%) dedicated to fund ONLY Medicare-for-all UHC is the best way for the revenue side. Then you can get rid of the Medicare payroll tax. Merge the SS Medicare retirees into it the pool, replace Medicaid entirely, give everybody comparable prescription plan coverage as private plans do and dump the Medicare Part B mess that Bush spawned. Everybody would be paying into the system with the VAT, seniors, employees, employers, kids, everybody. No premium payments every month, no statements, no payroll taxes.

Posted by: Doc at the Radar Station on February 12, 2008 at 10:12 PM | PERMALINK

The sad reality is that as long as profit is in any way a factor in health care delivery, the care will be substandard.

Posted by: monoglot on February 13, 2008 at 4:49 AM | PERMALINK

Nearly all of the commentary ignores the fact that 50% of current health care funding comes from the federal government. Everyone asssumes that insurers are driving the entire equation. Not true. Given this, can someone explain whether the government's current participation drives down costs and/or makes the system more efficient. We're half way there. Is the government's sizeable participation making things better or worse?

Posted by: kreiz on February 13, 2008 at 10:30 AM | PERMALINK

The really interesting question is, "what the hell is Spain doing, and can we copy it?"

Their obesity rate is less than half of ours. Let's work on that.

http://fiordiliji.sourceoecd.org/pdf/regions_glance/36.pdf

I'll never deny that our insurance industry needs a major overhaul. I use private insurance and know that if something goes wrong I'll need to go back to employer-provided coverage. There's nothing elegant or efficient about that. And the contract is the size of a phone book.

Still, when we're far and away the fattest nation, it shouldn't be surprised when we're far and away the nation with the most expensive health care, regardless of single-payer or not.

Posted by: Dan Weber on February 13, 2008 at 1:16 PM | PERMALINK

Ex-cept, there was very recently a study published, indicating that obesity does not necessarily lead to high medical costs. It might lead to longer lifetimes, though. So, less obesity might explain their good results, but not their lower costs.

also, you have to be careful with "obesity" -- if that's the same stat I saw (got mine from nationmaster), if you track it back to the original data, you'll find it is inconsistently reported; some countries use self-report, some use doctor-report. I think we are doctor-report and Spain is self-report, so that is not apples to apples.

Posted by: dr2chase on February 13, 2008 at 1:57 PM | PERMALINK

Doc at the Radar Station: based on ease of administration then, wouldn't a national sales tax be better than a VAT? There would/will be incredible opposition to UHC no matter how it's financed, but I would think the simplest plan would help undercut that.

Posted by: Doug on February 13, 2008 at 7:31 PM | PERMALINK

For those of you saying something similar to "you can't shop around while your in the ambulance" - that's true, but besides the point.

Only a small percentage of healthcare spending is in the emergency room. Competition comes into play for those chronic issues and elective procedures.

For those that propose extending Medicare - you do realize that the US pays more than any other nation almost entirely due to Medicare, right? And that a fair amount of doctors won't accept medicare because their payouts are too small?

To the gentleman that said medicine isn't a candidate to competition because you can't understand it. You don't understand most of what you buy - you get the advise from trusted sources to make those decisions.

Posted by: Chris on February 15, 2008 at 8:19 PM | PERMALINK

MESSAGE

Posted by: ISHMAel back on February 29, 2008 at 7:00 AM | PERMALINK

MESSAGE

Posted by: ISHMAel back on February 29, 2008 at 7:00 AM | PERMALINK

Ten things Ive learned about the US health insurance system.

1. For-profit health insurance companies have a conflict of interest with their policy holders.
2. For-profit health insurance companies have no incentive to give good customer service to their policy holders.
3. For-profit health insurance companies churn their policy holders
4. For-profit health insurance companies only lease their customers.
5. For-profit health insurance companies avoid risk sharing and engage in risk avoidance.
6. For-profit health insurance companies are members of the finance industry, not the health care industry.
7. 47 million Americans are uninsured but 30 to 40 million are underinsured.
8. In general, the Americans who have reliable health insurance do so only because the government or their employer protects their health care interests, not their health insurance company.
9. Group insurance is not health insurance nirvana.
10. Honest for-profit health insurance is probably not a sustainable business model.

This is a compilation of many of the above points from an article which I have been working on. I also have written a brief discussion of each point, if anyone is interested, email jmcmeans@negia.net and I will reply with the longer article. Jim

Posted by: Jim McMeans on March 3, 2008 at 4:11 PM | PERMALINK




 

 

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