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January 11, 2012 12:39 PM Lots of People Can’t Fire Their Insurance Companies

By Aaron Carroll

Governor Romney is getting a lot of heat for a line that appears to have been taken out of context. I’d like to talk about it in context. I think that’s much more illuminating:

“I want individuals to have their own insurance. That means the insurance company will have an incentive to keep people healthy. It also means if you don’t like what they do, you can fire them. I like being able to fire people who provide services to me. If someone doesn’t give me the good service I need, I’m going to go get somebody else to provide that service to me.”

Gov. Romney is not saying that he enjoys telling people that they no longer have a job. He’s saying that, when it comes to health insurance, if a company is doing a bad job, he would enjoy telling them to take a hike. Who wouldn’t?

First of all, let’s unpack the idea that if individuals have their own insurance, the “insurance company will have an incentive to keep [them] healthy”. That’s totally backwards. The idea that people might fire their insurance companies is exactly why they don’t have an incentive to keep you healthy. Insurance companies preferentially cover healthy people, and they want those who are ill to leave, or, better yet, not enroll in the first place. Captive populations, like those in the VA, or maybe plans with long-term contracts through big employers might have the right incentive, but the types of plans Gov. Romney seems to have in mind don’t do the very thing he is saying they do. Insurance companies have a vested interest in keeping you healthy when you can’t or won’t leave.

But that’s the least of his problems. The real issue, unfortunately, is that very, very few people have the luxury that Gov. Romney is endorsing. Let’s say that you are self-employed, and lucky enough to have found a company to provide you with health insurance. Then, let’s say you develop cancer. You suddenly find out that your insurance company stinks. So you fire them, right?

Of course not. You’re screwed. Now you have a pre-existing condition. There’s not an insurance company out there that wants to cover you. So you don’t fire them. You scream, and curse, and cry, but you’re stuck. Only healthy people have the luxury of picking and choosing.

Let’s also not forget that most people don’t find out that they’re not getting “good service” until they’re sick. Healthy people don’t make much use of their insurance, so they don’t know how bad it is. They only find out after they’re ill, and then it’s too late. It’s only fun to fire the insurance company if you’re sure you can go to another company to get what you need. Almost no one can.

Of course, you could be so assured if guaranteed issue was the law. It would be even better if there were community ratings, so you knew the next insurance company couldn’t gouge you for being sick. That’s the case in Massachussetts, under the law Governor Romney signed, so it’s possible he’s just thinking back to that.

It’s also true under the ACA. But if that gets repealed, as Governor Romney suggests, then very few Americans, excepting those that live in states like Massachusetts, will get to enjoy the firing he proclaims to enjoy.

[Cross-posted at The Incidental Economist ]

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Aaron Carroll ,MD, is an associate professor of Pediatrics and the associate director of Children’s Health Services Research at Indiana University School of Medicine.

Comments

  • lou on January 12, 2012 10:34 AM:

    1. There simply is not much price competition among private health insurers. This provides almost no incentive to switch for affordability.

    2. You can apply to another company but after jumping through the hoops including detailing medical records, subjecting yourself and dependents to medical exams, etc. you might find that the underwriters will disqualify at least one member of your family for what you consider to be relatively minor medical problems.

    3. You may find that a new insurer will not cover any preexisting medical problems for at least one year.

    So, there is a lot of risk involved in "firing" your insurer and not much incentive to switch even when you are being gouged with exorbitant premium increases with very high deductible policies.