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Simple question for the White House summiteers

"What value do the health insurance companies bring to the transaction?" And I have a followup:

"If they bring no value to the transaction, why are you going to force people to buy their product?"

NOTE I've never seen an answer to that question, least of all from the so-called "public option" crowd.

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JG's picture
Submitted by JG on

The answer's actually pretty simple. They bring the same value that any insurance company brings: pooling of risk.

They don't do it that efficiently, and the market isn't structured so that they can effectively pool risk between healthy and unhealthy people, but that's what they provide.

Submitted by lambert on

Meaning, "everybody in, nobody out."

And shouldn't the word "theoretically" be your answer, somewhere? To me, your comment assumes that the insurance companies aren't gaming the system to (a) collect premiums from those who are least likely to use them, and (b) deny payments to those who actually use their policies.

JG's picture
Submitted by JG on

There's no question that single payer is far more humane. But a healthy libertarian who assigns high value to "individual freedom" would object to being forcibly pooled with unhealthy people.

I haven't seen an analysis done, but there's a good chance that, although most people would save money from single payer, it might be more expensive for healthy young people since they would have to pay more for others' health care than they do currently.

As for "gaming the system", in principle both of your examples could serve to reduce costs for those who are healthy. On the other hand, this results in the costs of health care falling mostly on those who have the misfortune of getting sick.

It's pretty clear that the individual market is a failure at pooling people with different amounts of risk, but there's probably still some success at pooling people with similar risk levels.

Submitted by hipparchia on

ideally, single payer would be funded through progressive taxation, rather than through premiums. most 'healthy young people' are earning relatively less money than are older [and probably sicker, just going by statistics] folks, so this method of paying for health care is probably more fair than paying premiums.

Submitted by lambert on

... or you can hang onto your ideology.

You're hanging on to your ideology.

Now I understand why libertarianism stays fringe.

JG's picture
Submitted by JG on

I didn't mean to imply that I am a libertarian. I think that single payer is much better than the status quo or Obama/Romney-care.

The point that I was trying to make is that in order to say that "the broadest possible pool is the best pool", you need to have a clearly defined goal or set of values against which the statement can be evaluated.

If you want the burden of health care costs to be distributed independently of individuals' health status (including predictive factors like sex and age), then "everybody in, nobody out" is a good means of achieving that.

Submitted by gmanedit on

1. Does your healthy young libertarian not mind that 30 percent is being creamed off the top, away from any actual health care?

2. If your healthy young libertarian should have the misfortune of a grave illness or accident, the insurance company would do its damnedest to delay and deny honoring its contract. Don't libertarians find this offensive?

Submitted by hipparchia on

2. If your healthy young libertarian should have the misfortune of a grave illness or accident, the insurance company would do its damnedest to delay and deny honoring its contract. Don't libertarians find this offensive?

probably not. many [most? all?] libertarians are so imbued with social darwinism, that they would think it the fault of the injured/ill person for not making better choices in the insurance policy they bought. and if you bring up the fact that most people don't get to choose their own insurance, they're stuck with what their employer buys for them, then the libertarian will tell you that it's the employee's fault for not finding a better employer when they had the chance. and on and on ...

Kick Baucus to the curb's picture
Submitted by Kick Baucus to ... on

Isn't that one of the insurers' and unions' arguments for this reform boondoggle? They claim the high premiums people pay now are because of covering the cost of the uninsured, i.e., those sick people are already in your pool. They also plan to make the healthier young help pay for Athem's profits. They don't want the healthy young going without insurance because you never know when you'll be thrown under the bus and need insurance. Pool, schmool. There's only one pool and we're all in it. There's only one risk, and that is the cost of care. The insurers are just bottom feeders.

JG's picture
Submitted by JG on

The argument for the mandate is the following:

First, we don't want to allow discrimination based on preexisting conditions.

Once we do that, there's a worry that people will game the system by going without insurance and then buying insurance once they get sick. That would result in increasing the cost of insurance, driving more people to go uninsured in a vicious cycle.

The question that I haven't seen asked is how does the mandate alone prevent this? Wouldn't people be tempted to buy the junkiest high deductible insurance until they get sick, and then buy comprehensive insurance? This would drive up the cost of comprehensive insurance in a vicious cycle.

The net result in both cases is that the burden of paying for health care falls on those who get sick. Taking this logic through to its conclusion, any market in which people can choose between different levels of insurance is doomed to fail at having the healthy pay for the sick.

JG's picture
Submitted by JG on

I suppose one extreme is the death spiral scenario and the other extreme would be for people to have the choice once they turn 18, and then be forced to keep that plan until they can get Medicare.

But the enrollment period still won't stop a self-selection process, where people who are generally healthy choose cheaper health plans, and those who have chronic illnesses choose more comprehensive insurance.

Submitted by lambert on

1. Rather than "people who are generally healthy," I think you mean "people who assume they will continue to be healthy."

2. Rather than "comprehensive" insurance, I think you mean "expensive" insurance. Whether the insurance is actually comprehensive depends on whether care is denied, and whether payment for care is denied. Let's remember that most of those who go bankrupt from medical care did, in fact, have insurance.

JG's picture
Submitted by JG on

1. You're right of course. But people do have some idea of their relative likelihood of getting sick in the next year. If buying insurance with a low deductible entails entering into a risk pool populated by people who are more likely to get sick, then someone who has less risk would have the incentive to buy cheaper insurance.

2. Expensive is implied, but what I'm really referring to when I say "comprehensive" insurance is high actuarial value.

Denial of care is terrible, and it's the closest thing we have to "death panels". Of all the awful things that insurance companies do, this is the only one that I can think of that I blame mostly on them, and not on the structure of the market. Rather than compete by advertising trustworthy coverage and attacking their competitors for denied care, they've decided to compete (to the limited extent that there is competition) by denying care so that they can slightly reduce premiums.

As for bankruptcies, I would be interested to know how many of them are as a result of denied payment, versus simply not having enough insurance.

Submitted by hipparchia on

it doesn't help the adverse selection really, generally healthy people will generally buy cheap insurance if they can get it. but it places a [very inadequate] check on people trying to game the system by buying cheap [under]insurance and then switching to comprehensive insurance once they get sick.

various pundits and access bloggers have been trying to convince us that we're going to get swiss or dutch health care [if only!] with this 'reform'. they have mandated private insurance too, but in those countries the govt dictates the prices that both the insurers and the providers can charge, and provides generous subsidies [which means higher taxes] so requiring young healthy people to buy very comprehensive insurance is not the financial burden there that it will be here.

Submitted by lambert on

You speak of "the healthy" and "the sick" as if they were permanent and disjoint classes of people.

letsgetitdone's picture
Submitted by letsgetitdone on

. . . Pool, schmool. There's only one pool and we're all in it. There's only one risk, and that is the cost of care. The insurers are just bottom feeders.

That's the problem with libertarians. They reify the individual.

letsgetitdone's picture
Submitted by letsgetitdone on

But if the question is modified slightly to ask what "unique value insurance companies bring to the health care system," then I think the answer is no unique value, since risk pooling can be done by the Government at a fraction of the overhead cost.

beowulf's picture
Submitted by beowulf on

Besides, ultimately any healthcare plan is funded (on net) by the healthy to support the sick.

Good health is worth more than money. If you live to be 90 and die in your sleep having never spent a night in a hospital, while your neighbor dies young after several bouts of cancer, she may have gotten her money's worth in medical care but would anyone argue that she got the better end of that deal?

a little night musing's picture
Submitted by a little night ... on

I just hate when people make that "healthy]sick" divide as if it represented something inherent.

You can't know until you die whether you had a "healthy" life or not. And who can totally prevent accidents or other mishaps?

Some people have an exaggerated sense of control...

nihil obstet's picture
Submitted by nihil obstet on

The person whose self-worth is tied up in "I want to squeeze out advantage from everybody else at everything" just needs to be beaten.