Insurance

"John T. Raymond as the insurance agent i...

The Insurance Agent, via Wikipedia

Most people are familiar with how life insurance works. Accountants and executives devise contracts and using statistics, they bet you live, at least until they break even. And if they can improve on your chances of living longer than average, they do even better – for example, choosing people who don’t smoke or aren’t otherwise risky.

However, now please consider “healthcare insurance”, something that doesn’t seem like real insurance at all to me. It comes in a bewildering variety of forms. Wikipedia has an article on it for anyone interested.  It’s complex, but its many forms have one thing in common: there is little meaningful competition among themselves, nor in the industry they serve. The “insurers” are administrative middle-men that, for a lucrative price, pass along costs from suppliers to businesses, costs are that are so out of control and accelerating that coverage costs an American more than double what a Canadian pays.

In trying to research this subject, which is at the very core of the national debt problem, I made an embarrassing discovery. Having opined at length on healthcare, I had reluctantly come to the conclusion that a single-payer system like Canada’s or those in Scandinavia was the only viable way out of our dilemma, but I overlooked an obvious alternative. My only excuse is that the debate on it occurred before I began to blog, and research, on the subject. My bad.

So, what is the alternative? It is the Public Option, something I had assumed was the same thing as a single-payer system. It isn’t.

The public health insurance option is a proposed government-run health insurance agency which competes with other health insurance companies. It is not the same as Publicly-funded health care. Called the public insurance option or public option, for short, it was a proposed health insurance plan that could be offered by the federal government.

And, the article adds,

The federal government’s health insurance plan would have been financed entirely by premiums without subsidy from the Federal government.

Paul Krugman, Laureate of the Sveriges Riksban...

Paul Krugman, via Wikipedia

One supporter of the Public Option labeled it a “monopoly buster”, referring to the so-called medical “insurance” industry. This view was reinforced by noted economist, Nobel Laureate,  and New York Times columnist Paul Krugman , who stated that local insurance monopolies exist in many of the smaller states represented by “balking” Democrats, and that those who oppose the idea of a public insurance plan on the grounds of defending private competition are in practice just defending lucrative local monopolies.

Why were some Democrats (and all Republicans) balking? They weren’t listening to doctors – there was evidence that “73 percent of doctors and some 1,000 state legislators favored the PO. But, what about the people in control of the industry?  (Dare I call them part of the 1%?) They were dead set against it. Robert Reich explained it in 2009 when it was being debated as part of the ACA in a Wall Street Journal article (emphasis added):

Which is precisely why the public option has become such a lightening rod. The American Medical Association is dead-set against it, Big Pharma rejects it out of hand, and the biggest insurance companies won’t consider it. No other issue in the current health-care debate is as fiercely opposed by the medical establishment and their lobbies now swarming over Capitol Hill. Of course, they don’t want it. A public option would squeeze their profits and force them to undertake major reforms. That’s the whole point.

Now, on the face of it, it might seem that the Public Option has an unfair advantage over private insurance, but Reich points out that the concept mandates that it has to pay for itself.  He adds,

As a practical matter, the choice people make between private plans and a public one is likely to function as a check on both. Such competition will encourage private plans to do better — offering more value at less cost. At the same time, it will encourage the public plan to be as flexible as possible. In this way, private and public plans will offer one another benchmarks of what’s possible and desirable.

With the current deadlock in Congress and the election now only a year away, I realize that there’s no chance of getting the Public Option back again, but I bring it up now hoping to provide context for the political debates. The debt crisis can not be solved without solving the healthcare problem, so talking about tax reform as the solution for the debt crisis, while admirable, is a deflection from reality, and that goes double if the “reform” is regressive.  I hope healthcare comes up as a topic, and if you read the links in this post you will be better informed on what it will take to solve it that I’ve been up to now.

The GOP bashes ObamaCare regularly for not solving the cost problem, and they’re right. But what they aren’t telling you is why it doesn’t.

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About Jim Wheeler

U. S. Naval Academy, BS, Engineering, 1959; Naval line officer and submariner, 1959 -1981, Commander, USN; The George Washington U., MSA, Management Eng.; Aerospace Engineer, 1981-1999; Resident Gadfly, 1999 - present. Political affiliation: Independent, tending progressive as the GOP recedes from its Eisenhower roots.
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24 Responses to Insurance

  1. Jim,

    Great post. I can only hope that others read it with an open mind.

    Like

    • Jim Wheeler says:

      Thanks, John, I hope so too.

      Like

      • Jeff says:

        I got here via “Bitter medicine” which started off talking about budget explosions and entitlement spending growth. I cringed at the way that article began, but then I hit this one and was pleasantly surprised. It argues from a perspective that you have to take the best ideas of the left and the best ideas of the right and apply them flexibly where they do the most good.

        The comparison to Europe and Canada is a particularly relevant one, as you will notice that the average American spends about 4k per year on Health care from taxes and another 3k per year on medical bills and insurance premiums, whereas the average Canadian pays 4k per year on health care from taxes and zero additional. Meanwhile, 45k Americans a year die due to lack of insurance compared with 0 in Canada.

        I am a bit different from your typical liberal in that I am happy for the top ten percent of the bottom 99% to make lots of money. These people drive massive consumption of a style that few other countries can match. From an economic perspective the only income that is damaging is from the top 1% itself, and it is only damaging in the case where demand, rather than production efficiency (different from economic efficiency in that it doesn’t go up with decreasing wages) is the limiting factor for economic growth. Of course there is no doubt whatsoever that this has been the case since at least 1980.

        I would like to express hearty agreement with the quote from Robert Reich that “As a practical matter, the choice people make between private plans and a public one is likely to function as a check on both. Such competition will encourage private plans to do better — offering more value at less cost.”

        This really cuts through the rhetoric that we don’t want public health care because it would be expensive and shows creativity in achieving the stated desires of the right while improving dramatically on the right’s preferred method of attaining these goals.

        Like

        • Jim Wheeler says:

          Right, Jeff. I agree with your assessment here. I would add however my conviction that the principal obstacle to adopting the Public Option in this country is the visceral fear most people experience at the thought of losing control over their healthcare to some bureaucrat. They fail to realize that they lost it a long time ago under the current system. As I’ve mentioned elsewhere, healthcare is not like other shopping – when you’re hurting you’re not inclined to shop around for a doctor or a hospital, you go where you always go.

          Like

  2. PiedType says:

    I’ve said all along that as Obamacare was originally proposed, it might have worked. I grudgingly supported it. However, in its final form, with a public mandate but without the public option that was to provide the affordable insurance for people to buy, the whole thing falls on its face as far as I’m concerned. The public is being required to buy something that the bill was supposed to provide but didn’t.

    Another solution, of course, would be to remove the special exemption from federal anti-trust laws that health insurance companies now enjoy. Then instead of profiting from their virtual monopolies in each state, they’d have to compete with each other across state lines, driving prices down to more competitive levels.

    Like

  3. John Erickson says:

    It sounds, on the surface, like the public option would be a good choice (the only choice?) For somebody like me, with an undefined condition and no chance of getting a company-provided insurance plan. Definitely something I will look into! I also look forward to the debate between you and Anson on this. (Just because I remain silent doesn’t mean I’m not listening. 😉 )

    Like

    • Jim Wheeler says:

      Thanks for the comment, John. Basic healthcare should be a right in the twenty-first century for God’s sake. And another thing wrong with the current system cropped up in the news today – that the flu vaccines we’ve been using for years are much less effective than previously assumed. And why doesn’t Big Pharma do more research on that? Duh. We all know the answer to that. QED.

      Like

      • PiedType says:

        Did you also hear there’s a new flu vaccine available this season that’s 4 times stronger, to better stimulate the immune system, especially the less responsive systems of seniors? I didn’t hear about it till about three days after I got my shot, or I’d have made a point of asking for it. Or maybe I got it and didn’t know it. Story was in the AARP fish wrapper that they still send me every month.

        Like

        • Jim Wheeler says:

          @ Pied,

          Yes, the stronger stuff is designed for seniors because we have weaker immune systems. I think they don’t publicize it enough. Mollie and I always get the flu shot, but we’ve been holding off because we read that the vaccine is at peak effectiveness for only 4 or 5 months and the season usually doesn’t start until December or so.

          Like

    • Jeff says:

      Correct me if I am wrong, but that was supposed to be the big win for the much-maligned Obamacare. Talk to an insurance agent, but I think that pre-existing conditions have been covered since 2009.

      Like

      • Jim Wheeler says:

        I think that’s probably true, Jeff, but only because of government regulations. As I understand it, coverage of preexisting conditions at standard rates is going to be one of the very first casualties under either the Ryan plan or Romney’s, which I understand is modeled after Ryan’s. This paints the upcoming November electoral decision in stark terms: Do we choose a society that takes care of everyone to a certain basic standard of healthcare, or do we say to society’s poorest, unluckiest and sickest, “sink or swim”?

        Like

      • Jim Wheeler says:

        Oops, sorry John. I mistakenly answered a question meant for you. My bad. – Jim

        Like

  4. afrankangle says:

    Powerful and well thought out points … and worth returning for a re-read.

    Like

    • Jim Wheeler says:

      @ afrankangle & all,

      Thanks, and, speaking of insurance, I see in this morning’s paper an AP story indicating that the Obama administration has reluctantly abandoned a part of the ACA that would have subsidized long-term care insurance for the elderly. The problem? They couldn’t get funding approved for it. Gee, I wonder who was blocking it?

      Long-term care is something that insurance works well for. Like auto accidents, the need for LTC is something that can happen to anybody, but, as the article says, “Only 5 percent will need five years or more in a nursing home. And 3 in 10 will not need any long-term care assistance at all.”

      The article says that “Conservatives have called for private coverage, perhaps with tax credits to make it more affordable.” How many people currently have private LTC insurance? About 3%. The Silver Tsunami is coming fast.

      Like

  5. ansonburlingame says:

    OK folks, here comes the “tyrant” named Anson,

    Actually I do not oppose such a public OPTION. If done correctly, such an option would simply be another insurance company joining the competition for private health care insurance dollars, though a very large insurance company this time around, the federal government.

    But here is the big question as to actually how a public option, basically a federal government run insurance program would operate. SELF-SUSTAINING is the call from supporters of the plan. Great, I am all for self-sustaining anything at the federal level. To me that means money in equals money out for a particular federal programs which for sure Medicare and SS are NOT now or in the near future.

    BUT a private, commercail insurance company MUST collect money “in” through premiums only then structure their programs to control the money “out” to pay doctors and other providers.

    But guess what the money “in” for a federal HC insurance program MIGHT be. TAXES, involuntary TAXES.

    NOW, if you consruct a new federal HC insurance program that does not raise taxes but collects additional income to be a self sustaining program through premiums which are paid voluntarily, then the “playing field” becomes more equal with private and commercail carriers of HC insurance.

    But the real point that I again make is the COST of health CARE as charged by providers of HC, not the insurance company premiums is driving the botton line COST of HC overall, whether paid for by government or private carriers.

    I see NOTHING again in this “new” approach that makes any attempt to control such costs as charged by HC providers. This plan as proposed implements competition between a government run program and a private program but only at the insurance level not the actually “who gets the money” level..

    But where we really need to focus is on COMPETITION at the HC provider level, a “shop for a doctor” type program. Fix that level of cost and any insurance program will fall into line eventually to lower the $2.5 Trillion a year we currently spend on HC and which NO ONE can afford to pay.

    Anson

    Like

    • Jim Wheeler says:

      @ Anson,

      You said,

      But where we really need to focus is on COMPETITION at the HC provider level, a “shop for a doctor” type program. Fix that level of cost and any insurance program will fall into line eventually to lower the $2.5 Trillion a year we currently spend on HC and which NO ONE can afford to pay.

      Right, and the public option would do that. Here is a pertinent paragraph from Reich’s article:

      Private insurers say a public option would have an unfair advantage in achieving this goal. Being the one public plan, it will have large economies of scale that will enable it to negotiate more favorable terms with pharmaceutical companies and other providers. But why, exactly, is this unfair? Isn’t the whole point of cost containment to provide the public with health care on more favorable terms? If the public plan negotiates better terms — thereby demonstrating that drug companies and other providers can meet them — private plans could seek similar deals.

      The bottom line here, Anson, is that the Medical Industrial Complex, like any cornered animal, is successfully fighting to preserve its dominance. The public option is a clear threat to its massive profits and it is successfully defending them – at the nation’s expense. In the meantime, it continues to churn out Viagra while vaccine development goes begging.

      Like

  6. ansonburlingame says:

    Yes Jim,

    For sure I understand the dynamics, economically, of the single option plan. But if the government uses taxes to provide the money for payments to HC providers while private insurance companies only may use voluntary premiums, well that become a government monopoly using involuntary taxation to gain the leverage for lower cost to the “insured”. That is socialism at its best, at least until taxes get too high and government “runs out of money”. Then we have the slam dunk of government PRICE controls on HC providers by decree.

    I won’t link the issue but check around for you other readers and see what MPAC now seems to be doing under the auspices of ACA (“Obamacare”). I sent Jim a private email on the matter.

    Keep up doing such things (big governmnet cuts for payment to HC providers, unilaterally) and we may see “hippies” replaced by Doctors on Wall Street!!

    Anson

    Like

    • Jim Wheeler says:

      For other readers, the Dick Morris missive about MPAC’s threat, which came in the form of an email, may be found at this link:

      http://www.jewishworldreview.com/1011/morris102711.php3

      @ Anson,

      What Morris discusses in his email about the Medicare Payment Advisory Commission (MPAC) is new to me, but I will offer my first impressions for you and others. I’m sure more-informed experts than I will be commenting on this.

      This is, for sure, appropriate timing for this post, which of course is about the out-of-control rising costs of medical care. The cuts appear to be an attempt to control those. When Morris forecasts “a 50% cut in real pay for specialists”, I can’t help but think he may be exaggerating, but I also wonder what the definition of “real” is in this context?

      As I understand it, Medicare and Medicaid patients account for approximately half of all medical care in this country, so to forecast wholesale abandonment of all those people by doctors seems a bit of a stretch to me. I think these are scare tactics. We all know that something has to be done to reign in costs, and if those costs are driven by doctors’ pay, then where else do you start?

      Morris says,

      More and more medical care will be turned over to nurses or physician assistants, and fewer people will ever get to see a doctor on Medicare.

      I believe and have posted before that many problems that people see a doctor for could be handled very well by Nurse Practitioners or PA’s, and that this would be a very good way to save money. They could treat and prescribe for things like sprains, allergies, acne, rashes, bladder infections and so on.

      Morris also complains that “Private health insurers will follow in the footsteps of the Medicare program and likely slash their fees as well.” What’s not to like about that?

      He says that MPAC will cause fewer students to want to enter medicine and cause a doctor shortage. That could be true, but I hardly think it’s a given. It seems to me that the answer to that is to subsidize medical training, perhaps like we do the ROTC, so that new doctors don’t graduate under a mountain of debt. Wouldn’t that be a better solution than continuing to let healthcare costs outpace inflation? A side bonus of such a system would be some payback by doctors for their education, things like practice in underserved areas and more GP’s, now in very short supply because specialties are so much more lucrative. And that begs the question, “Should service rank equal to money as a motive for a medical career?”

      Finally, Morris bemoans that our doctors might have to get along with what European doctors earn, implying a significant hardship. I assume however that European doctors earn about what Canadian docs do, and HLG says that averages well above $200,000 a year. Doesn’t sound like poverty to me.

      Finally, I have to note that Mr. Morris allows himself the luxury of ignoring the entire medical cost problem and suggests no solution to it as an alternative to MPAC action. Sounds like classic demagoguery to me. But it will be interesting to follow the discussions as they develop. Thanks for bringing this to our attention, Anson.

      Like

    • Jeff says:

      Ok, so your argument is that if you can label something socialist than you can quit trying to prove it is wrong because socialism is by definition wrong. If you can prove that capitalism always gets things right and socialism always gets things wrong, then that might be reasonable. But I think the people in Indonesia building Nike shoes for $2 for a 12 hour day would probably disagree with you on how well capitalism works. For the record, that is about enough money to eat about 1 meal a day plus buy some soap or something similar and by the way, the meal would have very little meat in it. Meanwhile life will be in a 9’x9′ concrete cube, probably without a bed.

      Pure capitalism fails just as badly as pure socialism. In the latter your extreme is full employment with nothing to eat, whereas the former has limiting extreme of full efficiency as either everybody goes home or the Elves make Shoes for free.

      A middle of the road economy where workers are able to argue for wages well enough to make Say’s law roughly true and where wages are close enough to revenues that you don’t have to go through dangerous stock market ups and downs to buy the next round of goods has created every first world country in history.

      Like

  7. Jim Wheeler says:

    @ All,

    On re-reading my own comment above, I see I missed a chance to point out an irony, to wit, that Republican strategist Morris is railing against an attempt to do exactly what the GOP Tea Party mandates. HE IS AGAINST CUTTING GOVERNMENT SPENDING. Or at least in this case.

    Like

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  9. afrankangle says:

    @ Jim and Anson,

    Thanks for the thoughtful and respectful dialogue.

    Like

  10. Jim Wheeler says:

    For those following the discussions on this post and the next one, “Striking It Rich In Galena?”, about the Public Option for healthcare and its skyrocketing costs, please consider these excerpts from an article in USA Today by Maria Bartiromo. I will place a link to the entire article at the end of this comment. In the article, entitled, “Is America faltering as health care leader?”, she interviews a leading cardiologist and surgeon at the world-famous Cleveland Clinic about the subject. (Emphasis is mine.)

    Q: How do we get health care costs to stop rising?
    A: We have to be more disciplined about doing things that benefit the patient, rather than the physician. We have very perverse incentives. The way our payment system works is if you put more stents on coronary arteries, you make more money. If you do more studies, you make more money. The physicians are largely well-intentioned, but the incentives are driving over-utilization. You’re twice as likely to get a CAT scan in the U.S. as you are in most Western European countries. You’re twice as likely to have a heart catheterization. Our population isn’t that much different.
    If we avoid the overuse of some of these procedures, we can streamline care, and if we can invest in prevention, we can lower health care costs. And we must do that because we can’t continue to spend money like drunken sailors on shore leave and expect to be able to care for people. The problems that existed before health care reform are still there. There are Americans who are dying because they don’t have access to health care. That is a national shame that we need to correct. We haven’t fixed it. Health care reform doesn’t fix it. We need to change the system. I don’t think health care reform went nearly far enough. And that’s the problem.

    Q: CEOs tell me the new health care reform is too expensive. Some say they can’t offer health care. The GOP candidates say they will repeal it. Should it be repealed?
    A: Absolutely not, and we should add to it. We should extend it and tweak it. I liked some of the proposals that didn’t make it into the plan, such as the idea of allowing people to buy into Medicare at age 55. I liked the public option.

    The entire Bartiromo article is at this link: http://www.usatoday.com/money/companies/management/bartiromo/story/2011-10-14/cleveland-clinic-steven-nissen/50796928/1

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