Tweet
I read an analysis today indirectly defending the Baucus plan "ratio" of 5:1 that allows insurers to charge premiums five times higher for the oldest enrollees than premiums for the youngest. The comparable ratio in the House bill is 2:1.
To be sure, the argument seems logical within its framework. Since older people are much more likely, on average, to have higher medical costs, and younger people are more likely on average to have lower costs, there’s an argument that we should reflect that difference in the allowable premiums.
And since private insurers have an incentive to lower their "medical losses" to remain profitable, they will have an incentive (assuming cost-sharing rules are imperfect) to discourage older, high-cost enrollees and focus their marketing and better service on the younger, low-cost enrollees.
So if we force private insurers with their profit incentives to accept a ratio of 2:1, as the House bill does, the insurers will be even more tempted to game the system and evade the regulations that require them to accept all enrollees, regardless of age.
But what is this analysis telling us? First, the incentives that drive private insurers are likely to overcome regulatory goals of reducing age-based discrimination in premiums. Regulation is not enough, and we need a stronger counter-incentive to gain compliance. How about loss of market share to a public option that doesn’t discriminate?
Second, the logic is premised on the idea that it’s okay in the health care sector to base insurance premiums on cost causation, rather than ability to pay. If that’s the goal, then insurers should also be allowed to base premiums on current health and prior medical conditions, exactly the factors we’ve all concluded need to be excluded from the decisions. Otherwise, the incentives for gaming will still occur.
That logic leads, in the extreme, to requiring the very sick to go bankrupt and/or to rationing by price, leaving millions uninsured or underinsured. The reforms are trying to move away from that mindset, not embrace it.
I also wonder where else the logic leads. How, for example, would we justify Medicare or Social Security if we followed the implicit principle that the elderly should pay for security based on the costs of providing it? Should we start charging Medicare people much higher premiums as they get older too?
In describing various European countries that impose insurance mandates, Princeton health economist Uwe Reinhardt has written:
In Europe, as in Canada, that social ethic is based on the principle of social solidarity. It means that health care should be financed by individuals on the basis of their ability to pay, but should be available to all who need it on roughly equal terms. The regulations imposed on health care in these countries are rooted in this overarching principle.
It’s always important to pay attention to the logic of incentives. But in this case, the overarching principle is even more important.
More:
Yglesias, The Age Ratio Thing
20 Comments
There is no “more”. If insurance companies can game the system they will, period. If they can rescind or limit coverage, they will.
If we were being logical about all this, we would enact single payer. But that is just it. None of this is logical. None of it is fair. None of it is about healthcare. It is all about money and how insurance, drug, and medical companies can get, and keep, as much of it as possible.
Right. Do let’s stop compromising with them. Let’s stop talking about public options or any other half-measures. Let’s get rid of insurance companies that are profiting from people’s misfortune and making life difficult for us. Let’s have Medicare for All.
“. . . the overarching principle is even more important.” But, if you’ll allow me, scarecrow, what’s really strange is the continuing tolerance for the irrationality of letting the private health insurance companies to continue to exist. After all, why should we pay between $400 and 600 billion more per year than we would pay for a Medicare for All system? What social value do they produce that justifies their continued existence? If the answer to this question is none, then let us be done with them. Let us make it illegal for private profit-making companies to sell health insurance, and let us have the Medicare system perform their social functions.
If you read through the series of informative posts Uwe Reinhardt has done for the NYT, talking about Eurpean systems, you’ll find some systems with insurance companies, some without insurance companies, some even “for profit,” but they exist within a social compact framework different from ours — and that’s the principle I wanted to get to. But I agree you could satisfy that principle with single payer paid for by a progressive tax system.
We have a social compact? When did that happen? Next you’ll be telling me we have a Constitution.
Yes. we do. It’s the foundation of Social Security, and Medicare, and schools and police and fire stations. We have all kinds of institutions that provide services based on need and collect revenues based on ability to pay. And they work.
Well, that principle is cultural, and I don’t see our culture going that way by expanding the role of our private insurance system.
The issue isn’t whether we do or don’t have “insurance” companies; the question is how they’re motivated and what system we use to determine the allocation of premiums. Some entity has to perform the accounting functions, taking in the revenues required and disbursing them to providers. You can use a progressive tax system for the revenues.
Scarecrow, you’re quite right. However, if you designed a health insurance act that changed the motivation of the American insurers to make them behave like the Japanese insurance companies (overhead about 1.5% and non-profit I believe), and then introduced that into Congress, I think it would be even harder to pass than HR 676 is, simply because it would take some time for people to familiarize themselves with a bill establishing such a motivational framework. And what would we gain by such an initiative even if it succeeded in Congress, the privilege of saying that our health insurance funders were private, rather than governmental? Frankly, who cares, so long as the profit is taken out of the business and we save 20-25% of health care costs as a result, we have universal coverage, and an end to health-related bankruptcies?
So far I have not seen any statistical data on this, but have you given any thought to how many people would become unemployed if the current “for profit” insurance companies were suddenly no longer in existence? Would this dump a lot of clerical staff, etc. on the unemployment rolls across the country? Just asking.
Hi Ann, Thanks for your comment. A week or two ago, some of the comments on one of the blogs here addressed that question. I think ralphbon, or Hugh, or perhaps TarheelDemocrat if I remember correctly, claimed that it would result in the loss of about 150k jobs at the most.
Even if this estimate is correct however, it is far from the total jobs impact of the change. Since a great burden would be lifted off both large and small businesses that currently provide health insurance benefits to their employees, these businesses would be able to hire more workers across the whole economy. I’d expect that to have a stimulative effect that might well exceed the depressive effect of loss of jobs in the insurance industry. The thing to keep in mind is that the 400 billion or so dollars saved each year can have a much more stimulative effect when used in other more dynamic places in the economy, than when it’s spent on overhead and profits in the insurance industry.
A couple of days ago, hipparchia dug up a stat that the health insurance industry employs about 450,000 people. Not all of those jobs would be lost under straight single payer, but certainly most of them would. Additionally, the clerical and billing staff on the provider side would be drastically cut. HR 676 makes some allowances for retraining assistance and the like.
This disruption needs to be weighed against the disruption of the status quo, with many tens of millions of Americans uninsured and underinsured.
Oh, and CNA/NNOC sponsored a study demonstrating precisely the simulative effect on the economy you posit if SP were enacted. Full report (pdf) here: http://www.calnurses.org/resea…..y_2009.pdf
Thanks, Ralph, for recalling that it was hipparchia and for correcting my memory. Have you the link to that? I’ve forgotten to bookmark it.
And thanks also for the link to the Report. Among other things, it predicts that a movement to Medicare for All would result in (p. 6) “2,613,495 permanent new jobs” at “an average $38,262 per annum,” which dwarfs the 450,000 current health industry jobs. We also shouldn’t lose sight of the possibility that many employees of the insurance companies might be offered new jobs in Medicare Administration since new jobs would certainly be created there.
Thanks scarecrow, I know about the variations among systems cross-nationally. I keep pushing for enhanced Medicare for All alone, because I think that is the easiest way to drive the profit out of health care given our political context. We really can’t evolve our social compact framework toward Switzerland or the Netherlands very rapidly given current attitudes here in the United States. But I’m persuaded that Medicare for All is something that people can understand and that it is not really foreign to our way of thinking given all the people who have direct or indirect experience with the VA or Medicare for Seniors.
What we really need to do in getting it through is to emphasize tirelessly that Medicare for All is not socialized medicine, or Government-run health care; but only Government paying one’s Medical Bills, and that actual freedom of choice of Medical providers and services will be greater and not less than it is now if we take the insurance companies out of the business of providing funding for essential health care, not to mention that the public will immediately save 400 billion or more per year by making the change.
Imagine, what you could do with number crunching/computer modelling, to profit off this reality. Knowing, in a very educated fashion, the rate of financial failure of a certain age group due to health care expenses?
Insurance and banksters are sleeping together big time.
Bring back Glass Stegall and get rid of CDS’s and I bet the health care industry will be spitting more then they are now.
Could be. Let’s do it.
All this points to the basic premise that without a public option, you’re not going to keep the industry honest in any way, no matter what you do.
Hi Jason, Screw the PO! Let’s reset, go back to HR 676, and save that 400 billion or so every year. It’s just a business decision. And let’s get rid of that 2013 start date for any real reform. “In the long-run we’ll all be dead,” and 2013 is way too long-run for many Americans to vote for the Democratic Party in 2010, and 2012.
My point is that our social compact like our Constitution are both fine in and of themselves. What is not fine is how both are being circumvented by our elites and the corporations which fund them. Even the Third Reich had police, schools, and firemen. So was that part of their social compact? Social Security came about as many Depression era programs did to forestall the growing revolutionary forces that the Depression produced. Medicare is really the only program you list that you might ascribe to our social compact. This probably explains why our elites and corporations are so eager to cut it back in the name of cost savings and so resistant to the idea of extending it to all Americans.
Hugh, I think your point that corporate and political elites have been rejecting our social compact is right. They’ve been trying to over turn it for more than 30 years now. And they’ve been having increased success. One more eight year radical Republican Administration, which Obama seems to be doing his best to prepare the way for, and the heritage of the New Deal will be gone.