Arnold Kling  

Grading the Health Care Summit

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Nurture and Orientation Recons... Health Care Summit Post-Mortem...

I sat through the first 2-1/2 hours, and here are my grades.

IssueDemocratsRepublicans
CostsD+F+
Insurance ReformFD
DeficitF-F

On costs, everyone came out four-square against waste, fraud, and abuse in Medicare. I don't give points for that. If they were serious, they could pass a bill that focuses on that issue, and then go back and argue about everything else.

I gave some credit to both parties for mentioning that a good deal of medical care does not improve health. However, they were pretty evasive as to what they would do about it, and it would be easy for a casual viewer to come away confusing that issue with waste, fraud, and abuse. There are in fact many legitimate procedures that nonetheless have only small benefits relative to costs, and that is the big issue as far as cost containment is concerned.

The Democrats get a D+ because they supported a Medicare cost-cutting commission. That might lead to health care rationing, which would reduce costs. Not the way that I would prefer, but it would reduce costs. On the other hand, the Republicans did not make a pitch for having patients pay a higher share of their medical procedures, which is the approach that is consistent with personal responsibility rather than government rationing. [UPDATE: In the afternoon, a couple Republicans gave a spirited defense of catastrophic health insurance. When Obama asked one Republican whether he himself would take catastrophic insurance, he said yes. Obama fell back on demagoguery "yes, but you make a lot more money than the typical person." So I should move the Republicans up, maybe even to a C-]

On insurance reform, I give the Democrats an F because of their top-down, paternalistic approach. President Obama pretty much flat-out said that catastrophic insurance is bad insurance and needs to be regulated out of existence. In contrast, he called comprehensive insurance "good insurance," when it is not really insurance at all, but instead is a pre-paid service plan.

The Republicans get a D, because they showed scarcely any more trust in free markets than the Democrats. For example, one way they want to reform insurance is to get rid of lifetime caps. That is, an insurance company will say that no matter what happens to you, they will not pay more than, say, $5 million over the course of your life. This is an absurd, oxymoronic thing for an insurance company to do. You are asking me to insure the insurance company, instead of the other way around. Still, the government does not have to ban the practice. Instead, require prominent disclosure, and let people choose. If I want to insure my insurance company instead of the other way around, I should be free to do so.

Similarly, a lot of other bad things that insurance companies do could be handled with disclosure and competition, if legislators believed in such things. If there were a central database where people could report things like having their coverage rescinded or having legitimate claims denied, then consumers could steer away from companies that are inclined to shaft their customers.

Yes, I know that Democrats complain that insurance companies have monopoly power in some locations. But I think that if you look closely, you will find that government regulation is the cause of the lack of competition, not the solution.

On the long-term outlook, the Republicans get an F, because they are still being demagogic on Medicare cuts. The Democrats get an F-, because they want to use Medicare cuts to create a new entitlement. Also, President Obama repeated the talking point that the whole issue is excess health care cost growth, when in fact the excess cost growth really kicks in big time (under standard assumptions) after 2030, by which point the U.S. government will already be unable to keep its financial promises because of the doubling of the number of people over age 65 and the big debt we already have.

Although President Obama grew impatient and frustrated with the Republicans for the way they took up time and did not follow his agenda, I thought that on average the Republicans actually engaged him more seriously than did the Democrats. In particular, Pelosi and Reid did not seem to have gotten the memo that the tone was supposed to be constructive and businesslike. If Obama had not been there to help the Democratic team, they would have ended up making folks like Ryan and Cantor seem like intellectual giants.


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COMMENTS (13 to date)
Steve writes:

Arnold,

Your suggestions about disclosure sound like they come right out of "Nudge"

The_Orlonater writes:

I have a question about your grading of the Democrats' Cost section. Since the Democrats support a Medicare cost-cutting commission, but on the other hand with those cuts in Medicare they want to create a new entitlement. I know you gave them the right grade in the Deficit section, but shouldn't it also be lower Cost section because their health care expenditures are just shifting around to the new entitlement?

It seems:

F+ Fails - Tried their best
F Fails - No clue
F- Fails - Knows better

ed writes:

"This [a lifetime cap] is an absurd, oxymoronic thing for an insurance company to do. You are asking me to insure the insurance company, instead of the other way around."

If it's so absurd, you have to wonder why it persists. My guess is that the problem is incomplete contracts; the insurance company wants to avoid the risk that the judicial system will require them pay for some future treatments which might not even exist yet at the time of the contract and can't be specified in the contract. You can try to put in language about things that are "customary" or "reasonable" or something, but this remains ambiguous. So instead they just put on a hard cap.

This is an inherent problem with health insurance, and I don't see how just banning caps will fix it.

MikeDC writes:

I'm about as free market as they come, but I'm leary of the lifetime caps.

1. Most all policies have them, so I have little choice.

2. The contract length is for a completely indeterminate amount of time, so it's already incomplete.

3. Given the rampant inflation that occur and be totally out of anyone's control, what seems like a reasonable number to write into a "lifetime" contract today could sound very silly down the line.

----------------------

Also, Republicans won't argue this because the politics of it would be absurdly bad.

Peter writes:

"he called comprehensive insurance "good insurance," when it is not really insurance at all, but instead is a pre-paid service plan. "

I love this comment and it is one of the biggest things that bother me in this entire debate, the mislabeling. How about instead of calling it insurance we call it for what it is, socialized medicine. We don't call social security "retirement starvation prevent insurance", passports "travel insurance", or welfare "You f'ed up and we don't want to penalize you for it insurance".

Insurance is exactly that, insurance; tt shouldn't be mandatory as the purchase of insurance should be based on risk (thank God I live in one the few remaining states that don't mandate auto insurance) using the standard ALE equation (or something for the masses)

Chris Koresko writes:

The way I see it (and how I thought everybody saw it, until recently) is that insurance is simply a way for an individual to minimize the risk of incurring a catastrophic cost by diluting it in a pool with other individuals.

I like to imagine a group of neighbors deciding to contribute to a pool of money which will be used to rebuild the house of any of them who suffer a fire. They can all afford their share of the pool, but they couldn't afford to rebuild their houses if they burned down.

"Guaranteed issue" is like having the government come in and say to them, "Joe here had a house fire. You need to let him into the pool and pay for his repairs." It's obvious that this is unjust, not to mention unsound economics.

ColoComment writes:

"could be handled with disclosure and competition"

I used to work in the mutual fund industry, & wonder why health insurance couldn't be sold like mutual funds are now. In 1996 or somewhere's 'round there, Congress passed "National Securities Markets Improvement(?) Act" or somesuch ("NSMIA"). It federally pre-empted regulation of mutual funds sold interstate, with certain standard disclosure requirements, registration process, terminology, etc. You can now buy into an ever-expanding universe of types, forms, combinations and amounts of mutual funds. You couldn't ask for more competition. And it's a pretty clean industry. The health insurance industry would respond like it had thrown off the chains of slavery & would provide any product(s) that the market demanded, at competitive pricing. Of course, it should all be divorced from employment; that's a given.

The states now regulate intra-state securities offerings and the like, and mostly concentrate their resources on enforcement.

If it turns out that the government just HAS to mandate a specific, minimum basic policy, it should be a $1500-$5000 catastrophic policy with HSA account, and for those who need taxpayer help, the HSA account could be subsidized with a means-tested amount, and the consumer would have a dedicated debit card for it, like I understand they do now with food "stamps." That would put routine health care decisions in the hands of the consumer, go some ways to prevent personal financial devastation due to an unforeseen health problem, and still assist those who cannot quite make it on their own.

The best cost-cutter is the consumer himself. ...just give him a choice and prices to comparison shop.

mulp writes:

I'm glad to see everyone happy bash the entire idea of health insurance and call for a return to the 60s when we had prepaid health care provided by hospital and doctor groups on one hand, the not-for-profit Blues, and the integrated care not-for-profit HMOs on the other, where the providers contracted with the people to provide their care.

Things were much better before insurance companies got into the business by not covering everyone and instead cherry picked those who didn't need insurance and found ways to shed those who did.

Circa 1980, my brother had a tumor that turns out to be genetic, and the insurer refused to renew the insurance at the small business he worked for to avoid paying for his medical care. His rather expensive care ended up being shifted to all others getting care in Kansas and to the taxpayers so the for profit insurer could make a larger profit. At that time health care was 8% of GDP, about on par with the cost in all the other OECD nations including Canada, Germany, etc.

I know it was/is genetic - my sister and I have both had the same tumors and needed the same major surgeries. That means we were all born with preexisting conditions. In has only been since 2000 that the genetic test can identify the defect with the odds of the tumor developing probably greater than 50%.

If a genetic defect can be identified and used to deny coverage, then shouldn't pregnant women be allowed to screen for these defects and get abortions paid for by insurers on the basis that this will save the insurance company money, as well as the parents and child, thus making such care preventative care, or risk prevention?

mulp writes:

"Similarly, a lot of other bad things that insurance companies do could be handled with disclosure and competition, if legislators believed in such things. If there were a central database where people could report things like having their coverage rescinded or having legitimate claims denied, then consumers could steer away from companies that are inclined to shaft their customers."

How does this help?

You find out your insurer is going to screw you over when you need the coverage and now will be denied coverage. In your model, once an insurer gets a lot of black marks and can no longer operate profitably, it shutdown and recreates itself under a new name and goes about taking in money and screwing over people.

I don't think it is regulation that has kept the number of insurers in the US or each region/state to a half dozen or less.

I've looked at the situation in NH, and essentially NH had a stable system with a single Blue not-for-profit that provided prepaid care to 80% of the NH population, with a few pockets of "competition" from a couple of insurers. Then competition from a not-for-profit HMO aka integrated health care provider ate away at the Blues market share causing some problems. But both covered all comers. Then the insurers came into the state and cherry picked in the highest density parts of the state, eventually driving both not-for-profits who covered all comers into insolvency.

Now the primary insurer in NH is for-profit Wellpoint/Anthem which converted the NH Blue not-for-profit into a much more expensive for profit that is effectively based in Indiana. A couple other insurers are in the state, but the providers will only deal with a couple of insurers and offer the low price fee structure, so only two insurers can offer coverage to pretty much everyone.

To argue that it is easy to setup a health insurance operation in a state, other than the highly regulated Maryland, is to be ignorant of how things work.

In Maryland, every provider much charge a single fee to all comers and the fee structures must be standard and universal so the providers and insurers can't game the system. But that locks in a fee for service system that limits cost control.

Don Mynack writes:

"To argue that it is easy to setup a health insurance operation in a state, other than the highly regulated Maryland, is to be ignorant of how things work."

Well, it's ignorant of how things work in New Hampshire - in Texas I can choose from 10 (or more) insurance companies. The primary cause of screwed up health insurance is poor administration by states, or over-regulation, and probably both.

Should health insurance be sold like term life insurance - say, I buy a 20-year "term", during which I can't be dropped, and the costs reflect that? Or, I could choose a shorter term if necessary...whatever. Wouldn't this work better than lifetime caps?

Dan Weber writes:

If a genetic defect can be identified and used to deny coverage,

This could be entirely my imagination, but I thought that Congress finally passed a law in the past few years that genetic testing could not be used in setting prices or denying coverage.

Nathan Smith writes:

The lifetime cap is perfectly reasonable. Think about it this way. There are many different kinds of health insurance, for different ranges of expenses: insurance against medical expenses under $10,000, between $10K and $50K, between $50K and $100K, etc. Of course, usually these will be wrapped in one insurance contract but conceptually one can regard them as separate.

Now, it's probably not worth my while to insure against the smallest expense categories, since they would cause no special liquidity problems or increases in the marginal utility of lifetime wealth. That's the usual case for catastrophic insurance.

But it may also be quite reasonable not to buy the ultra-high-cost insurance. Why? Because at the end of the day all your buying is life, and the value of your life might not be worth $1 million or $5 million or whatever the lifetime cap is. Of course, if that bad scenario comes true, you'll want to do anything you can to stay alive. But *ex ante*, when the chances of the bad scenario are very small, you may not consider the increased premium to be worthwhile to insure against a very small risk of death. There's nothing irrational about that. It's all quite proper and correct.

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