David R. Henderson  

Some Motives Revealed

Shorter Dierdre McCloskey... Khan!...

In my chapter on health care in my The Joy of Freedom: An Economist's Odyssey, I had an extensive discussion of government regulations that drive up the price of insurance and . At the end of that discussion I wrote:

One insurance agent I spoke to speculated that politicians and other government officials who support these regulations not only understand these effects, but also like them. Why? Because they cause more people to go without insurance and thus create a demand for government-provided insurance. His speculation may be warranted.

Now one of the supporters of ObamaCare is celebrating a particular regulation under the law that will make it harder for private health insurance to survive. Rick Ungar, in "The Bomb Buried In Obamacare Explodes Today--Hallelujah!," writes:
That would be the provision of the law, called the medical loss ratio, that requires health insurance companies to spend 80% of the consumers' premium dollars they collect--85% for large group insurers--on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.
This is the true 'bomb' contained in Obamacare and the one item that will have more impact on the future of how medical care is paid for in this country than anything we've seen in quite some time. Indeed, it is this aspect of the law that represents the true 'death panel' found in Obamacare--but not one that is going to lead to the death of American consumers. Rather, the medical loss ratio will, ultimately, lead to the death of large parts of the private, for-profit health insurance industry.

He continues:
Indeed, we are already seeing the parent companies who own these insurance operations fleeing into other types of investments. They know what we should all know - we are now on an inescapable path to a single-payer system for most Americans and thank goodness for it.

So much for Obama's endlessly repeated promise that if you like the health insurance you have, you can keep it.

UPDATE: Although, as I note in my comment below, my post is about motives, not about the policy issue per se, Tim Worstall weighs in on the policy issue here and here.

Comments and Sharing

COMMENTS (11 to date)
John writes:

I read that a couple days ago and was completely appalled. Even if one believes that single-payer is the way to go, destroying the private healthcare industry seems like a terrible way to get it.

If Ungar's right about the consequences of the law, I imagine there'll be an awful lot of suffering after health insurance costs skyrocket (as the industry collapses) but before our benevolent leaders implement a single-payer system. Oh well--I guess it's for the greater good, right?

Artyglaze writes:

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Richard Allan writes:

I recently fell seriously ill here in the UK, which made me so glad to have our de-regulated private healthcare sector, rather than the US's awful mess. My private health insurance cost less than a minimum-wage worker pays in National Insurance, and the quality of care was ten times better than the NHS.

Tim Worstall writes:

Ungar manages to get his argument spectacularly wrong though.

Almost all insurers already meet the MLR targets.

For Ungar is simply ignorant of the fact (yes, I have swapped emails with him about this) that an insurer has two income streams, premiums and investment income from the float.

We've the lowest interest rates, returns on that float, we've had in modern times and still the insurers are meeting that MLR. A return to more normal interest rates will raise the investment income substantially and thuse the MLR poses no risk at all to the system at its current levels.

[Typos in Ungar's name fixed. It's a bit hard to believe you have swapped emails of any ongoing importance with someone whose name you repeatedly misspell as "Unger", but maybe he's just an amiable guy interested in content who is willing to overlook the misspelliing of his name. Just sayin'. --Econlib Ed.]

Mark writes:

Is the above commenter this same person:

Tim Worstall

He might have exchanged emails with him and be a poor speller.

David R. Henderson writes:

@Tim Worstall,
Thanks. I had wondered about this. I didn’t highlight it because it wasn’t germane to the point I was making, which is that many of the supporters of insurance regulation came out of the closet on this one.
But, of course, your point is quite relevant to the bigger issue of the effects of ObamaCare.

joshua writes:

I saw that Forbes post too and was reminded of those "conspiracy theories" that this crony half-baked health-care-whopper was really bad on purpose to force us into single-payer...

Yet at the same time, if this bomb really exploded last week, it completely escaped my notice. Perhaps the bill's strangulation of the existing infrastructure is going to be slower than originally advertised?

Aaron writes:

Many states publish MLR information along with rate filings. That would be one way to objectively see where the industry is at.

Tim Worstall writes:

Ungar, Unger, yes, I can spell, but can I remember, that's the question.

Re MLRs, here's the GAO report on them.


Three things to note.

Most companies are meeting the new targets.

Most of those who are not meeting the new targets are peripheral players. Very small players in one particular states individual market perhaps. Peripheral or small players don't have to meet the targets.

Thirdly, that's based upon the traditional method of calculating MLR. The new legally mandated one is actually easier to reach.

I'm really sorry, Tim. I shouldn't have made that snippy remark about the spelling. It's not like I've never misspelled anyone's name before--and that, even when I've known and corresponded with someone for a long time. I'd remove my remark above, but probably it's a good reminder to myself to eat crow rather than turkey every now and then.

roystgnr writes:

Has nobody pointed out the other failure mode yet? It's not like we haven't tried government-mandated cost-plus contracts in other industries before. The contract holders quickly figure out that there's no longer any incentive to reduce costs, and they price accordingly.

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