Garett Jones  

Not from The Onion, Affordable Care Act Edition

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In the 1990's and 2000's, as more violent criminals were thrown into prison and, partly for that reason, violent crime rates fell, the media had a wave of stories with titles like this: "Despite falling crime rate, prison populations rise."

In 2010's, we'll see more stories with titles like the one below.  The Times used a different title in the published article but used the title below in HTML and on social media links (h/t Matthew Bowdish): 


The use of "despite" is sweet in its naivete, likely the product of a junior editor fresh from college.  

Most of the article is about the battle between insurers asking for big rate hikes and regulators sometimes saying no.  This game has always gone on but now it's being played for bigger stakes.  And this really is a game where lying is optimal: If an insurer knows its rate requests get turned down somewhat randomly, they will ask for bigger rate increases than they really want.  

Remember: Car dealers don't really want their sticker price to be the real price.  Demand curves for a dealer probably slope down, so they intentionally list prices that are more than they typically want to sell it for. 

The same idea applies to insurers: Don't believe that these big rate requests are their real requests.  They know what game they're playing and they are serious about winning it.  Deduce accordingly.  

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COMMENTS (7 to date)
Doug writes:

Central planning distorts the market, color me shocked!

If centrally set prices, standards and quotas didn't work for the Soviet car industry why does anyone in their right mind believe it will work for the American healthcare industry.

BD writes:
The same idea applies to insurers: Don't believe that these big rate requests are their real requests. They know what game they're playing and they are serious about winning it. Deduce accordingly.

Bad analogy. Unlike car dealers, health insurers are legally required to use the rates that are filed (no customer-level discretionary discounting permitted), so they have an incentive to file rates equal to the market price they want/need.

BD writes:

My last comment is not really complete. Insurers do have customer-level pricing discretion via medical underwriting, although that could be significantly limited (or nonexistent) depending on which state you are in and whether it is small group or individual insurance. Either way, there is a very strong correlation between filed rates and market prices that insurers are locked into, so the car dealer analogy is still bad.

More broadly, you are spot on in the "sweet naivete" of the headline and the article.

Of note, the article ignores the fact that while the Affordable Care Act requires insurance companies to file rates "for review," it doesn't actually give regulators any new authority to disapprove the rates. Many states of course have this authority now. But from a federal legislation perspective, this article basically professes surprise that a toothless, show-trial rate review exercise -- layered on top of a new law that increases insurance companies' costs and risk -- hasn't had an impact in lowering rates.

Lee Waaks writes:

@Doug:
Why do they think it will work? Because they are ignorant. If they are not ignorant and know it will not work, they know the market will be blamed and have helped pave the way for single-payer insurance. But they are still ignorant if they think single-payer will work (defined as increased want satisfaction without proactive impositions [J.C. Lester's term]). Laissez-faire is anathema to those who are attracted to managing mankind's economic affairs, even if it is socialism writ small, e.g. Sweden.

mark writes:

My favorite line in that article was the one that said costs would go up "just" 7.5% in 2013.

DCPI writes:

Garrett:

The reporter is likely 50 years old. See
http://topics.nytimes.com/top/reference/timestopics/people/a/reed_abelson/index.html

Doubt the headline writer is much younger. No one fresh from college need be involved.

Methinks writes:

...costs would go up "just" 7.5% in 2013.

Was this not the tragic rate of increase that justified Oblundercare in the first place? I guess the cost curve is bending the other way. What a surprise.

LDoubt the headline writer is much younger. No one fresh from college need be involved.

Which just makes it even worse. Middle-aged children indulging in fantasy. Great.

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