http://www.nytimes.com/2010/03/19/opinion/19krugman.html?emc=eta1
http://www.washingtonpost.com/wp-dyn/content/article/2010/03/18/AR2010031803639.html?referrer=emailarticle
As Paul Krugman revisits health care reform today, so will we. From today's OP-ED, we quote Krugman: "As it happens, Reuters published an investigative report this week that powerfully illustrates the vileness of our current system. The report concerns the insurer Fortis, now part of Assurant Health, which turns out to have had a systematic policy of revoking its clients' policies WHEN THEY GOT SICK (my "caps"). In particular, according to the Reuters report, it targeted every single policyholder who contracted H.I.V., looking for any excuse, no matter how flimsy, for cancellation. In the case that brought all this to light, Assurant Health used an obviously misdated hand written note by a nurse, who wrote '2001' instead of '2002,' to claim the infection was a pre-existng condition that the client had failed to declare, and revoked his policy."
"This was illegal, and the company must have known it: the South Carolina Supreme Court, after upholding a decision granting large damages to the wronged policyholder, concluded that the company had been systematically concealing its actions when withdrawing coverage, not just in this case, but across the board."
Krugman goes on to point out that a House committee estimated that Assurant made $150 million in profits between 2003 and 2007 by canceling coverage of people who thought they had insurance.
A further quote: "Beyond that, this is a story that could only happen in America. In every other advanced nation, insurance coverage is available to everyone regardless of medical history. Our system is unique in its cruelty."
The Congressional Budget Office (CBO), which we have referred to before in our posts, is unassailable in it's standards of objectivity. The CBO estimates that the proposed legislation (which will cost $940 billion) would reduce the deficit by $138 billion in its first decade and half of 1% of GDP ($1.2 trillion) in its second decade.
We have attached, as well, today's editorial from the Washington Post which quite eloquently supports the legislation on the grounds that it "improves" by, for example, including 32 million of the 46 million who are not covered by health insurance and prevents the two major events that we have consistently discussed here: dropping people when they get sick (see above) or after a medical event that cost "too much", and preventing people from getting coverage because of a prior existing condition.
And, to the 29 year olds that we have referred to in prior posts who don't have medical insurance because they don't need it (until they do), get over it. You need to understand that insurance requires a large risk pool of people who don't get sick in order for it to work. Ask Warren Buffet. And, tell Warren you saw his GEICO video.
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An ideal insurable risk, or loss exposure in insurance terms, has a standard set of characteristics. Risks must be pure - that is, an insured cannot make a profit from carrying insurance, but will rather be indemnified by it. Risks must be accidental - there cannot be an incentive for the insured to use the insurance. Risks must be similar but independent of each other, allowing the insurer to predict losses and calculate premiums. Along the same lines, risks must be non-catastrophic - a single loss cause cannot affect multiple risks to the financial ruin of the insurer (hence the lack of affordable homeowners insurance in hurricane-prone Florida).
ReplyDeleteAs you discussed in your previous post, insurance has to have a large pool of relatively homogeneous risks to compensate for the 'outliers.' Ideally insurers want to be able to underwrite by class risk before there ever being a loss. The more unique the risk (i.e. a catastrophic illness), the more difficult it is to rate. Likewise, the more risks insurers are aware of a particular "risk," the more they will charge that risk or the more likely they will reject the risk. Health insurers likely assign those with a pre-existing condition to a higher rating class; however, without having a large enough risk pool of healthy people from which to draw premiums, they must charge higher rates across the board. A industry wide practice of denying claims for "uncovered" pre-existing conditions seems to me to be an incredibly poor ethical decision to make up for a poor business management decision. Yet from a business perspective, insurers can quickly find themselves operating at an underwriting loss - where their overall premium revenue does not cover their loss payments and expenses (and that's before they even add in general expenses). Health insurance in particular has a tendency for adverse selection - that is, those who are most likely to use the coverage are the ones that are the most likely to seek it, and in my opinion, this adverse selection cannot be overcome by continuing to operate health insurance in a primarily private market.
Auto insurance is state-mandated. Failing to carry it often results in a harsher financial penalty (either from fines or from losing your house to pay for accident-related damages) than what would have been incurred to purchase it, even at paltry state minimums. And even though approximately 20% of the driving population operates motor vehicles without insurance, those who do carry it can protect their financial security with it by carrying uninsured motorist coverage for their bodily injury and physical damage coverages for their vehicle, allowing insurers to consider these risks in their rating. If someone's driving record is bad enough that all private insurers reject him, but not so bad that his license hasn't been suspended, there are still state-assigned risk pools that work differently in every state, but the general idea is that each insurer is given a number of these incredibly poor risks in proportion to their state market share. Furthermore, driving is a privilege, not a right. If you can't afford the insurance, then you will have to figure out other options for transportation. It's not a perfect system, but state-mandated auto insurance greatly enlarges the risk pool and enable insurers to more accurately underwrite the risks before the loss - protecting their customers' finances and making a profit at the same time.
Health insurance, again, is a little trickier. Whereas someone can choose between owning a car or taking the bus, how can someone choose between losing their home or getting life-saving chemotherapy? The American Journal of Medicine published a study in 2007 that found that in 1981, only 8% of families filing bankruptcy did so because of medical expenses. In 2007, that number jumped to 62%. And of that 62%, 75% had health insurance. Most were well-educated and in the middle class. Tying health insurance to employment further complicates the issue, due in part to the current unemployment rates driven by the economy, and also due to the number of people that lose their jobs due to serious illness, thereby losing their medical coverage, and subsequently being barred from obtaining future coverage as they now have a pre-existing condition. And on a topic that should still be relevant to the under-30 set: while group health plans are not allowed to consider pregnancy a "pre-existing condition," individual plans can. If you didn't carry maternity coverage on your first plan, moving a new plan - even without a lapse - means that insurer doesn't have to provide maternity coverage knowing that you will now need it. You have become an adverse risk. Some insurers also consider being physically abused in a relationship and having had a C-section as a "pre-existing condition" sufficient for claim denial because it could increase the risk that you have it again.
ReplyDeleteAnd this again is where auto and health insurance can differ - the ideal loss for an insurer is one that is accidental. As much as we take issue on a personal level against an insurer's decision to deny claims based on an undisclosed prior condition, such a situation puts the insurer at a disadvantage because the insured now has an incentive to use that coverage, or cause a loss, as their personal damages would be mitigated due to the transfer of risk to an insurer. So as much as that Anthem Blue Cross spokesman was reviled for arguing that having a child was a choice and shouldn't have to be covered by health insurance, for an insurer to be profitable it has to mitigate the chance of its insureds "opting into a loss" - or getting coverage because they know they are going to use it.
To me, there is so much to health insurance loss exposures that makes them far from ideal from a private insurer's point of view, and skyrocketing medical costs will preclude a great deal of care from many people who are unable to afford insurance. Having lived on the other side of our northern border, I know that universal health care is not cheap either. However, the impact that this issue is having on every class in our society is too great to ignore. I just really hope we can get resolved before I hit 29 and become "less-risky."
Leia: Brilliant comments! You do us all a service by what you wrote! You mean you're not "29" yet? You write with the wisdom of someone much older and wiser!
ReplyDeleteThe CBO is required to take written legislation at face value and not second-guess the plausibility of what it is handed. So garbage in, garbage out.
ReplyDeleteIf all the gimmicks and budgetary games are removed, then the health care reform legislation would raise, not lower, federal deficits, by $562 billion.
Gimmick No. 1 is the front-loads of revenues and backloads of spending. The taxes and fees are set to begin immediately, but the new subsidies would be deferred so that the first 10 years of revenue would be used to pay for only 6 years of spending.
Some costs are left out entirely. To operate the new programs over the first 10 years, future Congresses would need to vote for $114 billion in additional annual spending. But this so-called discretionary spending is excluded from the Congressional Budget Office’s consideration.
Consider, too, the fate of the $70 billion in premiums expected to be raised in the first 10 years for the legislation’s new long-term health care insurance program. This money is counted as deficit reduction, but the benefits it is intended to finance are assumed not to materialize in the first 10 years, so they appear nowhere in the cost of the legislation.
Another vivid example of how the legislation manipulates revenues is the provision to have corporations deposit $8 billion in higher estimated tax payments in 2014, thereby meeting fiscal targets for the first five years. But since the corporations’ actual taxes would be unchanged, the money would need to be refunded the next year. The net effect is simply to shift dollars from 2015 to 2014.
In addition to this accounting sleight of hand, the legislation would blithely rob Peter to pay Paul. For example, it would use $53 billion in anticipated higher Social Security taxes to offset health care spending. Social Security revenues are expected to rise as employers shift from paying for health insurance to paying higher wages. But if workers have higher wages, they will also qualify for increased Social Security benefits when they retire. So the extra money raised from payroll taxes is already spoken for. (Indeed, it is unlikely to be enough to keep Social Security solvent.) It cannot be used for lowering the deficit.
A government takeover of all federally financed student loans — which obviously has nothing to do with health care — is rolled into the bill because it is expected to generate $19 billion in deficit reduction.
Finally, in perhaps the most amazing bit of unrealistic accounting, the legislation proposes to trim $463 billion from Medicare spending and use it to finance insurance subsidies. But Medicare is already bleeding red ink, and the health care bill has no reforms that would enable the program to operate more cheaply in the future. Instead, Congress is likely to continue to regularly override scheduled cuts in payments to Medicare doctors and other providers.
Removing the unrealistic annual Medicare savings ($463 billion) and the stolen annual revenues from Social Security and long-term care insurance ($123 billion), and adding in the annual spending that so far is not accounted for ($114 billion) quickly generates additional deficits of $562 billion in the first 10 years. And the nation would be on the hook for two more entitlement programs rapidly expanding as far as the eye can see.
The bottom line is that Congress would spend a lot more; steal funds from education, Social Security and long-term care to cover the gap; and promise that future Congresses will make up for it by taxing more and spending less.
I guess Congress did learn the lessons of Enron all too well.
Dale:Another outstanding comment. Thank you for the information and the perspective, as always. While we are in no position to argue the financial facts, a simple bill (impossible) that prevented insurance companies from "dropping" current policy holders (because of poor "claim experience") and allowed any person to buy medical insurance no matter their "prior conditions" would have been a service to our citizens. Since that's not in the cards, it is a vote up or down on what's in Congress. If 32 million more people get covered, inclusive of the basic provisos I've just noted, I'm for it.
ReplyDeletePersonally I'm thrilled the House passed the bill. In the short term, it means no more caps on insurance, help for people with preexisting conditions, coverage for older children, and breaks on prescription drugs for those in Medicare part D.
ReplyDeleteIn 2014, it means better true competition through health insurance exchanges, mandated coverage for most with support for lower income folks (which should help drive down the cost of insurance for everyone as more are added to the pools), an expansion of Medicaid, and a tax break for families who buy insurance.
So basically, despite all the railing to the contrary, taxes are (and will be) considerably lower than they ever have been for middle-income Americans, and the first tentative (and frankly incomplete) steps to fixing the looming financial Armageddon that was the retirement of the Boomers have been completed.
Here's hoping we can continue to elect people with the political will to make the less than popular decisions that need to be made by any rational measure.
I am equally thrilled that the Health Care bill passed. Deficit will increase, so what? I will happily pay more taxes if this is to make sure that everybody in America gets medical insurance. I have enough Chinese plastic crap in my home already, thank you very much. Life is a question of priorities after all.
ReplyDeleteOne aspect this bill fails to address is the soaring healthcare costs. Medical costs are completely out of control. The only way to address this issue for me is the next step: Universal Health Care and centralized price control. I know these words will hurt many American ears...
Craig and Christine: Outstanding posts! If 32 million more people get health insurance, we're for it. If people cannot be thrown out of health insurance plans because they are "bad risks", we're for it. If people cannot be denied coverage because of prior existing conditions, we're for it. Christine, your comment about "Chinese plastic crap" is a classic!
ReplyDeleteI agree with the above posts. I'm looking at what the bill actually does, and I think so much of it is desperately needed. Particularly the ban on refusing coverage for pre-existing conditions. The state of health insurance for women has been absolutely disgraceful, and I'm glad that, going forward, I won't have to worry about it.
ReplyDeleteBeing from Texas, I know a lot of people who vehemently dislike the bill, but I think their concerns are largely emotion- and fear-driven. It's so obvious to me that basic health coverage benefits all of us -- not just the people who don't have it now. I think of it as coverage for a broken leg for a construction worker. If he can't have his leg set, it will never heal right. He'll lose his job and have to take a lower-paying job. He pays less in taxes or ends up on welfare. He has fewer resources to take care of his family. His kids may go without meals sometimes. Their grades may suffer. And maybe this all sounds like a slippery slope, but I think it's not very far-fetched to believe that a serious injury to the bread winner in a family can create a domino effect of harms. Society loses out on the productivity, spending power, and taxes of an individual, and all because we had no system to shell out a few hundred dollars to fix a broken leg. I don't want to worry that that could happen to me; why would I wish that on anyone else?
But based on conversations I've had with friends, I think the overall gripe is that my friends work, they pay taxes, they buy their own health insurance, so why can't all these poor people get their acts together and do the same? Essentially, they see being poor as a moral failure. Why should they benefit from a system they're too lazy to contribute to? I, of course, strongly disagree that there is a moral failure here, and the reasons I gave above would apply here regardless. Society as a whole benefits from having healthy and productive members, and we all benefit from the peace of mind that comes with a health care safety net. I could support this bill for the purely selfish reason that it could help me if I ever need it. I'm not sure why they don't see it that way.
Kim: Outstanding comment! You have added to the already very high quality of the comments on this post!!! Your last point about "moral failure" is difficult to understand in light of the "real unemployment rate" currently standing at 17%. I know it's not your position but what do these people have as a response to: "I have the skills but there are no jobs either in my skill area or a related area of competency?" We've lost 8.5 million jobs (I borrow from Krugman here) and many of those are not coming back. Again, great thoughts from you!!!
ReplyDeleteKim - The way to refute that argument from your friends is simply this:
ReplyDeletehttp://www.jointogether.org/news/research/summaries/2008/uninsured-americans-will-cost.html
http://money.cnn.com/2009/03/05/news/economy/healthcare_underinsured/index.htm
http://www.acponline.org/hpp/cost.pdf
We already pay for people who don't have insurance. Holding that view shows a surprising lack of compassion AND lack of common sense.
Craig: Thank you. Great point as usual. It's been very rewarding reading everybody's comments.
ReplyDelete