The Hippie Professor

27 Responses to “What I want from Health Care Reform (my tastes are simple)”

1. TennesseePaul Says:
   September 2, 2009 at 12:33 am | Reply

   I think a public option – that terrible awful socialist thing – would nicely accomplish these goals. I think non-profit co-ops could do a lot too.

   Question, do you think tort reform could assist in reducing health care costs? Would allowing private insurance companies state to state sells of insurance also help? Would allowing individuals to purchase plans which cover only what they want, instead of a one-size-fits-all mandate, decrease costs? Basically, is it possible that these solutions could assist in the goal of reducing health care costs?

2. TennesseePaul Says:
   September 2, 2009 at 12:34 am | Reply

   Last night blogging. I need to head to bed…

   Should read, Basically, is it possible that these solutions [and/or others] could assist in the goal of reducing health care costs?

   • hippieprof Says:
     September 2, 2009 at 6:37 am | Reply

     TennesseePaul:

     I support all three ideas, and I think they should be part of the solution. Not the whole solution – but certainly an important part.

     Somewhere above in this post I actually mention allowing insurance to be sold across state lines. That increases competition and also addresses part of the preexisting condition issue. However, I have seen states-rights advocates and insurance companies attack this idea. The insurance companies really don’t want the competition because in many states they have close to monopolistic conditions.

     Tort Reform is a must – PI lawyers are the only ones who really profit from the current system. It is a tough issue – we have to be careful that the victim of true incompetence still has recourse while simultaneously getting rid of the frivolous suits. If someone goes in to have a kidney removed and the hospital manages to take out the wrong one – well – I think they deserve as much as they can get. Finding some way to distinguish these from the garbage lawsuits is difficult but there has to be some way of doing it.

     I think stripped-down plans should be available. I do worry that if people in these plans skip preventative/screening procedures it could result in higher costs in the end. If people are skipping mammograms and colonoscopies because these are not covered in their bare-bones plans – and detection of their cancer is delayed and treatment becomes more expensive as a result – I think there might end up being a net loss. Tough call….

     Thanks for keeping the dialogue open.

     – hippieprof

3. TennesseePaul Says:
   September 2, 2009 at 12:01 pm | Reply

   Sheeeesh. That really was late night blogging, couldn’t even spell “late.”

   I for one would like to see a gradual move on all of this. I don’t believe the fear mongering that, if it doesn’t all happen right now today, everything will get so expensive no one can afford it.

   One reason I’m skeptical about all of this debate is the underlying assumption that “cheaper bills” will result in better health. From everything I have read, the actual medical care in America is great. The USA is among the highest in survival rates of cancers and diseases. The main draw back is, it is very expensive. Fair enough. But making insurance cover everyone no matter what isn’t going to make every one stop smoking, stop eating junk food, start exercising, and basically live a healthier life. More frequent visits to the doctor aren’t going to prevent obesity. (Well perhaps if the visits were mandated and that mandate required walking to the doctor)

   Basically, none of the options on the table address life-style choices. And life style choices are the leading cause of most illnesses.

   • hippieprof Says:
     September 2, 2009 at 3:10 pm | Reply

     TennesseePaul:

     I don’t have any problem with moving slowly and getting things done gradually and carefully – as long as things don’t move too slowly and too gradually. “Too slowly and too gradually” in fact includes “not getting it done at all” – and that is a very real worry.

     There is a basic issue of trust here – neither side really trusts the other. I will voice my trust issues, and perhaps you can come back and voice your trust issues.

     Here are mine:

     – I do not believe that the private insurance industry wants to get reform done at all. They are sitting very pretty right now – they are very very profitable and they exist as an oligopoly which of course hinders competition. They don’t really want competition because that will inevitably cut into their profit margins. Obviously they don’t want a public option – not because they think it will be bad because they think it will be too good and they won’t be able to compete. Don’t fool yourself – there are very big bucks behind the “grass roots” protests – but bucks which can be traced right back to the insurance lobby. Insurance companies would be perfectly happy if the whole thing just went away.

     – The GOP stands to make political gains if reform fails. In fact the discussions on American Missive are a perfect example, are they not? Just look at what was being posted yesterday by yourself and others – you were talking about how all of this is a failure of Obama’s leadership. You may actually be right – but there is also a big political gain to be made by seeing too it that reform fails and hence Obama fails. For example, Grassley pretends that he is negotiating in good faith – but has also openly admitted he won’t vote for reform under any circumstances – I consider that to be negotiating in bad faith with the explicit purpose of dragging out the process and eventually having it fail.

     The result of all of this? Obama feels (rightly, I think) that this must be completed before the 2010 midterms. Dems will loose seats – the party in power virtually always does – so the window of opportunity is NOW.

     OK – so those are my areas of mistrust. I am sure you have them as well – so please post yours now.

     Again, thanks for keeping the conversation going. No progress will be made at all until we address the mistrust issue – and confronting it head-on is perhaps one way.

     – hippieprof

     • TennesseePaul Says:
       September 8, 2009 at 5:26 pm | Reply

       “The GOP stands to gain”

       True. But this is always the case. Social Security needs reform as well. But when the effort was made reform never occured. Democrats cheered at the “failure” on national television. Both sides seek political gain from the failings of the other side. The sad thing is, this too will never change. It is yet another reason I do not want that system involved in managing my health.

   • hippieprof Says:
     September 3, 2009 at 8:42 am | Reply

     TennesseePaul: One additional note – I have heard the claim about cancer survival rates before, and that is indeed an interesting statistic. However, other statistics suggest the US system is not so good. I just found the article linked below which outlines how the US trails Canada on a number of health fronts – except cost…

     http://www.yesmagazine.org/issues/health-care-for-all/1503

4. Sonic Charmer Says:
   September 8, 2009 at 6:09 am | Reply

   1) I want everyone to have access to a high-quality health insurance plan at a reasonable price.

   Perhaps it depends on what you mean by ‘high-quality’ and ‘reasonable’ – those are of course fuzzy malleable terms – but generally, this is like saying “I want everyone to have a Mercedes for the price of a Hyundai”. This is not a realistic thing to “want”, it is a fantasy. It’s like saying “I want 3 to be no bigger than 2″.

   Now, you could kinda-sorta accomplish what you’re saying you want, either by setting a government price-ceiling on Mercedes (which will discourage private actors from selling Mercedes, of course, except on the black market), or subsidizing (thus inflating the cost of) purchasing Mercedes at taxpayer expense. It is one or both of those things that you are, in effect, saying you ‘want’ here. But the result will likely not be all that ‘high-quality’ nor will the price tag, properly reckoned, be all that ‘reasonable’. TANSTAAFL.

   2) I want people to be covered for pre-existing conditions.
   

   We’ve been through this before. You ask for a moral rebuttal, fine, here it is: saying to a private actor “you must cover someone for their pre-existing conditino” is, effectively, saying to them “you must pay this person far more money than they are ever going to give you”. It is taking, pure and simple. That is immoral.

   It is simply ridiculous to think you can go around forcing private actors to sign contracts obligating them to pay out far more money than they take in. Here’s what their answer is going to be: “No. I’m not interested in doing that. I think I’ll not.” How are you going to force them to do it? On a very real level, I don’t even get what you intend to do here.

   Actually this lines up well with concerns I’ve voiced in a different context about confusing means with ends. The ends you seek, I assume, are that people with chronic illnesses should obtain health care. Guess what: I agree! But “let’s force private companies to ‘cover’ them” is a ridiculous, fantastical proposed means of getting to that (good!) end. Think of another one. A real one.

   3) I want to make it impossible for insurance companies to deny treatment or even cancel policies based on technicalities.
   

   By “technicalities” you seem to mean “the legal text as written in the contracts they sign”. Sorry, this is unlikely to change. Perhaps you can agitate for guidelines regarding insurance contracts that discourage the use of “technicalities”, but as a realistic matter, insurance companies are going to conduct their business according to contracts, and they are going to hire on-staff lawyers to write and read and argue those contracts. You can’t “make this impossible”.

   Means vs ends. Notice how focused you are on “insurance” in all these things you ‘want’. But the goal should be health care. “Insurance” is just one means of providing health care, and (we can all agree) not a particularly good one. I’m thinking that’s a big part of why this debate is so muddled. Best,

   • hippieprof Says:
     September 8, 2009 at 7:49 am | Reply

     Oh… Sonic Charmer…. you old charmer, you!

     So – addressing your comments:

     You say: “Perhaps it depends on what you mean by ‘high-quality’ and ‘reasonable’ – those are of course fuzzy malleable terms – but generally, this is like saying “I want everyone to have a Mercedes for the price of a Hyundai”. This is not a realistic thing to “want”, it is a fantasy. It’s like saying “I want 3 to be no bigger than 2″.”

     Fair enough – I would take something like the Canadian system – preferably as a single-payer but alternatively as a public option. Their health care system is rated higher than ours, and everyone is covered. Taxes are higher, but that is the entire expense – nothing else out-of-pocket. No – not a free lunch by any means – but an improvement over our system in my opinion. The Canadian system isn’t perfect – we could certainly improve on it – but moving to such a system is a move in the right direction.

     You say (regarding pre-existing conditions): “Actually this lines up well with concerns I’ve voiced in a different context about confusing means with ends. The ends you seek, I assume, are that people with chronic illnesses should obtain health care. Guess what: I agree! But “let’s force private companies to ‘cover’ them” is a ridiculous, fantastical proposed means of getting to that (good!) end. Think of another one. A real one.”

     Ahhhh – yes – perhaps this is why I favor a public option? This is perhaps why I have been skeptical about our current for-profit system? Yes – a public-option will cost us more in taxes (you are right about TANSTAFFL) but it also covers situations such as these…. you are paying more but getting more.

     Note that I am not talking about the person who gets sick and suddenly wants insurance after 40 years of saying “pass.” I am talking about a person changing jobs or moving to a new state. Some of that can be solved with deregulation (allowing insurance purchases across state lines) and co-ops with risk trading could work as well. Single payer is the best solution in my opinion – but that idea is DOA.

     You say (re: technicalities): “By “technicalities” you seem to mean “the legal text as written in the contracts they sign”. Sorry, this is unlikely to change. Perhaps you can agitate for guidelines regarding insurance contracts that discourage the use of “technicalities”, but as a realistic matter, insurance companies are going to conduct their business according to contracts, and they are going to hire on-staff lawyers to write and read and argue those contracts. You can’t “make this impossible”.”

     You are correct – most (though not all) of these technicalities have to with how the contracts are written. I would suggest, however, that there is some intentional obfuscation in how those contracts are worded – loopholes intentionally placed in the contract with the very real intention of using those loopholes to later deny coverages. It is a classic bait-and-switch – the insurance companies lead the customer to believe they are getting one thing and later – when it is too late – tell them that they really never had that in the first place.

     In a truly competitive free market perhaps companies who do this would be weeded out. Unfortunately, the insurance industry is an oligopoly and in many markets there is little real competition.

     And yes – I will invoke a moral argument here even though I know you don’t like those. Intentional bait-and-switch tactics are in fact immoral – especially when lives are at stake. The insurance companies are using misdirection and slight-of-hand to fool customers and maximize their profits. Legal? Perhaps… Moral? Absolutely not…

     You say: “Means vs ends. Notice how focused you are on “insurance” in all these things you ‘want’. But the goal should be health care. “Insurance” is just one means of providing health care, and (we can all agree) not a particularly good one. I’m thinking that’s a big part of why this debate is so muddled. Best,”
     

     I am concentrating on insurance because I think that is the part that is broken – or perhaps most severely broken. Other things are certainly in need of adjustment – but I think insurance has to be where it all starts.

     Thanks again for the conversation…..

     – hippieprof

     • Sonic Charmer Says:
       September 8, 2009 at 7:14 pm | Reply

       Oh… Sonic Charmer…. you old charmer, you!
       

       Ah, but my charms are sonic. Whatever the he** that means

       Fair enough – I would take something like the Canadian system –
       

       Ok so we’ve slyly switched from ‘high-quality at reasonable price’ to ‘something like the Canadian system’. So all you’re really saying is that you want ‘something like the Canadian system’? Well, I don’t. Now what?

       Forcing you to retreat to simply wanting ‘something like the Canadian system’ rather than ‘high-quality at reasonable prices’ seems to have robbed your argument of much of its moral import. I mean, ok, maybe the Canadian system is ok, or whatever, but one thing it is not is somehow axiomatically ‘high-quality at reasonable prices’. You can’t just define the Canadian system as ‘high-quality/reasonable price’; it may or may not be (which would require analysis). What’s the independent reason then that you want something like the Canadian system? Because as things stand this thing you want doesn’t carry much weight with me.

       Taxes are higher, but that is the entire expense – nothing else out-of-pocket.
       

       So is that worth it or not? Where’s the cost-benefit analysis? What’s so bad about ‘out-of-pocket’ vs taxes? Taxes also come out of my pocket. I reckon a dollar is a dollar either way. Would I gain or lose, net-net? And if you don’t know the answers to these questions, how can you favor it, let alone expect others such as myself to go along?

       but an improvement over our system in my opinion. The Canadian system isn’t perfect – we could certainly improve on it – but moving to such a system is a move in the right direction.
       

       You say that it’s ‘an improvement’ and would be ‘a move in the right direction’, but you don’t actually appear to know these things. By what criteria exactly is it an ‘improvement’, a ‘move in the right direction’? I remain unconvinced and underwhelmed.

       [chronically ill should get health care but insurance is a bad/unrealistic means] Ahhhh – yes – perhaps this is why I favor a public option?
       

       Here’s the thing, if ‘public option’ just means ‘government coverage safety net’, then I guess I’m ok with it too. But what is Medicaid? Why are we having this discussion instead of just pointing at Medicaid and saying “it exists”?

       Yes – a public-option will cost us more in taxes (you are right about TANSTAFFL) but it also covers situations such as these…. you are paying more but getting more.
       

       “I” am not paying more and getting more, in that scenario. I am paying more and the chronically-ill person is getting more. Maybe you think I have a moral obligation to subsidize chronically-ill people more than I already do. But I have a family of my own, you know. You are taking out of their mouths – or at least reducing their opportunities – to give to strangers, in the name of your ‘morality’.

       I don’t think that’s so moral, to be honest.

       Note that I am not talking about the person who gets sick and suddenly wants insurance after 40 years of saying “pass.” I am talking about a person changing jobs or moving to a new state.
       

       For the record, I don’t believe for one microsecond that any government plan that passes would make this distinction, would say ‘hey, you didn’t buy insurance for 40 years, so we’re not covering you’. I don’t even think that occurs now (under Medicaid).

       Some of that can be solved with deregulation (allowing insurance purchases across state lines) and co-ops with risk trading could work as well.
       

       Now we’re on the same page. We agree on the ends, and you have suggested realistic, moral, and reasonable means to those ends. Can we just stop here and call it a victory?

       I would suggest, however, that there is some intentional obfuscation in how those contracts are worded – loopholes intentionally placed in the contract with the very real intention of using those loopholes to later deny coverages.
       

       Perhaps. I see it as a sort of losing battle to focus there, however. Somewhat akin to playing whack-a-mole. Whatever bill/regulation you could imagine writing to try to clamp down on the loophole language, lawyers would just find other ways to phrase loopholes. I guess maybe tort law could be broadened to empower judges to have wider sway in enforcing something like the ‘spirit of the contract’. Dunno really. If such a thing really took hold, of course, guess what would happen? We’d all pay higher insurance premiums to compensate.

       In a truly competitive free market perhaps companies who do this would be weeded out. Unfortunately, the insurance industry is an oligopoly and in many markets there is little real competition.
       

       Agreed. But the reason the insurance market is so far from a free market has everything to do with government regulation and meddling. As you know, my solution therefore is less government. More government is not a good answer to an observed problem that stems in large part from too much government.

       The insurance companies are using misdirection and slight-of-hand to fool customers and maximize their profits. Legal? Perhaps… Moral? Absolutely not…
       

       Ok, it’s not moral. That doesn’t really get us anywhere however. In practice, whenever money changes hands, legal contracts will be involved. Whenever contracts are involved, lawyers will be involved. And contracts + lawyers means technicalities, loopholes, fine print, etc. ‘Moral’ has got very little to do with it. Like I said above, perhaps more leeway for judges could help, or something…I certainly wouldn’t be opposed. I guess this isn’t really necessarily sexy fodder for National Health Reform! however.

       I am concentrating on insurance because I think that is the part that is broken – or perhaps most severely broken.
       

       I realize that but your main examples of it being ‘broken’ include stuff like this:

       Insurance companies don’t want to sign contracts that are virtually guaranteed lose them huge amounts of money.

       And that is not a valid complaint.

       My point is that when you point at a market and say ‘That market doesn’t work because its companies don’t sign fool’s contracts!’, maybe you’re barking up the wrong tree. You seem to take it as a given that the desired end here is for insurance companies to “insure” patients who are virtually guaranteed to cost a lot of money. I am saying that this is not a particularly good, let alone realistic goal.

       The good, valid goal is to get such people the health care they need. In such cases, I don’t think looking to insurance companies makes all that much sense. That’s what safety nets are for. But we have a safety net. It’s called Medicaid.

       Best,

     • TennesseePaul Says:
       September 9, 2009 at 10:27 am | Reply

       Sonic Charmer. Excellent posts. Excellent.

       • hippieprof Says:
         September 9, 2009 at 11:38 am

         TP – Sonic Charmer does not need your help….believe me….
         

         Now if I could just get a few moments to spare to respond….. but I’ve been too busy shooting down the latest Obama-Nazi conspiracy theory…..

     • hippieprof Says:
       September 11, 2009 at 9:30 pm | Reply

       Sonic Charmer….

       I wanted to get back to respond here days ago – but many events have conspired to keep me from getting to it….

       A lot of the debate is moot anyway following Obama’s speech because the discussion is now heading off in other directions. I do want address one point though.

       Regarding pre-existing conditions, you state emphatically:

       “Insurance companies don’t want to sign contracts that are virtually guaranteed lose them huge amounts of money.”

       That seems so obvious when you first read it – except when you think about it a little deeper…. because when you read deeper you realize that by eliminating potentially unprofitable contracts you are no longer selling insurance…..

       Insurance companies will inevitably lose money on some contracts. They will inevitably make money on other contracts. In the balance they want to make more than they lose, obviously. They employ actuaries to evaluate the amount they are likely to have to pay out (i.e., risk) – and on that basis they set rates so that the amount of income they get from the profitable policies exceeds the amount they lose from unprofitable contracts by enough to cover expenses and produce a profit. That is how insurance works.

       Now – use an analogy of as poker game and a playing card face down. The card represents a potential new contract. The fact that it is face down means that the company knows nothing about the current health of the potential policy holder.

       Based on their actuarial tables they can tell you what the probability is of that card being profitable or unprofitable is – while the card remains face down. THEY MUST MAKE THEIR DECISION BASED ON THIS LIMITED INFORMATION BECAUSE THAT IS WHAT THEIR ACTUARIAL TABLES ARE BASED ON – JUST AS A POKER PLAYER MUST MAKE A BET BEFORE THE CARD IS TURNED.

       Insurgence is probability-based gambling. In standard gambling it is cheating to peek at the card before you bet. Likewise, it is cheating to establish the health status of a potential policy holder prior to taking them on – you are removing the gamble – which is the very basis of actuarial science.

       Given enough patient information (DNA testing, etc) an insurance company could come quite close to eliminating all potentially unprofitable contracts (excluding accidents) – and when we get to that point it really isn’t insurance anymore because you are only collecting money from those who probably won’t need it.

       – hippieprof

5. hippieprof Says:
   September 8, 2009 at 5:38 pm | Reply

   TP – and that is indeed the sad thing about our system. Each side things it can gain politically by taking the other side down – but all that happens is the other side is sitting back and waiting for revenge – and nothing ever gets done.

   Can you imagine what this debate might look like if everyone (media personalities included) were actually concentrating on getting something accomplished, and everyone was bargaining and discussing in good faith?

   – hippieprof

6. funkydoowopper Says:
   September 9, 2009 at 1:27 pm | Reply

   Sonic charmers analogies involving Mercedes and actors are disingenuous. The whole point of insurance is that you share risk. You don’t buy car insurance because you think you are going to write the car off or kill someone. In fact you hope you never have to claim. The same with just about every insurance, but you feel reassured in the knowledge that you are covered for a catastrophe. Health insurance isn’t like that for far too many people.
   With respect to the Mercedes, I am sure that the actual delivery of care to individuals by doctors, nurses and others is mostly high or very high quality. On a national scale, however, the picture is pretty poor. Infant and maternal mortality rates, for example, are among the worst, if not the worst, amongst the developed economies which generally spend about 50% per capita of the US spend and cover everyone. Just how is it not possible to do better than the current system within the current cost? All it needs is some honest debate I live in hope) and probably removing the conflict of interest that currently exists for health insurance companies.

7. Sonic Charmer Says:
   September 12, 2009 at 8:13 am | Reply

   by eliminating potentially unprofitable contracts you are no longer selling insurance…..

   ‘potentially unprofitable’ is not the same as ‘virtually guaranteed to lose money’ (which is what I said). Yes of course insurance is about buying risk and that means some predictable % of contracts will lose money. But the whole point of risk is that you don’t know which ones those will be in advance. If you do pretty much know in advance that someone will lose you a lot of money, then it’s not “risk”, just a future liability – and you’d be a fool to insure. You seem to think that because these companies are called “insurance companies”, and in a special business called “insurance”, then it somehow magically makes sense for them (or they somehow “should”) sign contracts with large, known, fairly predictable liabilities.

   That is insane. And a very simplistic/skewed/flawed/almost ignorant view of what risk is really about. Again: risk is unknown. Known costs are not “risks”, just costs.

   hey employ actuaries to evaluate the amount they are likely to have to pay out (i.e., risk) – and on that basis they set rates so that the amount of income they get from the profitable policies exceeds the amount they lose from unprofitable contracts by enough to cover expenses and produce a profit. That is how insurance works.
   

   Thanks for the risk 101. But I get it. (I work in an area involving risk and indeed involving instruments that are very insurance-like.)

   But you’re not grasping what I’m saying (or evading it). What actuaries are doing is using statistical analysis. But someone with fairly predictable health bills has fairly predictable health bills. The true fair-market cost of offering them an “insurance” contract then would be quite large. The actuaries after doing their analysis would say “sure, we can insure this person. the fair rate will be $500k/year.” Or whatever. But obviously that’s not what you have in mind, you have in mind “insuring” people who represent large, predictable liabilities for more or less the same premiums as everyone else.

   Actuaries would not recommend doing so. Actuaries can’t do magic with numbers to convert that into a good idea. And no, that is not “how insurance works”. Insurance is about taking on risk. But known costs are not “risk”.

   The fact that it is face down means that the company knows nothing about the current health of the potential policy holder.

   That is an inapt analogy. We are not talking about cases where the company “knows nothing” about the current health of a potential policy holder, but precisely the opposite – cases where the company knows a lot about their current health, and in particular, knows that they have a condition that is very likely to cost a lot of money.

   In your analogy, then, this would be like a poker player seeing the other person’s cards, seeing that they have a royal flush, and then being asked “do you want to go all-in?” The answer for any sane person is no.

   THEY MUST MAKE THEIR DECISION BASED ON THIS LIMITED INFORMATION BECAUSE THAT IS WHAT THEIR ACTUARIAL TABLES ARE BASED ON
   

   That is quite silly. Actuarial tables and similar are appropriate in cases where knowledge is limited and one has to use only statistics. But if people in banking/finance/insurance know more about a potential contract, then of course they use that information. They don’t run around like chickens with heads cut off saying “WE MUST MAKE OUR DECISION BASED ON LIMITED INFORMATION BECAUSE THAT”S WHAT THE ACTUARIAL TABLES ARE BASED ON”. That is patently ridiculous and idiotic. Anyone in any firm who said something like that would be a high risk of getting fired.

   Insurgence [sic] is probability-based gambling.
   

   That’s right. But there’s no way to use “probabilities” to magically turn gambling on a one-sided coin into a good idea. Yet you still think insurance companies (should? should be forced to?) make such bets “because that’s how insurance works”.

   No it is not.

   in standard gambling it is cheating to peek at the card before you bet. Likewise, it is cheating to establish the health status of a potential policy holder prior to taking them on
   

   What do you mean by “cheating”? Cheating according to what rule?

   This is just silly. I don’t know what else to say. Any business will try to use all the information it can get its hands on. No sane businessman would cover their eyes/ears and say ‘I’m not allowed to use information XYZ because hippieprof said that’s cheating’.

   The only thing I can think of here is that you propose to make it illegal for companies to use such info. The only result of doing that would be to squeeze insurance companies out of the market (who wants to play a loser’s game?) and/or raise insurance premiums of the rest of us (because we’ll all have to chip in to compensate). It’s clear that you essentially have in mind using insurance companies as a vehicle to force healthy people to give flat-out subsidies to unhealthy ones. Either that or you genuinely don’t know the difference between doing that, and how real insurance is supposed to work. Either way, no thanks. If that’s your idea, it’s a supremely bad one, with no justification, and I reject it.

   Given enough patient information (DNA testing, etc) an insurance company could come quite close to eliminating all potentially unprofitable contracts (excluding accidents) – and when we get to that point it really isn’t insurance anymore because you are only collecting money from those who probably won’t need it.
   

   I agree. (Well, basically. I don’t think we’ll ever get to the point where DNA etc can COMPLETELY predict a person’s health, but we will certainly get better and better at it..) At that time, you are right, it will be less and less true insurance. Because (as I’ve just said) insurance is about risk; risk is about unknowns; when things are known, that’s not risk. So it will just be more and more about healthy people subsidizing non-healthy people via transfer payments. And I am getting less and less interested in doing that. Understandably so, you must admit. best,

   • hippieprof Says:
     September 12, 2009 at 10:15 am | Reply

     Wow – so I would have to pick with a fight with someone who actually knows something about risk management….

     I do apologize for my simplistic “Risk 101″ lecture – people try to instruct me about Psychology all the time and it can be quite annoying. Most people have absolutely no idea how insurance works and I assumed that you were one of those people.

     I do not work in Risk Management – but I am well trained in statistics and in fact teach stats – so I do know something about what I saying.

     The basis of my argument is the fact that (outside of quantum mechanics) observation of an event does not alter the probability of that event occurring in a particular way (assuming that your observation does not interfere with the event).

     (for the moment I want to bracket off the case of an uninsured person only seeking insurance after becoming ill – that is indeed problematic for my analysis – so lets just talk about people moving or changing jobs).

     Lets take the case of a potential contract in which there is an undetected pre-existing condition.

     At this point, actuaries have already done their job and assessed risk and set premiums based on that risk. Among the factors they assess is the probability that a contract will suffer a catastrophic illness. THE RISK HAS ALREADY BEEN CALCULATED AND RATES HAVE BEEN SET BASED ON THAT CALCULATION. In fact, existing policy holders have already paid into the pool based on that assessed risk.

     It just so happens that this particular contract turns out to be a bad one – and the insurance company does lose money on that one contract. However, do they lose money in the aggregate? No – if the actuaries have done their job and correctly assessed risk the company still makes money.

     Lets take the identical scenario – with the exception that this time the pre-existing condition is known ahead of time. Nothing in the above above analysis has changed. Observing the health status of an individual does not alter the probability of that health status turning out in a particular way. Actuaries have already calculated the probability of that health status being bad, and have already set their rates accordingly – and existing policy holders have already paid into the pool based on that assessed risk. As before, it just so happens that this particular contract turns out to be a bad one – and the insurance company does lose money on that one contract. However, do they lose money in the aggregate? No – if the actuaries have done their job and correctly assessed risk the company still makes money. In fact, statistically speaking they will have exactly the same profit margin they would have had in the first case where the condition was unknown.

     If the company is allowed to refuse that contract they are essentially accounting for that risk twice – first when the original rates are set, and again when they deny the contract. In other words they are overcharging their existing policy holders – the existing policy holders pay premiums based on an assessment of risk for the entire pool – but if the company finds a way to remove that risk at a later date (by denying a contract or canceling coverage) they they are in fact overcharging because the policy holders have already paid for that risk. That overcharge gets passed on as added profit.

     So – yes – a company does not want to take on something where they know they will take a loss – but they have already accounted for that loss and in fact collected premiums based on that accounting – so by rejecting a contract they are essentially double dipping.

     Yes – I do think that it should be illegal for companies to use this information to deny contracts. However, I don’t believe that it will drive companies from the marketplace or raise premiums because they have already accounted for that risk once, when they set their rates. In fact we ALREADY share that risk and the cost is reflected in the premiums we are paying. The companies will remain profitable – certainly they will have smaller profit margin than they do now – but they will still be profitable.

     I am sure you are aware that I am not the only one who feels this way. One of the objections to the Human Genome Project was based on what might happen if insurance companies used this information to required genetic testing of all applicants – allowing them to deny coverage to anyone with too high of a risk. The end result of such a process is a society not unlike that depicted in GATTACA.

     One last note: You say “In your analogy, then, this would be like a poker player seeing the other person’s cards, seeing that they have a royal flush, and then being asked “do you want to go all-in?” The answer for any sane person is no.”

     … and in the old West they would have been shot for peeking at the other person’s cards. We don’t generally use such drastic measures today – but they would certainly be run from the game for using information they are not supposed to have. I am suggesting that insurance companies using such practices should indeed be run from the game.

     – hippieprof

8. Sonic Charmer Says:
   September 12, 2009 at 11:04 am | Reply

   for the moment I want to bracket off the case of an uninsured person only seeking insurance after becoming ill

   Huh? I don’t understand. I thought we were talking about pre-existing conditions, nothing more nothing less. That is precisely and exactly the case where a person already got ill, and now seeks insurance. How can you “bracket off” these cases then? If you do so, we have nothing to talk about.

   Lets take the case of a potential contract in which there is an undetected pre-existing condition.
   

   An undetected pre-existing condition? Ok fine. But in that case nobody (not even the patient) knows about the condition. So the insurance company can’t possibly turn down a contract ‘because you have a pre-existing condition’. They don’t know it. Nobody does. So the point would be moot.

   Lets take the identical scenario – with the exception that this time the pre-existing condition is known ahead of time. Nothing in the above above analysis has changed. Observing the health status of an individual does not alter the probability of that health status turning out in a particular way.
   

   This is gobbledygook. Observing that I have cancer doesn’t alter the probability that I have cancer? Because of quantum mechanics, and Schrodinger’s Cat, and (blah blah blah)?

   I’m sorry but it seems you are trying to blow smoke in my face.

   Actuaries have already calculated the probability of that health status being bad, and have already set their rates accordingly
   

   Yeah, they set the rate for ‘a generic person who may/may not have cancer, with a probability similar to the general public’. If they rerun their analysis for ‘a person who is known to have cancer’, obviously the rate will be different.

   Come on now. You know all this. I know you know all this. And you know I know you know all this. What the heck are you trying to do here?

   However, do they lose money in the aggregate? No – if the actuaries have done their job and correctly assessed risk the company still makes money. In fact, statistically speaking they will have exactly the same profit margin they would have had in the first case where the condition was unknown.
   

   A couple things you’re missing. Suppose company X proceeds as you describe, and blindly writes contracts regardless of pre-existing conditions that they actually know about. But what if companies Y, Z, and W don’t do the same? They say: ‘yes, I realize that company X doesn’t take that into account, but we’re gonna’.

   Results:

   1. Y, Z, and W have wider profit margins by screening out the large liabilities.
   2. They can therefore lower their rates, which will attract more healthy people.
   3. Meanwhile, the unhealthy people all flock to the dumb company X, which (a) is now insuring the most unhealthy people of the general public and (b) can’t afford to lower their rates to the new market level set by Y, Z, and W.

   Now you think that through, and you realize that company X is going to be in pretty big trouble in a short amount of time. The actuaries’ analysis was not based on this situation at all.

   The only way around it then is to tell ALL companies (through law) that they “can’t take into account” such conditions. But this is just code for taxing the rest of us to pay for those known to be ongoingly unhealthy – like I said.

   My real point is: why on earth would we launder that tax through insurance companies? Again: insurance is about risk, and risk is unknown. But those who are really unhealthy, and known to be really unhealthy, are no longer “risks”, just known liabilities. I understand that such people still need health care. But why through insurance companies? This is what a safety net is for. And we have a safety net. It’s called Medicaid.

   If the company is allowed to refuse that contract they are essentially accounting for that risk twice – first when the original rates are set, and again when they deny the contract. In other words they are overcharging their existing policy holders
   

   Well, if they’re stupid. But what really happens (per my XYZW example above) is that one or more of the companies would realize that the others are ‘overcharging’, as you say, and thus if they lower their rates a little they can take business away from the others. The others will either follow suit or lose business. Thus the new, real market rate won’t contain that ‘overcharging’ at all.

   At least, in a true free market (which we do not have, I realize, but as you know, that is the reform I favor).

   Yes – I do think that it should be illegal for companies to use this information to deny contracts.
   

   Well, I’m not in favor of ridiculous restrictions, myself. To say to companies in some market that it’s “illegal” for them to use information about a subset of customers that would save them money on those customers, is really just saying to the rest of us that we need to subsidize that subset.

   An analogy would be to make it “illegal” for supermarkets to stop shoplifters when they see it. (Because ‘they already take shoplifting into account in their prices’, or whatever.) The only real effect of that is that the rest of us are buying groceries for the shoplifters (in addition, it would encourage shoplifting). I’m not interested in doing that. I have little interest in patronizing a store that ‘adds a surcharge so shoplifters can have groceries too’. Similarly, I have little interest in buying health insurance from a company that knowingly takes on large liabilities (whether because they’re forced to, or whatever) that I end up basically just chipping in for through my premiums. If it were my choice, I wouldn’t buy insurance from such a company, but from some different company, a true insurance company (not a weird hybrid insurance+charity/safety-net company).

   I think I should have that choice. Meanwhile, you think such companies should be outlawed, in effect, so that I don’t have that choice – so that wherever I turn, whichever insurance I get, I’m in effect chipping in to pay for other peoples’ known (i.e. not merely ‘statistical’) health care costs. I want more choice, you want me to have less. That seems to be where we stand.

   The end result of such a process is a society not unlike that depicted in GATTACA.
   

   I think what the GATTACA thought experiment shows is that at some point information will become so prevalent that we are going to have to find a means other than “insurance” by which to fund peoples’ health care (because in a GATTACA-like society that still relied so much insurance, things would become dystopian). GATTACA (one of my favorite movies btw) illustrated the absurdity and ugliness that can result in a world that is still dominated by insurance, but where information is far more widespread. But that is exactly my point, remember? My criticism is that you are too insurance-focused. The people you are describing, and whom you are worried about delivering health care to, are simply not good candidates for being “insured” per se. We can all agree they are people who need health care, and that health care needs to be funded – but “insurance” is an inappropriate means of getting there.

   but they would certainly be run from the game for using information they are not supposed to have.

   But the idea that ‘they are not supposed to have’ this particular information is an artifice of your own construct, it’s something you just made up.

   I am suggesting that insurance companies using such practices should indeed be run from the game.
   

   I’m fully aware that you’ve made up this rule and wish it were applied.

   Meanwhile, I don’t see why such a rule should exist (any more than I see why mortgage-bond investors shouldn’t be allowed to use information about the pools of mortgages in the bonds, or advertisers shouldn’t be allowed to use information about the audience they are trying to reach..), so I disagree. More information is good not bad and ultimately helps services become better. Imagine if Amazon and Google ‘weren’t allowed’ to use our prior purchases or browsing habits to suggest products to us. Your advocacy of enforced know-nothingism strikes me as rather backward and regressive.

   • hippieprof Says:
     September 12, 2009 at 7:43 pm | Reply

     OK SonicCharmer – once more into the breach…..

     You say (responding on my wish to bracket off those who never had insurance): “Huh? I don’t understand. I thought we were talking about pre-existing conditions, nothing more nothing less.

     I simply wanted to bracket it off because it is a complex special case and I wanted to deal with the simple case first. It is special because indeed someone could wait until sick before obtaining insurance. This would complicate the analysis I presented because it would mean that there would be a higher probability of sick people among those applying for insurance for the first time than one would find in the general population. Of course, you didn’t like that analysis anyway – so nothing lost…..

     In all seriousness – this is a special case which must be somehow dealt with if I am to get what I want (coverage for preexisting condition). Of course, universal coverage is one way to solve it since the point becomes moot. Alternatively, you could make a regulation that nobody can be denied coverage on the basis of a preexisting condition if they had coverage (on an earlier policy) when the condition was diagnosed…

     But I digress – I want to stick to the simpler case for now.

     Now don’t blink – and don’t get used to it because it won’t happen often – but I am about to concede a point…..

     I argued that if an insurance company sets rates on the basis of anticipated risk and later avoids some of that risk by refusing coverage then it is “double dipping” if it then passes the savings on to investors as profit.

     You pointed out quite correctly that this is an abnormal profit and could in fact be passed back to the policy holders in the form of lower rates – and further you noted that in a free market a company should pass that savings back because it makes their plan cheaper and more competitive in the marketplace.

     Point taken.

     The question is – which scenario is actually occurring? I personally don’t know – but I do suspect that the non-competitive nature of the market is resulting in at least some abnormal profits.

     You suggest that the solution is deregulation – and I agree to the extent. I think the solution will need to involve some re-regulation too. For example, if we deregulate to allow policies to be purchased across state lines the result will have every insurance company relocating to whatever the health insurance equivalent of Delaware is – which in the end would serve to reduce competition. One solution is a set of national regulations that would trump state regulations – but you can see how states-rights advocates would be bothered by that.

     Your analysis also gave me an insight – one you probably already had but which just dawned on me. Coverage of preexisting conditions will never occur under a free market. Somewhat paradoxically, coverage for preexisting conditions is not something you want in your own policy – because once you are in you don’t need it and it costs more. However, it is something you want in the other policies out there – the ones you might someday want to switch to. As a result, policies which do not cover these conditions will receive more contracts – eventually driving the others out of the market. The only way to get it, therefore, is via regulation. Regulation is a not a bad idea as far as I am concerned – but I understand that you feel differently.

     – hippieprof

9. Sonic Charmer Says:
   September 13, 2009 at 12:17 am | Reply

   I simply wanted to bracket it off because it is a complex special case and I wanted to deal with the simple case first.

   Ok. It was part of developing a larger argument. I see that & probably shouldn’t have interrupted… One of the hazards of my responding to one’s comment sequentially/linearly.

   The question is – which scenario is actually occurring? I personally don’t know – but I do suspect that the non-competitive nature of the market is resulting in at least some abnormal profits.
   

   Well like I said I don’t consider it to be a hugely free market. But even if we were going to try to answer this question, it would be impossible. How to define “abnormal profits”? What is “abnormal”? Compared to what? Such a thing can’t be defined or measured. The best we can do is to remove unnecessary and ill-advised regulations and let the free market find market prices. Like we do in a wide variety of areas of human goods/services. The result will tell us what’s ‘normal’.

   You, or at least Obama, are proposing things that will go in the opposite direction. One, seems there is likely to be a ‘mandate’ (the government forcing us to buy insurance). Two, there is likely to be more formalized rationing. It is hard to square these developments, which ‘progressives’ seem to applaud, with a concern that insurance companies make too much, or ‘abnormal’, profit. The whole idea of this reform is to distort the insurance market even more and wed citizens even more to the insurance companies. Surely the tendency will only be to make ins. co. profits even more ‘abnormal’…? How exactly does forcing citizens to buy a product reduce that company’s supposedly ‘abnormal’ profits?

   For example, if we deregulate to allow policies to be purchased across state lines the result will have every insurance company relocating to whatever the health insurance equivalent of Delaware is – which in the end would serve to reduce competition.
   

   I’m not sure why it would reduce ‘competition’. It would reduce the number of ins. co.’s not incorporated in whatever-state-turned-out-to-be-Delaware. But so what? Who cares where they’d be incorporated? The point is they would all be competing nationally, with each other, for customers all over the country. This is an increase of competition, by the usual meanings of those words.

   Somewhat paradoxically, coverage for preexisting conditions is not something you want in your own policy – because once you are in you don’t need it and it costs more. However, it is something you want in the other policies out there – the ones you might someday want to switch to.
   As a result, policies which do not cover these conditions will receive more contracts – eventually driving the others out of the market.

   Your analysis looks right. In a true free market, ins. co.’s would offer policies to people in the situation [don't have major health problems and thus will get health problems in the future with a generic, background probability]. All citizens have an interest in purchasing such coverage. Likewise they have an interest in the premium being as low as possible, which favors companies who are good at screening high-liability people (i.e. those w/preexisting conditions) from their coverage.

   In my ideal, of course, people would purchase the coverage they desire, for specified terms, and if they had a health problem during the term of coverage, they’d be covered. They’d renew their coverage readily and easily because it wouldn’t have anything to do with their employer, and also the coverage would generally be cheaper (they mostly wouldn’t be ‘health plans’ that pay for every single doctor visit, but true insurance.)

   So there just wouldn’t be a huge pool of people out there (a) with no existing insurance coverage and (b) who had a large health problem. The only people in such a position would be those who are rather poor. But that’s who the safety-net is for. In other words, this concern can add up to an argument for a safety-net.

   But not a ‘national health system’ or anything of the sort.

   The only way to get it, therefore, is via regulation.
   

   This seems right to me too. Yes, I suppose the only way to get private companies to sign loser’s contracts (i.e. write insurance on someone with an expensive preexisting condition) is indeed to force them to as a condition for doing ongoing business, via law/regulation.

   What is still not clear, because you still don’t seem to have thought it through or at least articulated it, is why you think it is necessary to achieve this outcome. Why must it be possible for someone who doesn’t currently have insurance, and has a large health problem, to approach an insurance company, offer him $X per year, and have the insurance company pay him $1000X per year in return? (Or some other multiplier) Why do you feel the need to make that possible? It’s just a tax on the rest of us through insurance companies. Again, the people in that situation – the people you are worried about – are clearly hardship cases. They belong in the safety-net. That is called Medicaid. Why feed them their care through private insurance companies at all? Do you have an answer? Curious,

10. funkydoowopper Says:
    September 13, 2009 at 11:28 am | Reply

    It seems to me that when people start to regard everything, including human healthcare, as a commodity that should be traded then they start to tie themselves, and others, in knots. Healthcare is not a normal commodity. Amongst other things the healthcare system in a developed country is a measure of the value that country places on its citizens. Having a healthy citizenry is essential for economic and social development. It benefits no one to watch others fall into bankruptcy trying to pay health bills that arise through no fault of their own.
    If insurance companies are to continue to act as gatekeepers to healthcare they need to align their objectives with those of the insured. It would be reasonable, for example, for them to pursue means of ensuring people are treated at the earliest possible stage of an illness and in the least costly facility (ie not the ER). At the moment too much of their efforts and investments are directly opposed to the interests of their clients. I suspect, however, that the for-profit health insurance industry has no real interest, and certainly no ability, in pursuing a client centred approach to their business.
    Given this and the knots that people seem to be tying themselves in above, there really does seem to be only one answer. Yes, single payer health insurance for all citizens for life. The likelihood of this happening anytime soon seems extremely remote but it would at last banish the spectre of significant numbers of people being denied access to essential healthcare by insurance companies because of some chance of birth (don’t ever let insurance companies get access to your DNA profile) or some other chance or unavoidable occurrence.
    Given the excessive cost and inefficiencies of the current system, it shouldn’t be that difficult, given a little goodwill on all sides, to learn from other developed countries and provide universal healthcare at little or no additional cost and with less bureaucracy than the current system.

11. Sonic Charmer Says:
    September 13, 2009 at 12:42 pm | Reply

    funkydoowopper,

    If insurance companies are to continue to act as gatekeepers to healthcare

    It’s funny you should say that because this is precisely my point: I’m not the one who wants insurance companies to be gatekeepers to health care, hippieprof is. Hippieprof – and Obama, and left – wants to funnel even the charity and safety-net cases through insurance companies. I don’t! That’s precisely what I oppose. Let’s let insurance companies stick to insuring and deal with the charity/safety-net cases some other – better – way. Sound good?

    It would be reasonable, for example, for them to pursue means of ensuring people are treated at the earliest possible stage of an illness and in the least costly facility (ie not the ER).
    

    If and when this is reasonable for them, I assume they do. You don’t think they care about their bottom line? Of course they do.

    But this logic can be taken too far, to the point where people simply make the assumption that procedure X at time T will save money over procedure Y at later time T’. I’m not impressed by arguments that rely on bald assumptions.

    • hippieprof Says:
      September 13, 2009 at 4:09 pm | Reply

      SC:

      I will comment more in a bit – I have been too busy calling out racists in other threads…. all in a days work….

      I did want to immediately clear up one misconception, though: You say “Hippieprof – and Obama, and left – wants to funnel even the charity and safety-net cases through insurance companies. ”

      That is not really what I have been saying. I said I wanted three things 1) quality health care for all at a reasonable price, 2) coverage for pre-existing conditions, and 3) no loss of coverage or treatment based on technicalities.

      I went on to say I didn’t care how it was done – and I would be happy to have private industry do it if they could. I was admittedly skeptical that they could, and I still am. But if they can – more power to them.

      – hippieprof

12. funkydoowopper Says:
    September 13, 2009 at 5:19 pm | Reply

    My mistake Sonic C. You seemed to be defending the role of insurance companies. It isn’t clear to me what you are proposing then.
    Personally I can’t think of a good reason to deny anyone access to the healthcare they need or why Americans should have to endure a second class system (not, I hasten to add, second class care). You seem to be suggesting that you don’t want to be burdened with the few extra cents or dollars a year that you might pay for someone else to get, say, cancer treatment. Apart from that fact that no taxes work like that, you would stop complaining very quickly if you were diagnosed with a devastating condition requiring expensive treatment that your insurance company didn’t want to pay for.
    I am making no “bald assumptions” here, in healthcare prevention is better and cheaper than cure and early treatment is almost always better than late. The negative interventions of insurance companies (designed to protect their bottom line) may often result in delays in getting treatment and, therefore, more expensive care. This is basically a second class system. People deserve better.

13. Sonic Charmer Says:
    September 13, 2009 at 6:39 pm | Reply

    I went on to say I didn’t care how it was done – and I would be happy to have private industry do it if they could. I was admittedly skeptical that they could, and I still am. But if they can – more power to them.

    But I think we’ve agreed that private industry can’t and won’t (and I would say: shouldn’t) do these things, left to their own devices. Again, private companies aren’t in the habit of signing you-pay-me-X-I-pay-you-1000*X contracts, and we shouldn’t expect them to be. Your idea then is that they should be forced / mandated / compelled / regulated (however you want to say it) into doing such things as covering people with preexisting conditions. Right? Please correct me if I’ve misunderstood.

    And my point is that such a regulation/mandate is nothing more and nothing less than funneling safety-net care through insurance companies. So if you don’t nec. want to use insurance companies for that end, then great, don’t. We agree. After all, it is not what they are for. Best,

14. Ben Says:
    September 18, 2009 at 9:43 pm | Reply

    Wow! We agree on all three items. Give America a bill which mandates a clean up of Medicare and Medicaid FIRST to be followed by a bill which has the above 3 items, in addition to abolishing the medical program Congress enjoys and forcing them onto the same program as the rest of us, and I would bet your tenure that we would have a national health care program we can all live w… er die w it h no.. live wi.. . ok .. live with.

    The only sticking point not explained is how to pay for it.

15. Doctor Angel Says:
    January 9, 2010 at 7:22 am | Reply

    apologies, if you have made a reference to this, and I have missed it.

    I work in the UK for the NHS. There was recently I furore over here and in the twittersphere of the NHS being condemned by an American politician (apologies for not remembering whom, it can be hard enough for me to remember what I did yesterday sometimes). The NHS is indeed a flawed organisation, and I might talk more about this at another point, but the aims is high quality heathcare to ALL and an equal service without prejudice.

    Whilst, as I have mentioned, there are a plethora of things wrong with this system, I feel very proud to work for an organisation with such aims. Individual clinicians work very hard to deliver top quality services and often innovate with very few/no resources (albeit the management structure/lack of resources/unrealistic expectations by commissioners of the service/paperwork can dent morale!). I’d be interested in your views on such a system.