Someone Please Confiscate this Man's Thesaurus
In one Washington Post article on the demise of the public option in the Senate Finance Committee today, we are treated to the following characterizations of health insurance companies by Senator Jay Rockefeller: voracious, rapacious, banditry, junk. He accuses insurance companies of putting their profits first and their customers second. He argues that this state of affairs justifies Medicare-for-all as a public option:
Rockefeller and Schumer argued repeatedly during the committee's markup that a public option would be the best way to give consumers an affordable choice in health insurance and rein in what they described as voracious, profit-driven private insurance companies.
The most voracious, profit-driven company I know of is Wal-Mart, yet Wal-Mart's entry into a market drives down consumer costs. And it is fine for Wal-Mart to put its profits first and its customers second -- it cannot make profits consistently if its customers aren't made better off and willing to come back. In my experience, it is at worst a very close second.
The solution to the problems in our health care sector is to make it look more like the retail sector or any other sector in which being voracious and profit-driven drives down costs. The problems of adverse selection and moral hazard in insurance markets are well known -- they are what stands in the way of extending the benefits of competition to health care. Addressing them should be the central features of the reform, with a risk-adjustment mechanism to address the former and high-deductible plans to address the latter. All of this discussion of Medicare-for-all in a public option is at best premature, since we have not seen whether a competitive, private system can function under the right form of regulation.
I guess 2% or 3% profit on
I guess 2% or 3% profit on premium revenues qualifies as "rapacious" these days...well, selectively, depending on one's agenda.
Your argument works perfectly *in an open market*
However, the insurance market is NOT open. (see http://www.openleft.com/diary/14744/death-panels-vs-the-herfindahlhirsch...)
I am a devout capitalist, and also a firm believer in open markets. The Walmart comparison fails in this regard. Walmart has created a business with tremendous economies of scale, and has designed an entire business model that is more efficient than most other retailers. But even as big as they are, in most locales they do not have monopoly power - there's a Target, or K-mart, or set of smaller or Mom&Pop stores available.
The health insurance industry is not open, so many basic market forces fall apart. That is how my insurance company is able to spend $1 million on a "hospitality tent" at a golf tournament while not allowing customers take part in that wonderful hospitality, then following up that record year of "profits" (a wonderful concept for a not-for-profit organization) with a 12% increase in dues.
What were my options? Not many when two insurers control 80% of the state's business, and the state controls who can play. I suppose I could have switched to the other insurer in the state, but they just had a 16% increase for a plan that covered far less. And my rates have increased 45% since (amazingly - the other insurer raised their rates just about the same amount).
By the way - I did shop prior to selecting this insurer. The search was simple - Insurer A or Insurer B. Or, be self-insured, or choose one of the few tiny insurers. Problem with the last option is that the two bullies pushed them out of most of the doctors' offices. If you have one of the little guys, you have to pay up front, then HOPE you get reimbursed.
I am hoping for a strong public option. I believe this will generate the competition that WILL drive costs and rates down. Until then, though, the insurance companies with the monopolistic powers (or the equivalent for a duopoly or oligopoly) do not have true market forces to deal with.
Re: Your argument works perfectly *in an open market*
"What were my options? Not many when two insurers control 80% of the state's business, and the state controls who can play."
Stop. Think. How do just two insurers get 80% control of the state's business?? Certainly not by the workings of a free market.
It's the direct result of federal law: The McCarran-Ferguson Act exempts states from the Commerce Clause when they regulate health insurance, so they can block interstate competition at the border and establish politically lucrative cartels with favored insurers.
It also specifically exempts these cartels from federal anti-trust enforcement, so the state and the insurers are free to engage in anti-competitive practices to block in-state competition. Which they most certainly do!
That's how you get two insurers with 80% of the market -- by the local government blocking competition from the market and protecting its favored cartel. As blessed by Congress.
If you are "a firm believer in open markets" as you say you are, I'd imagine your preferred remedy for this would be to repeal McCarran-Ferguson, and open your state's market to interstate competiton to get another hundred policy options availalbe to you -- with your local cartel broken up by anti-trust, if the new market competiton doesn't do the job fast enough or the local politicians persist in protecting their favorites.
For bipartisan-sponsored reform along that line, see Wyden-Bennett.
"I am hoping for a strong public option. I believe this will generate the competition that WILL drive costs and rates down"
Stop. The "public option" preseves all the state cartels and is subject to the same cost-increasing rules -- such as politically ladled-on "minimum benefits" that please the health workers unions -- that your two cartel plans are.
Since the "public option" has to follow all the same anti-competitive rules that protect the other plans, and must meet its costs out of premiums just like other plans (including non-profits) HOW is it going to drive down costs and rates?
If you really want competition to your two cartel-protected plans, which do you prefer...
* One new "public option" plan, coming in following all the exact same anti-competitive state rules as the two plans you've got.
* A hundred new plans coming in from out-of-state to compete, via newly opened interstate competition -- with your local cartels broken up by the same domestic free trade and anti-trust rules that apply to every other industry in America?
Your choice: Rockefeller-Schumer or Wyden-Bennett.
A Market with Prices and Everything
Great post. I think one of the principal problems is status quo bias (manifested here in the form of the employer tax exclusion and employer based health care). People think there is nothing wrong with "insurance" which is in fact a product where you pay someone to pay for your predictable expenses. If people had normal insurance (i.e. low frequency payouts with large payouts) premiums would be significantly cheaper and wages higher (and thus the idea of paying out of pocket would be less scandalous). Moral hazard and adverse selection could be remedied with an individual mandate and catastrophic reinsurance. On the lower end of the income spectrum we could help people cover their deductible with cash payments so they wouldn't forgo basic care.
How do high deductible plans address moral hazard?
The people I know who think they are immortal won't pay any price, no matter how low, for health insurance. They'll wait until they get sick, walk into the emergency room, and make the rest of us pay for their accident/illness. The only way they'll buy insurance is if it is mandatory (like auto insurance).