Let's step back from the health reform debate and look at "health insurance." IT'S NOT INSURANCE!!!
Insurance is "the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss." Insurance "indemnifies," or makes whole, the policyholder after a large loss in excess of some deductible.
Our health insurers don't indemnify. Wednesday, President Obama poignantly described his mother's anguish on her death bed that her insurance company wouldn't pay. We all know of similar stories. Health insurers avoid covering the poor, the elderly, those in poor health, and the unemployed - some 47 million at last count out of 305 million Americans. They only cover the healthy and charge exorbitantly for that. They don't negotiate lower prices on our behalf from hospitals, pharmaceutical companies, and other health providers. They limit our choices of doctors, tests, treatment, and access to new medical technology, worsening our health outcomes. They are driving many doctors to leave the profession just when we need them most, and those that remain are overspecialized. Our health insurers have a lot of power over our political leaders and regulators as Business Week wrote recently, and, in the middle of the worst recession since the Depression, our health insurers are one of the few industries to remain profitable, although not the "record profits" cited recently by President Obama. If you describe such an industry, without naming it, to any economist, the first word that would pop to mind is MONOPOLY.
In a 2004 Health Affairs article, Professor James C. Robinson examined U.S. health insurance and found that in 36 states three or fewer insurers accounted for 65 percent of the commercial health insurance market in 2003. The Department of Justice and the Federal Trade Commission use the Herfindahl-Hirschman Index (HHI) of market concentration to decide whether to block mergers and acquisitions. Robinson computed the HHIs of health insurers and found that 34 states had HHIs greater than 1800, the level of heavy concentration and antitrust enforcement kicks in under federal guidelines. Robinson also found that from 2000 to 2003, when U.S. medical costs rose faster than inflation, the revenues of private insurers increased even more rapidly. So they were able to pass along those rapidly rising costs to consumers and increase their profits at the same time, prima facie evidence of monopoly power. The annual American Medical Association survey of private health insurance focuses on 314 major metropolitan areas and last month found that 94% were controlled by one or two companies.
The Urban Institute argues that a public insurance option, as proposed by President Obama, would not drive private insurers out of the market, but it would break their stranglehold on consumers and would expand coverage to those without it.
The problem for President Obama and Congress is to generate sufficient public understanding of what health insurance monopolists are doing to us to pass legislative reforms. Recent town hall shouting matches don't give much evidence that anyone is listening.
One thing about economic policy, when the world spins out of control, as it is with runaway health care costs, eventually people notice and force their political leaders to do something else. I hope America wakes up soon to the price we're paying for ceding monopoly control of health care to insurance monopolies. We broke up Standard Oil in 1911. Maybe we can break up WellPoint, UnitedHealth Group, Aetna, and Cigna in 2011.
For an excellent concise history of how health insurance arose in the United States, see John Goodman's article in the Library of Economics and Liberty.
Wikipedia's article on health insurance is quite informative and offers a very handy comparison of health systems in major countries around the world.
Bad numbers
The 47 million number that you state is wrong. According to the US Census, between 9 and 10 million people do not have insurance. The rest are either ineligible as non-citizens, make over $75K and choose not to have insurance, or are eligible for other government assistance but have not enrolled in those programs.
It makes no sense whatsoever to make radical changes to a system that is working for all but 9 or 10 million. Let's target reforms to help make insurance more affordable for these folks and the rest of us. A good start would be reforming tort laws and allowing private companies to sell policies nationwide.
These and other great suggestions can be found in John Mackey's WSJ article:
http://online.wsj.com/article/SB1000142405297020425140457434217007286507...
I wouldn't let a grade schooler get away with that argument
It's not 47 million because I choose not to count 37 million of them. Hmmm...
Then, there's the comical notion that the system is "working" for the other 250 million of us. If you consider "working" as costing 50% more than it needs to so as to line the pockets of insurance company executives, then, yes, I guess that's working. If you consider needing to beg for every penny of coverage or any coverage at all of certain procedures, I guess that's working. If you consider working to include being stuck in a terrible job so that your treatment of a pre-existing condition can finish, so you can change insurers at your next job, then, yes, it sure is working.
But, you know, I agree..."it makes no sense whatsoever to make radical changes"...just sensible ones. We should reduce the cost of lawsuits while maintaining quality levels. We should not increase the monopoly power of insurance companies by allowing them to drive players out of the market, as anyone who isn't an executive with those companies or holds stock in them will be a loser. But we should dismiss the notion of pre-existing conditions altogether, put in competition in the form of a plan that does not factor in 7-figure salaries for empty suits, and contains tough fraud penalties for "insurers" who deny coverage unreasonably.
Bad Numbers
Actually Census reported that in 2007, 45.7 million Americans were without health insurance.
You make good points that there are plenty of reason why people aren't insured, including that they choose not to participate because they are young and healthy or because they are wealthy. Then you have to ask whether we are better off allowing people to free ride when they end up with a health problem and voluntarily avoiding insurance.
"Oxymoron" is the wrong word
"Oxymoron" is the wrong word to use. Maybe, "misnomer."
An oxymoron is "conjoining contradictory terms (as in `deafening silence')"
Oxymoron
I agree I stretched the definition of oxymoron, but misnomer didn't carry the impact I was looking for.
Let's be consistent
Can we break up the Federal government too, say, into 51 different states? If you are going to focus on a tiny sector of the economy like the insurance industry, might as well take an objective view of the monopoly that is Washington DC.
This is NOT a tiny sector of
This is NOT a tiny sector of the economy. National health spending is expected to reach $2.5 trillion in 2009, accounting for 17.6 percent of the gross domestic product (GDP)
We rank how low?
Recent study says that the United States ranks somewhere in the 50's of state of overall health of a nation. That doesn't exactly sound like a system that works fine.
But we are terrible on education also and that doesn't really bother anyone.
As long as we're first in consumption there's no problems right? right?
Miami Auto Insurance
We rank how low?
Amen. Focusing just on GDP or consumption leaves out a lot of quality of life that's quite important too.
Profit maximization implies cost minimization...
With the market power you suggest, it just doesn't make sense why insurers would continue to let private reimbursement rise faster than Medicare's reimbursement.
And you would think UHC could get more than 3.7% profit as a % of revenue (your link).
You seem to argue that insurers reimburse doctors exorbitantly ... but then you argue in your post that they are driving doctors away from practice.
Lastly, on your first point about indemnification, can you present a cogent argument why government regulation on that score has failed? And how we can avoid that situation in the future?
Personally, I don't find the anecdote you presented persuasive. Rephrased: a person gets very sick while overseas and uninsured; they travel to the US and get a job and worry about whether their new employer will pay for the illness (and we don't know whether the employer or its insurer paid). You can't insure a building that is already on fire; doing so is about wealth transfer and not about insurance. I would argue that such transfers should be done through general revenues, and not required to be borne by an employer or particular insurance company.
Competition and lack thereof -- reasons why and remedies.
in 36 states three or fewer insurers accounted for 65 percent of the commercial health insurance market in 2003.
Very true, as I know to my personal cost, since New York is the state that suffers the highest-cost worst from this, as Megan McArdle recently noted. However, as she also noted, this is the direct result of:
1) The federal government banning interstate sales of insurance. Divvy the nation up into 50 local markets and you are prohibiting a national competive market and asking for concentration in local markets. That's not difficult to see.
2) Local governments, as the result of #1, ladling all kinds of expensive mandatory benefits and regulations into and onto policies to drive up prices and limit competition. Remember, regulators-and-incumbent regulatees always cooperate to deter new competition. (See below.)
So the cause of this lack-of-competition here is: government policy and government policy.
The remedy for lack of competition is ... creating more competition. Right?
So let's let 100+ more insurance companies compete in New York by making interstate sales of insurance legal. And make sure they are permitted to compete by invaliding local regulations that block new competitors from entering the market. This is what we do in the entire rest of the economy, isn't it?
Mandate a basic set of benefits, then if people want insurance that covers extra items like chiropractic, holistic herbs and oiuija board readings, let them price them in a competitive national market.
What sense does it make to have government policy intentionally break the nation into 50 closed separate markets, and encourage growth of anti-competive regulation in each -- and then complain about "lack of competition"?? (And then say the lack of competition is caused by the free market??)
34 states had HHIs greater than 1800, the level of heavy concentration and antitrust enforcement kicks in under federal guidelines
Why isn't antitrust enforcement brought? I encourage it! Let's do it. Alas, it isn't going to happen. Because antitrust rules aren't enforced against government policy.
"The McCarran-Ferguson Act (1945) ... provides that federal anti-trust laws will not apply to the 'business of insurance' as long as the state regulates in that area" [Wiki]
So the government prohibits anti-trust enforcement in state insurance markets ... and then we are shocked, shocked, to find anti-trust problems in state insurance markets! That local politicians, regulators and incumbent regulatees exploit the prohibiton. Wow.
McCarran-Ferguson exempts health insurance from Commerce Clause and anti-trust rules. What other business gets this treatment? Not even alcohol after the repeal of Prohibition. Commerce Clause and anti-trust rules exist for a reason.
The problem here is ... government policy.
If you describe such an industry, without naming it, to any economist, the first word that would pop to mind is MONOPOLY.
And they'll also tell you that an essential element to monopoly power -- without which it cannot exist -- is a "barrier to entry" that blocks competitors from entering the market. Elsewise, obviously, above-market profits would draw new competitors into the market like flies to honey.
Something has to block potential competitors out. Companies can't do that by themselves.
That "barrier to entry", is the government. We know a wall blocking all outside competitors is set up at each state line by the federal government. What about within state lines?
Well, this year in New York a doctor came up with plan offering basic health care services in clinics across NYC for a flat rate of $79 per month, specifically for low-income individuals and the uninsured. Innovation! Price competition!
The government immediately put him out of business. It said his price was too low! It undercut regulated insurance rates. But he obviously wasn't an insurer, he protested.
Oh, but he was!
~~~ quote~~~
"If they leave me alone, I can serve thousands of patients," he said.
The state believes his plan runs afoul of the law because it promises to cover unplanned procedures - like treating a sudden ear infection - under a fixed rate. That's something only a licensed insurance company can do.
"The law is strict on how insurance is defined," said an Insurance Department spokesman.
~~~~
A clear example of an attempt by the free market to innovate price competition -- strangled in its cradle by state regulators, for the benefit of incumbent state insurers, who are forced to charge far above-market premiums for the benefit of state politicians.
(The next time you buy any service on a fixed-rate plan -- say, cell phone service -- remember that you are buying "insurance" according to NYS regulators.)
Hey, yes, putting the doctor out of business like that looks very much like an anti-competitive practice to me.
But the government has prohibited anti-trust enforcement in all such situations.
Gosh, the free market is so full of abuses.
My bottom line: Do we want to say that a major problem in the health insurance market is lack of competition? That local markets are concentrated and under-competitive? Even anti-competitive (like right here in NYS)? Yes, I agree!
Then let's also agree that the remedy for a lack of competition is to increase competition. And that entirely reasonable steps to increase competition are to apply the same ones we apply in the entire rest of the economy: create a nation-wide competitive market ... prohibit local governments from enacting anti-competitive laws and regulations as local protectionism ... enforce anti-trust law.
Makes sense to me.
Instead, as an alternate remedy to the lack of competition, proposals to put even more power over the system into the hands of the very same politicians who following basic political incentives have destroyed competition at every turn -- by breaking the national market into 50 segregated small ones, tying benefits to employment, freeing local politicians to protect/exploit pet incumbents as they wish, prohibiting all anti-trust enforcement, etc...
The sense in that I am missing.
We broke up Standard Oil in 1911. Maybe we can break up WellPoint, UnitedHealth Group, Aetna, and Cigna in 2011.
Why? None of them have anything like the market share Standard had. Except in local markets -- and they are exempt from anti-trust there, by Congressional policy.
Why would anyone want to break them up in local markets anyhow, when they can obtain such market share there only under the guiding hand of benign state regulation -- which is why Congress in its wisdom has exempted state-regulated markets from anti-trust rules.
And even if we did somehow break them up -- while keeping 50 local markets all segregated from outside competition, and local politicians in those markets totally free to dictate any protect-the-incumbents-from-competition rules they want, all exempt from anti-trust rules -- how would it help?
I hope you are right, but I
I hope you are right, but I think the Dems are hell bent on getting what they want so they are going to try to rebrand this as “co-ops” instead of public option. If we are talking about a different title that means the same thing forget that.
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