A question about health care, insurance, et al

[Captain_Amazing]

I’m going to ask that this not become partisan, because this is a question about health care and health care reform. Backers of health care reform have at various times, expressed two goals for health care reform. Well, more than two goals, but two I want to focus on here.

1. Increasing the number of insured.
2. Lowering the cost of heath care

It seems like these two goals contradict each other. Won’t increasing the number of insured raise health care costs? Not only are more people going to use health care, raising demand, obviously, but the insurance pools will be bigger, meaning that price will become less elastic and doctors can more easily raise their prices.

[Pullet]

The supposition is that the current system is massively inefficient for various reasons. In fact, this is one of the few premises of the health care debate that most factions agree on: The current system is crappy and expensive.

Various factions postulate that their particular method of streamlining things will free up enough money to allow for care to be provided to more people at an overall reduced cost.

ETA: <small soapbox> Your supposition that making health care more available will increase demand is not necessarily true. It will be true in the short term, as people who have put off care seek attention. But, once that initial glut is over, people will be more apt to go to the doctor while their problems are smaller and cheaper to address, thereby lessening demand in total.

I don’t follow your argument about bigger pools of insured leading to less elastic pricing schemes and doctors raising prices.

[twhitt]

There is a third goal, very much related to those two, which you’re not considering. The third goal is to compel insurance companies to cover those with pre-exisiting conditions, and to make it more difficult for insurers to deny coverage or cancel a plan when an insured person becomes too expensive. This part of the health care plan would put insurers in a tight spot, because under the status quo, they operate with a free pass to ditch individuals who cost them the most. It’s important to understand that, if this were the only thing that the health care plan changed, insurers would raise rates. It’s a direct consequence of them paying more - they would charge higher premiums to everyone who has insurance in order to make up the difference.

Understanding that is key to understanding the other two goals. There’s another way to cause the balance sheets to come up even, aside from dramatically raising premiums. You could simply have more people paying premiums, including those people for whom insurance is not a very good deal. With younger, healthier people who currently forgo insurance now paying premiums along with everyone else, the insurers have a group who can give them the money necessary to cover those other unhealthy individuals they were previously dropping. In short, they’re now acting a little bit more like insurers - providing a safety for the rare individual with catastrophic costs. It cannot be stressed enough that they have not been doing that previously! They’ve been denying coverage to those folks, sending them to federal or state plans and costing all taxpayers.

Here’s where it comes full circle, then. Taking the most unhealthy Americans off the government plans, like Medicare, and putting them into the hands of private insurers, saves the government money. The new legislation causes the insurers to behave a little bit more responsibly with respect to these patients, so that they’re not worse off.

The legislation, as the Senate drafted it, is meant to slow the growth of health care costs rather than actively reduce them to below current levels. The opportunity to reduce costs has probably passed, but did exist in the public option.

[Captain_Amazing]

@Pullet

I don’t follow your argument about bigger pools of insured leading to less elastic pricing schemes and doctors raising prices.

Because the more people who are insured, the more money the insurance companies will have, and the more they’ll be able to spend on treatments.

Lets say nobody has insurance. A doctor can’t charge $50 per checkup because nobody can afford that. But then everybody gets insurance, and a $50 checkup becomes affordable, because the out of pocket copay is just $10 (and the insurance is paying the extra $40 which they collected from everybody else who’s now insured and didn’t go to the doctor.)

[Captain_Amazing]

@twhitt

Here’s where it comes full circle, then. Taking the most unhealthy Americans off the government plans, like Medicare, and putting them into the hands of private insurers, saves the government money. The new legislation causes the insurers to behave a little bit more responsibly with respect to these patients, so that they’re not worse off.

Right, it may save the government money, but it doesn’t lower overall costs. It just transfers the costs of treating pre-existing conditions from the government to insurance companies. If you want to reduce costs, you don’t insure people with pre-existing conditions at all, right, either on private plans or Medicare?

[Pullet]

@Captain_Amazing

Because the more people who are insured, the more money the insurance companies will have, and the more they’ll be able to spend on treatments.

Lets say nobody has insurance. A doctor can’t charge $50 per checkup because nobody can afford that. But then everybody gets insurance, and a $50 checkup becomes affordable, because the out of pocket copay is just $10 (and the insurance is paying the extra $40 which they collected from everybody else who’s now insured and didn’t go to the doctor.)

But then, if the check-up really does only cost $5, but the doctor charges $50 because she can, then the insurance company has $45 fewer dollars they can spend on another patient whose procedure costs lots and lots of money. That makes the insurance company unhappy. So, the insurance company becomes the “invisible hand of the market” you are looking for.

[friedo]

@Captain_Amazing

Because the more people who are insured, the more money the insurance companies will have, and the more they’ll be able to spend on treatments.

The more people who have insurance, the harder the insurance company can bargain down their rates. Insurers don’t just pay whatever a doctor asks. They negotiate a fee schedule based on how many potential customers they can send to that doctor.

[twhitt]

@Captain_Amazing

Right, it may save the government money, but it doesn’t lower overall costs. It just transfers the costs of treating pre-existing conditions from the government to insurance companies. If you want to reduce costs, you don’t insure people with pre-existing conditions at all, right, either on private plans or Medicare?

Well, no, that’s a terrible idea. That leaves people to die, or something, and no-one is proposing that (well, not anyone I can talk about in GQ). The cost savings were going to come from the public option. For the underinformed, the public option was not going to cost the government any money, but was instead going to operate as an insurance company and pay its own bills. It was simply going to be a not-for-profit insurance company. When real insurers would know that their rates for premiums and copays, and their list of covered procedures, would be published alongside an insurer who wasn’t out to gouge customers, the prevailing thought was that they would find ways to give the insurance-buying public better deals. The CBO agreed, and thought the whole deal would save hundreds of billions.

What we’re left with, though, is probably going to be that marketplace in which the public option competed against private insurers, but without the public option. Insurance companies will have to provide honest, straightforward information to the people about what they’ll cost and what they’re going to cover. And thanks to the core of the legislation, they won’t be able to renige. That does mean that they’re likely to control some of the spiraling cost inflation, since their more unsavory practices will be exposed to nice disinfecting sunshine. We will have some real competition in the insurance market, where informed consumers can make rational decisions about their care. As I said above, this probably will not drive prices down, but it should slow their increase dramatically.

[Pullet]

@Captain_Amazing

Right, it may save the government money, but it doesn’t lower overall costs. It just transfers the costs of treating pre-existing conditions from the government to insurance companies. If you want to reduce costs, you don’t insure people with pre-existing conditions at all, right, either on private plans or Medicare?

Well, yeah, I guess if you wanted health care to cost nothing at all, it would never be used to treat anyone. What would be the point again?

[Captain_Amazing]

@twhitt

Well, no, that’s a terrible idea. That leaves people to die, or something, and no-one is proposing that (well, not anyone I can talk about in GQ). The cost savings were going to come from the public option. For the underinformed, the public option was not going to cost the government any money, but was instead going to operate as an insurance company and pay its own bills. It was simply going to be a not-for-profit insurance company. When real insurers would know that their rates for premiums and copays, and their list of covered procedures, would be published alongside an insurer who wasn’t out to gouge customers, the prevailing thought was that they would find ways to give the insurance-buying public better deals. The CBO agreed, and thought the whole deal would save hundreds of billions.

Obviously I’m not advocating not treating sick people. I’m just saying that there seems to be an apparent conflict between two of the goals of health care reform.

And I understand what you’re saying about the proposed public option, and the hopes that it would save costs there. Isn’t it more likely, though, that should the public option be set up, it would raise its rates to match the private insurance companies’ rates, rather than the other way around? You’d run into regulatory capture, and the desire of the fed. government not to disrupt the health insurance industry.

[twhitt]

@Captain_Amazing

And I understand what you’re saying about the proposed public option, and the hopes that it would save costs there. Isn’t it more likely, though, that should the public option be set up, it would raise its rates to match the private insurance companies’ rates, rather than the other way around? You’d run into regulatory capture, and the desire of the fed. government not to disrupt the health insurance industry.

A public option would have been a 503c not-for-profit, or it would have followed rules similar to those; I can’t tell you that with any certainty, though possibly there is someone around who could. But, as a not-for-profit, it would not raise its rates to match the private insurers for two reasons. For one, it would be legally unable to charge more from its patients than it spent in any year, within certain limits to prevent them from going under; it would have been able to hold some cash in reserve for occasional bad months, but it would not have been able to match private rates and pocket the difference. Secondly, it would have been chartered with the specific mission of serving the public rather than of making profit. It wouldn’t have raised its rates because that would go against the goals and mission of the organization, hypothetically. As an aside, it is possible that the public option would have required the approval of the congress in order to increase its rates, much as the USPS does. I have no idea if that was in any of the particular proposals being considered.

There’s very little chance that would make any difference now. The public option is almost certainly dead. I would agree that the goals of this legislation sometimes seem at odds, mainly because there are a lot of things it’s trying to accomplish. Right now, those goals are primarily increasing coverage to the most vulnerable, and containing costs. The bill does those things, but it could have done them better. And clearly the federal government is trying to disrupt the health insurance industry. That’s the particular method the government is using in order to get people insured.