Friday, July 31, 2009

It's almost immoral what they are doing

So says Speaker Nancy Pelosi about private insurance companies. What is immoral is their desire not to be forced out of business by a monopsonistic competitor who will - by taxpayer subsidy, market power or legal mandate - force prices to a level that drives them out of business.

That's what makes it a gaffe. An unintended statement of what she truly believes.

Low prices are, of course, generally a good thing, but not when achieved in this way. In the long run, they have to go back up or quality and innovation must suffer. This is why monopsony is considered a market imperfection.

It might be possible to design a public option in which this is not possible - or at least less likely - but I haven't seen any serious proposal to do that.

Which leads us to a more foundational question. Why must there be a public option? It is not required for a system of universal health care. The Netherlands and Switzerland don't have one (although private insurers are heavily - really overly - regulated).

There are three arguments. The first is that insurers make more money, the more they decline claims. One of the aspects of private insurance that has gotten little attention is that most people covered by their employers are not, for the most part, obtaining insurance from what they think of as the insurance company. The plan is self insured (possibly with stop loss coverage in case the whole company gets typhoid). In other words, the employer pays the claims and the "insurer" is compensated with a fee. While there could be incentives to hold down costs, the basic job of the "insurer" is to satisfy the employer. Keeping costs down is part of that, but so is keeping employees reasonably happy. The incentive structure for a public plan will be the same.

This brings us to the second argument. This one says that "profit" is a cost. It drives up the price and less profit is good. Certainly a consumer is uninterested in her seller's profit. She wants the best care at the lowest price. But we generally regard the profit motive as a spur to folks to figure out how to do that. If human beings didn't respond to incentives, communism would not have been a false God.

So we come to the third argument, candidly stated by Tammy Baldwin earlier this week. The public option is a way station to single payer. It is "how we get there."

The Speaker did not say that opposition to that would be almost immoral, although I wonder if she thinks so? Single payer systems tend to elevate at least the idea of equality of care over all other considerations (even though, as far as I know, almost no single payer system has achieved it - even in Canada, there is always Buffalo). One is willing to give up a certain amount of quality and innovation for an apparent (if not an actual) equality. That is very much a moral crusade, even if it is a misdirected one.


Billiam said...

Barney Frank said much the same thing. It's funny how the Dems are acting like tin pot dicktators on this, and other legislation. During Waxman's committee today, the Repubs had amendment after amendment stomped on, including one that would've required members of Congress to participate in the plan. Talk about a bunch of hypocrites.

Anonymous said...

Wow, Rick, wow.

If the government becomes a monopsonistic competitor, as you claim, and drives down the prices it pays, private insurers will end up paying those same prices. The suppliers will be able to price discriminate a bit but the market will reach an equilibrium with lowered prices for all. Private insurers will pay less than they do now for the same services and will be able to translate that into profit. Especially when the full horrors of a government-run system become apparent and the masses queue up for private company coverage.

You make some solid and nearly unassailable points about the value of profit in a market. But this isn't just another market. We aren't selling widgits. When an insurance company denies a treatment because it is "experimental" people suffer. We live in the richest country in the world but there are folks out there cutting pills in half because they cost $40 each and even with insurance (that only covers a portion of prescription drug costs) these people can't afford to take the recommended dose of their medication. I wouldn't call that "almost" immoral. That is the fundamental reason we need a public option.

I'm not saying the current proposal is the best option but at least it's a start.

Jay Bullock said...

Part of what adds a moral dimension to insurance companies' behavior is that their profits are directly tied to denying care to patients.

Occasionally this means telling people that no, they don't really need test X again or that yes, the generic drug really is as good as the Name Brand.

But more often this means forcing people to accept a lower quality of life, or to bankrupt themselves, or to, well, die. The stories of recision in recent weeks--in testimony to Congress and from whistleblowers in the media--suggest at least an amorality if not downright moral turpitude.

John Foust said...

Geez, Folkie. Just read the contract and you'll know whether you're covered. It's simple to know when they'll pay for something. It's like we say about backups in the computer industry: "Unless you test your backups, you only think you have backups." Oh, wait. Assurant is my health insurance! Whoops!

Dad29 said...

But more often this means forcing people to accept a lower quality of life, or to bankrupt themselves, or to, well, die.

Rick pointed out that it is not "the insurance companies" which direct the care--that in many cases, they only act at the direction of their employer-clients.

But not in all cases.

Your argument, however, rests on the assumption that GummintHealthPlan will automatically be "better" than any currently available private plan.

That's an assumption which simply cannot be proven conclusively.

Further, if that WERE the case, then Medicaid, Medicare, and the VA would have "quality" results which are statistically superior and convincing to the public.

So....where is that statistically-convincing proof, Jay?

John Foust said...

I find it far more fanciful and entertaining when people defend our status quo as anything resembling "private" or "free market", what with all the guilds and protected markets and lobbyists and lawyers and state boards and safety nets and promised lifetime benefits, and suggest that if we eat just one more thin wafer of government interference in health care and insurance, we'll explode and be told we can't have any more super-sized deep-fried bacon wafers, either.

Or maybe you're just going for a two-fer: if the gay couple down the street can't afford to be hospitalized, then there's no sense worrying about the more important question of whether they have a relationship substantially similar to marriage that would allow them to visit if they're dying.

Jay Bullock said...

So....where is that statistically-convincing proof, Jay?

Apparently, Dad29, you've never heard of Google. But here's just one for you.

Anonymous said...

There is always the Wausau "Pray as you Go" plan. However, the statistically convincing evidence is a bit garbled.

Dad29 said...

"The problem that the American Legion has is the accessibility to care. There are veterans waiting in line to receive care," Gaytan said. "With the veterans returning from Iraq and Afghanistan, it's our hope that they won't be turned away."

Nicholson acknowledged that some veterans do have to wait for care, but he said the waiting time has been improving and continues to improve.

OK, I read it. ALL of it.

Looks like "rationing" to me, Jay.

Anonymous said...

Rick raises the Swiss and Dutch universal health care systems as preferable to what's being proposed here now because of the lack of a public option. (He does diss them for excessive regulation.)

The Dutch and the Swiss are pretty happy with their health care, and enjoy very good health care systems. Both systems contain many provisions that are similar to what the Democrats are proposing. In each country buying health insurance is mandatory (there is an opt-out in the Netherlands for those whose faith precludes purchasing insurance). There are government subsidies for children and lower-income people. Insurers cannot deny coverage or decline applicants because of preexisting conditions.

These policies do come with some costs. The Netherlands imposes a 6.5% payroll tax on employers. This is in addition to the premiums paid by the employees. The Dutch government reimburses insurers who take on high-cost patients by reallocating premium income among insurers.

Although the two countries' systems are among the more market-driven, there is still a very large role for the government. In the Netherlands, private insurance doesn't pay for the chronically disabled, long-term hospitalizations, or patients at the end of life; those costs are borne by social insurance. In Switzerland, private insurers are prohibited by law from making a profit on the basic mandatory health insurance policy.

Cost is still a concern in these two systems. In Switzerland health care consumes 11.6% of GDP, one of the higher percentages outside the US. In the Netherlands the figure is more like 9%. Although these two percentages are significantly lower than the 15% or so in the US, they are higher than in some other countries, such as Singapore.

Could the Democratic Party live with a system like those in place in Switzerland or the Netherlands? These systems contain many of the things that President Obama has been pushing for.

Could the Republicans?

Anonymous said...

What is terrible about this debate is that it leaves the choice of insurance companies and/or the government. It assumes we are to incompetent as a nation to devise a system that puts the purchasing power back into the hands of each person.

If we truly wanted a free market system, it certainly would not include the government and insurance companies. Our current mess is because of both of them.