[Vision2020] Health care {insurance} reform passed

[Andreas Schou]

>
>
> Who do you think will subsidize health care for high risk people insurance
> companies are now obligated to provide service to?
>

Well, there's the 400% of poverty sliding subsidy that's in the bill, if you
mean a literal subsidy. The current plan shaves money from the the top plans
and top earners, and tacks that money back onto the bottom of the market.

But, more broadly, that's what the mandate is for: it moves healthy people
without insurance into the market to subsidize those with pre-existing
conditions. I agree with you: the mandate sucks. However, if you want to
deal with the crushing unfairness that pre-existing conditions can exclude
you from the insurance market forever, there's no way around it. If the
people with the highest level of risk get in, the people for whom it's an
irrational decision to buy insurance have to be in, too.


> Who's going to pay for health care of people who have unhealthy lifestyles
> and presumably higher health care costs?
>

We all are. Everybody in the risk pool. This is the purpose of insurance: to
average the costs of random events across the population that suffers them.


>  Who's going to pay for the ad campaigns insurance companies are sure to
> launch in an attempt to lure suckers, er, subscribers, into their ponzi
> scheme?
>

Considering the somewhat unpleasant new fact that you will suffer a tax
penalty if you don't have insurance, I doubt this will happen. For good or
ill, insurers are ensured a market; advertising is consequently less
important.


> Let's not forget the $250 giveaway seniors will be getting next year as
> part of this plan. Who's paying for that?
>

Presently, the Chinese. In 2012, tax revenues from a number of small taxes
that will come online. Some of the smaller taxes baked into the bill (like a
special tax on tanning salons) come online immediately, and pay for a few of
the relatively cheap programs. This is one of the relatively cheap programs.


> Not insignificantly, $500 billion of planned payments the feds make for
> medicare payments will be cut.  With that, insurance companies are losing a
> $200 billion subsidy they get for providing a private alternative to
> medicare. Who's paying for that shortfall?
>

Insurance companies.

Medicare Advantage, which is the vast majority of what was cut, is not
Medicare. Medicare Advantage is a plan where we pay insurance companies 120%
of what we would pay if we cut Medicare checks directly, they shave 10% off
in administrative costs and 10% off in profit, and we suffer both the worst
of socialized medicine and the free market.


>
> The feds created another ponzi while shuffling the cards.  Like all
> ponzi's, they are not susteainable. 20 years from now they're gonna wonder
> how they're gonna finance another entitlement program.
>
>
> Only this time, we're obligated to private companies. Talk about taxation
> without representation!
>

I can't even find an argument in here.


> Why are costs escalating?
>

Because there is an infinite demand, amongst rational market actors, for
treatments to extend life, and because there are no entities in the American
system with sufficient market power to negotiate down healthcare prices.
Those that come close -- Medicare and the Veterans Administration -- have
both the highest user satisfaction and the lowest growth in medical costs.


> Health care is expensive, especially towards the later years of a person's
> life.  That's not going to change under this plan.
>

It's certainly not.

But now the young and healthy are going to be pre-paying (by participating
in risk pools) for the decline they will inevitably suffer when they get
old, removing the considerable administrative cost of shaking end-of-life
medical costs out of people's estates. Also, frankly, it will end the
dumping of end-of-life costs on Medicare, which is one of the few things
that makes a private insurance market possible.

Insurance company overhead is also expensive and will probably still
> continue to be so.
>

In short, insurance company overhead is not that high.

Insurance companies have substantial administrative costs; more substantial
than public insurance programs, at about 9.3%. But they're really not that
high, compared to other problems in the market. Insurance company overhead
represents about 1.8% of total health care costs. They also have a 3.3%
profit margin; that profit margin represents 0.6% of the total insurance
market. By comparison, Medicare has an internal 3% administrative cost, or
about 6-8% if administrative costs from other government agencies are
included. Single-payers advocates claim that a single-payer program would
eliminate the 3.3% profit margin and (conservatively) another 1.3% of the
administrative costs.

So why not go single payer? Because those numbers are little deceptive.
Because Medicare has so much market power w/r/t care providers, there's a
substantial amount of administrative offload onto the care providers
themselves; consequently, administrative inefficiency for Medicare
reimbursement accrues at the supplier, not the payer, end.  Additionally,
the profit margins elsewhere in the health sector (especially in the pharm
industry) are so incredibly high that single payer would likely result in
demands to reduce those profits. While I tend to think that a 16% profit
margin is probably a result of some market inefficiency (particularly,
government-enforced monopolies on patented drugs) I'm worried that a
government cramdown of profits would seriously damage innovation.

The only reason costs would go down for an individual is if they get
> subsidized insurance.
>

Not really.  There are two reasons for this.

First, the relationship between the power of insurers in the market and
health-care costs is U-shaped. A market with a monopoly or duopoly is likely
to have high healthcare costs, because insurance purchasers have a Hobson's
choice: the insurer in the market or no one at all. Consequently, it's
easier for insurers to dictate terms to insurance buyers than it is to
dictate terms to suppliers. A market with a moderate number of insurers has
the problem of insurance buyers jumping ship. Consequently, it's easier for
insurers to dictate terms to suppliers, cramming down their margins. In a
fragmented market, each insurer has very little market power, either w/r/t
to the consumer or w/r/t suppliers. Supplier-side prices consequently go up,
necessarily increasing the premiums across the market.

In this regard, putting every potential consumer in the market does two
things. First, it increases the number of buyers on whose behalf insurers
can negotiate; second, it removes the uninsured as a dumping ground for the
higher prices that result from of supplier cramdown. Every purchaser of
health care has an agent. I expect this to reduce health care profits across
the board, but -- because there will be fewer uninsured to dump high prices
on -- not as much as everyone expects.

Second, the excise tax on expensive health care plans artificially inflates
the pain that employers feel when rates are raised. This, economists expect,
will incentivize insurers to apply market pressure to their suppliers rather
tahn to their consumers. This is the other place where the curve-bending is
applied, and while I don't know a lot of the specifics, it seems like a
reasonable theory.

There are also a number of  experimental curve-bending pilot programs that
states may opt into. I don't know the full scope of what's in the bill, but
I expect some states to adopt alternatives, either inside their exchange or
as an alternative to it.

Somebody has to pay for that and more than likely it'll be future
> generations who once again are being indebted by people who don't want to
> pay the true cost of their individual care.
>

The plan is self-funding. The Medicare Advantage cuts are a good idea, and
the need for increased subsidies if rates increase are baked into the excise
tax: if insurance rates continue to rise well above the pace of inflation,
revenues from those extra costs will be tacked back onto the bottom to
increase the subsidy rate. In other words, the plan's revenues are directly
pegged to its costs;  I doubt, with that being the case, that it will get
wildly out of control.

Does that answer your questiosn?
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