Health insurance, yet again

[hudebnik]

OK, let's go through this step by step.

1. Most Americans, from all parts of the political spectrum, want to end the practice of excluding people from health coverage for "pre-existing conditions". So...




2. all the current Congressional proposals, AFAIK, ban this practice. But...




3. if that's all you do, any smart-but-financially-strapped consumer will put off buying health insurance until (s)he actually gets sick or injured, and then stop paying premiums again as soon as the crisis is over. As the insurance companies rightly point out, this will lead to either

   • every health insurance company going bankrupt, or more likely
   
   
   • premiums going up much faster than they're already doing, which will lead even more people to try to game the system as above, which will lead to premiums going up even faster, etc.
   To avoid this problem,




4. everybody (or almost everybody) has to have health insurance all the time, without the ability to "opt out" until a health problem occurs. So...




5. most of the current Congressional proposals include an "individual mandate": if you're in such-and-such category of people, you must have health insurance.
   

   
   (Aside: "such-and-such category" generally includes U.S. citizens, generally excludes illegal aliens, and I'm not sure how they handle legal immigrants and visitors. Of course, anybody who's left out of this category will probably not get health insurance, and will continue to get primary health care from emergency rooms, thus driving up costs for everyone else.)
   




6. But if you require everybody to buy something that might be expensive, some people won't be able to afford it. An employer mandate doesn't work because many of the people involved don't have employers. So...




7. most of the current Congressional proposals include some kind of subsidy for low-income people to pay for their mandatory health insurance.




8. At present, health insurance companies have some, though not much, incentive to cut costs: if they charge more than their customers can afford, the customers will either go to another company or stop buying insurance entirely. The above plan removes the option of "stop buying insurance entirely," and it guarantees that if insurance companies charge more than their customers can afford, the Federal government will step in and make up the difference. So insurance companies will have even less incentive to cut costs. In other words, this is a massive taxpayer giveaway to insurance companies. To avoid this problem, ...




9. you need some way to prevent the insurance companies from charging too much. The "big-government" solution is tight regulation of insurance premiums. The "free-market" solution is competition, with minimal transaction costs so consumers can switch from one company to another easily and competition actually works. The existing competition among insurance companies clearly hasn't worked to keep costs down (and in many areas of the country, there is essentially no competition), so some new competition needs to be added to the system.




10. The new competition can't be just another insurance company like the ones we've already got, because if that would work (as any free-market economist can tell you), it would already have been formed. It could be a not-for-profit insurance company, but that has been tried in a number of places and hasn't grown big enough to provide any meaningful competition. Which leaves the "public option": a government-run insurance company that competes directly with private insurers.




11. A number of Republican Senators are worried that this is a sneaky way of getting to a single-payer system. (I'm not clear what would be wrong with that, since single-payer systems have been tried in many places; we know that they work and they save money, while the current U.S. proposals are uncharted territory, but let's assume for the sake of argument that single-payer systems are bad.)
    

    
    How could this happen?

    • It could happen by legislative fiat some years down the line, regardless of whether we have a public option next year; this isn't an argument against a public option. Alternatively, ...

    
    

    • it could happen de facto because most Americans voluntarily switch to the public option, putting insurance companies out of business.
      

      How could this happen? According to the laws of the free market, one provider will gain market share from others only if

      • it provides a better product and/or a better price, and
      
      
      • the rest of the market doesn't adapt by doing the same
      
      In other words, the only way for the "public option" to become a de facto single-payer system is if
      
      
      • the government runs a health insurance system well and cost-effectively, and
      
      
      • the private sector doesn't
      
      If you're a free-market-small-government fundamentalist, you know that both of these things are impossible. So you have nothing to fear: in order for the "public option" to become a de facto single-payer system, Hell would have to freeze over twice.



12. It could be objected that by not having to pay stockholder dividends, not paying exorbitant executive salaries, and not spending much on advertising, the "public option" would have an unfair advantage in the market. However, all three of those savings are things that private insurance companies could have chosen to do, and they haven't, even though it would give them an "unfair advantage" on their competitors. Which, by the laws of the free market, leads to one of two conclusions: either
    • it isn't a market advantage after all, in which case there's no harm allowing a government agency to do it, or
    
    
    • the current private insurance companies are stupid for refusing to take this advantage themselves, and deserve to fail.
    
    



13. One apparently-fine point in yesterday's Finance Committee discussions was whether the "public option"'s reimbursement rates should be tied to Medicare's. "Yes" would seem to make things simpler and fairer, but Medicare reimbursement rates are notoriously low, especially in rural areas, so Congressbeings from rural areas oppose this vociferously. I think the right answer isn't to decouple the "public option" from Medicare, but rather to fix Medicare's reimbursement rates.
    

Of course, single-payer would simplify the whole thing immensely: we wouldn't have to worry about individual mandates, or taxpayer subsidies, or public options, and ordinary people could understand it. It would cost a lot of insurance-company jobs, and it would cost some administrative jobs in hospitals and doctors' offices because there would be so much less paperwork to do.