Tuesday, October 27, 2009

The following is transcript of a Facebook discussion that I had with a friend of a friend, whose position on health insurance reform doesn't really match with mine.  The back and forth got too long for FB, so I've transferred it to here.






In transferring the posts from FB to this blog, the comments in italic blue are from the post by the friend of a friend, the plain text is mine. 

For background, the initial 7 posts are provided in a small font below. I found that the last post was best addressed by breaking it up into pieces and addressing the issues point by point, which is difficult to do on FB.

I started things with my comment on the YouTube clip at
http://www.youtube.com/watch?v=q9GMKK_fWKg
which is entitled "ABC's John Stossel Destroys, Pulverizes/Crushes Obama's anti-American 'Health Care' Plan".  As you might guess from the title, its rather polemical.


Post 1:
He only destroys the Obama health insurance reform plan if you completely let logic lapse. Here's the logic tree (with a lot of snark):

1. Let's start with what wasn't stated: the Obama plan is for health INSURANCE reform. As proposed it will result in some percentage of the populace in a non-subsidized national health insurance plan (not a subsidized national HEALTH care plan). Doctors, hospitals, insurance companies, drug companies can still be for profit (this is a fact - read the plan).

2. But "we know" Obama really wants nationalized health care (even that's not what he proposed and has exactly zero likelihood of passing if it were proposed). Its convenient if you get to attribute to your opponents the ability to carry out completely unrealistic and idealistic goals, even if the original statement by Obama on a national health care plan was "If I were starting with a clean slate..." which he also said he was not starting with. If I were starting with a clean slate I would outlaw nuclear weapons, but that genie is out of the bag as well.

3. "We know" that this proposed plan is but the start down the slippery slope to Nationalized health care. In a logical argument, the proponent of a "slippery slope" is required to detail exactly how the path down this slippery slope will occur. But we can ignore logical argument, because not a single person has given a sensible path by which providing an option for people to choose a non-subsidized, non-profit health insurance plan will lead to nationalizing the hospitals, doctors and drug companies



4. "We know" that nationalized health care in Canada is bad, and we can find lots of anecdotal evidence. Conveniently we'll ignore anecdotal evidence of people in the US denied treatment by their insurance companies. We'll also ignore that when studied on a scientific basis, the Canadian system actually has better overall outcomes than the American system. The majority of people have better care and outcomes in Canada than in the American system. What the American system excels at is providing health CARE (not insurance) for the world's wealthy. I suppose we should be glad that providing a profit motive has enabled us to provide excellent health care to Saudi sheiks. But how many of those procedures that the sheiks pay for will actually be authorized by the insurance companies for you and me?

5. The culmination of the argument: Since Canada's nationalized program is bad, and Obama plan will slide down the slippery slope to become Canada's plan, and we will have no opportunity to prevent that from happening, we must utterly oppose any changes to the present system.

The truly sad thing is that the arguments put forth by Stoessel wouldn't win a high school debate. Firstly, unless you can demonstrate an irretrievable slippery slope, the entire argument comparing the Canadian system to our proposed changes is meaningless and should be ignored. Secondly, even if you were to accept the slippery slope argument, the "Canada Bad" argument is based entirely on anecdote. Every single Canadian anecdote could be answered by a similar anecdote in the American system. For example, small town America is no better off for doctors than small town Canada - they just have a government that is actually trying to get doctors into the small towns. Finally, for an clip supposedly about Obama's policies, not a single policy proposal was actually discussed. Not one. The only thing was how bad Canada was and the implication (unproven) that that's where we would end up.



Arguably, the only point he has is on innovation. If we were to fully nationalize all aspects of health care it might be detrimental to innovation. But you first have to buy the slippery slope argument before you can even get to discussing innovation. The real question on innovation is how we can allow the current non-competitive insurance system to exist? When was the last time we saw innovation in the health insurance system?

I also found it offensive that he allowed a complete mischaracterization of the way science is conducted by letting stand the comparison that "only 4% of the drugs are developed by NIH". What that statement misses is that the NIH conducts the basic science research that is, for the most part completely non-marketable but is critical to finding new approaches. The drug companies are given this basic research (for free) and use it for their applied research in developing drugs. If you want to see the drug companies howl, threaten to cut off all research at the NIH. Another way to make the howl would require them to pay royalties for any drugs developed from NIH research. The drug companies know where the breakthroughs start - they are with innovative and underpaid scientist who do their work on grants because it gives them freedom to creatively think. The applied scientists working in for-profit industry have to follow what the managing executives think will be profitable rather than where their scientific instincts lie. Don't get me wrong - both parts are needed for a successful system. But denigration of the work done by the NIH isn't justified. Truth is that industry won't fund the type of blue-sky thinking that results in real advances. For every 100 creative thoughts a scientist has, 99 are crap. Industry just can't support that level of failure, but the ability to freely fail is vital to scientific advance.

This clip is an incredible polemic axe grinding - no facts, no logic. And people talk about a "liberal bias" in the media.



Post 2
I have lots of other comments on health insurance reform at my blog (link below). I've read the reform bill and I try to be even-handed. I'm really tired of the fear-mongering that we're all going to turn into Canada and die. http://booleancontinuum.blogspot.com/2009/09/can-we-have-policy-discussion.html


Post 3
The slippery slope is by design Ben. The government plan will undercut the and underprice the private health insurers driving more and more to the government provided option. 30 years ago, there were private health insurers in Canada. The government proposed a "government option" to keep the insurers "honest". # of private insurers in Canada today... next to none.


Post 4
So can you show any evidence of the "design" of the slippery slope? How will it work? How will they be able to undercut the private insurers? If you want to make this claim then provide a specific mechanism rather than hand-waving. Any mechanism you design will have stops along the way and arguments that can be made against it. As yet, I've not heard anyone provide a credible scenario that would have us irrevocably go down a slippery slope because we put in a public option.

Because of the way the public option is written, it is no more subsidized than the private insurers will be. So are you telling me that the government is more efficient than private insurers? I thought the whole idea of privatization in the US is that industry, with its inherent efficiencies in the profit motive, is always cheaper than government. You can't have it both ways! How is it that Fed Ex, UPS and the USPS all manage to compete? Do you think if we dropped the USPS that Fed Ex and UPS would drop their prices?

The comparison to Canada is invidious because we have completely different systems, completely different cultures, and completely different forms of government. A parliamentary system has more absolute control and can push things through that will never get through our system. Are you claiming that the Canadian system became what it is by a single act of parliament? That's simply not true. So a slippery slope argument has to show how the public option as proposed must turn into something else. I try to think about things objectively, and can't find any route that makes sense for turning us into Canada. If your going to make this argument, you should have some idea of how it would happen. Otherwise, you're just fear-mongering. You can make wild accusations about where any piece of legislation will take us. The difficult thing is to actually back up your allegations with a logical argument.



The key problem with the present system is that the private health insurers have a medical loss ratio that is entirely unsupportable in an efficient industry. If you don't know what the medical loss ratio is, then you need to do some homework rather than just listen to the blathering news. The industry has been non-competitive so long that they need something to shake up their world. Its not about insurance company profit or even debt maintenance of these companies - they deserve these. If you look at the numbers for a typical insurance company (I'll give you specifics if you'd like - I've gone through some of their books), you'll find that they only pay out 82-85%% of premium dollars in health care. Profit and debt service make up another 4-5%. Where's the other money go? Its billions of dollars a year in "general expenses". I understand when you're making tractors or cars that you have a lot of expenses, but what are the insurance companies spending these billions of dollars on? Its also interesting the most companies (GE, Caterpillar, GM, etc) will have some years that they make money and some years that the lose money. Because of the structure of the insurance industry they always make money - except when they declare losses for tax purposes under GAAP books (typically by buying a competitor) and show a profit to shareholders under non-GAAP books. Guaranteed money makers should always have a smaller profit margin that riskier businesses.

The key measure of competition in any industry is innovation. The only innovation in the health insurance industry is in how to drop people from their roles. The latest one in NY was where a guy had MS and they couldn't drop just his policy, so they dropped that entire class of policies rather than accept the costs associated with their client. We have to fix these problems by regulation or by competition. I vote for competition - the only way the public can compete is by a public option.



Post 5
Hi Ben, I think it's really unfortunate that you have resort to name calling and insults to make a point. Calling me a fear mongerer is really over the top. We dissagree completely on how to fix health care. We do agree that something needs to be done to fix it. But putting in a Trillion dollar health care bill that we can't afford only replaces one problem with another. Anc I believe it won't even fix what it's trying to solve.
If I might make a suggestion, regardless of the fact you have, you're not going to win many if any over to your way of thinking by using the tone in your last post.



Post 6
I will review your arguement when I get home and answer you point by point.....RESPECTFULLY.


Post 7
I didn't mean to insult you. Also, I didn't call you a fear mongerer - only said you are one if you insist on making the Canada comparison and can't provide a mechanism by which it works. And I will stand by that statement. Assuming that you are going to provide some a comparison, my statement clearly doesn't apply to you.

The problem with the video clip was that it was nothing but fear mongering - no mechanism, no facts, only anecdotes and a broad brush comparison of two very different nations and two very different health care systems - there's points to be made, but there was no fair and balanced in that clip, so I'll admit my initial response wasn't particularly fair and balanced.

I do try not to insult people, so I'm sorry if you were offended. Sorry about the tone, it was written in a rushed manner - I'm posing a lot of questions where I think the right is inconsistent, and its hard to say that someone is inconsistent or illogical without sounding offensive. I also probably shouldn't have said you might need to do your homework if you don't understand the MLR, but I guess I've run into a lot of uninformed people, so I apologize for that unnecessary snarkiness. We have to much bombast and I hate to admit that I sometimes add to it.



Anyway, the truth is I'm not trying to convert anyone to my opinion - I doubt that its possible. Very few people actually have an open mind - I hope you're one of them. I'm trying to figure out how people who oppose the public option think - sometimes I need to be a bit acerbic to get a response. As yet, I have not gotten any logical arguments to my questions posed here or on my blog (see link above). I'm perfectly willing to change my mind on the public option if someone can convince me there is a better way. As yet I've not seen a single logical argument that doesn't reduce to a simplistic "socialism is evil" or "we're all going to be Canadians". So you have a challenge: I have an open mind, if you believe that there is no real competition in the insurance industry and you have a better way than the public option to get competition going, bring it on and I'm willing to listen. Maybe you can convert me into opposing the public option!









Post 8 with my response interspersed


The two main things I picked up on from your posts were that the bills currently before congress would lead to slippery slope to socialized medicine and that Insurance companies don’t spend enough on health care… among other things. But those are the two main ones. 


OK, so I'm looking for arguments about the slippery slope and the MLR.


Based on our previous discussions, I expect to see an explanation of how passing the present public option program must lead to a slippery slope where we must end up with a single-payer system.  We haven't really discussed the MLR, so I'm interested in seeing where your reasoning lies.


After doing some commenting below, I found I needed to say something several times, so I will put the detailed discussion here:  The public option proposed by the House (I haven't read the Senate bill) is a non-subsidized option.  It is required to operate similar to the US Postal Service in that it can't lose money.  The only subsidies in the proposed health insurance program would be given directly to individuals (much like the much proposed "school vouchers" - but limited to low income people).  Those with the full or partial subsidies could go to any insurance company or the public option to get their insurance.  


I think that much of the hyperbole around the public option is that many media outlets have been deliberately misleading the public on what the public option is (but that's just my opinion) 

To your first point on the slippery slope: "When the people find they can vote themselves money, that will herald the end of the republic." -- Benjamin Franklin

Your quote is a non-sequitur.  It does not in any way advance the idea that the public option as posed in the legislation is the first step towards the inevitable introduction of single-payer health care. Furthermore, even if it were applicable, quoting Benjamin Franklin doesn't provide an argument as to why/how a slippery slope must occur.

I'll just come out and say that what the democrats are doing is insidious and they have no intention of stopping with this health care plan.

The above is a pure ad hominem attack. Doesn't it bug you when the left pretends to read the minds of the right?  Why do it to the left?  I really dislike other people trying to tell me what I believe, what I think, and my future intentions.  Asserting that we have no intention of stopping with this health care plan is not an argument - its a political polemic that is unprovable and does nothing to demonstrate your point.  You can't read liberal minds or their intentions, so you shouldn't try to do it.   What you can do is discuss the policies proposed.


Furthermore, unlike the recent GOP, the Democrats are really much too disorganized to act as a block and have a single "intention".  If Bush had had 60 Republicans in the Senate, would he have stopped to talk to the Democrats on anything?  Keep in mind that Bush pushed through all his tax cuts using budget reconciliation procedures to avoid a threatened Democratic filibuster.  Every mention of Democrats using this technique has set up hypocritical howls among those with very short memories.  But I'm getting off into politics where we'll end up in never-never-land.  Back to the arguments.


 The Gov’t Option WILL undercut private health just as it did in Canada 30 years ago. 
Here is the crux of your argument.  But please explain the facts of how the present government option is similar to the Canadian system and how the changes in the Canadian system moved through parliament to result in a single payer system.  You have now asserted this as a fact in at least two posts, but have not provided explanation as to why this is true.  Do you have anything that I could read that explains the evolution of the Canadian system?  I'm interested in this argument because I haven't heard it before.  How did the Canadian system start and what drove it into a single payer system?  If you are going to argue that this is your prime example, you need to provide some logical evidence rather than assertion.  If there is a good argument here, it could prove your case.  But simple assertion of the argument's existence is not an argument.  The argument doesn't prove itself because one can certainly argue that the Canadian parliamentary system and the entire Canadian culture is so different that the comparison is apples and oranges.  On the other hand, if you can show clear economic arguments as to how and why a non-subsidized public option (see note above) must result in the failure of private insurance plans, then you've got a winner.


I do not believe Barack Obama and Nancy Pelosi when they say that this will not lead to socialized medicine. These are people who HATE insurance companies. 
Another ad hominem attack combined with your beliefs and no facts.  But I will say that I do hate corporations that develop non-competitive practices and use lobbying power to undercut free market capitalism. 


They can’t stop talking about how evil they are with there evil obscene profits (yep, 2-5% is pretty obscene). 
I had actually hoped that this next layer of conversation would get beyond the snark, but I guess not. I don't see how the above furthers your argument for a slippery slope leading to a single-payer system.  I've never heard Obama or Pelosi call insurance companies or their profits "evil" or "obscene".  Perhaps you can send me a link.  Furthermore, even if Obama and Pelosi were spending all their time talking about the "evil" companies, they are still only two people in the government.  Two people are not a sufficient basis for a slippery slope argument as to how we will inevitably end up in a single payer system by passing a public option.  Either there must be a clear economic mechanism by which the insurance companies must fail, or you are relying on some succession of governments and administrations to continue the policy.  Either way, Pelosi and Obama cannot constitute a valid argument for a slippery slope - even if they want to create a single-payer system in the US.


You are going to try and tell me that this isn’t just the first step for them? If you are, I don’t believe you are being intellectually honest. 
Now you are changing to an ad hominem attack on me - you are saying that if I don't agree to read the minds in the same way that you do that I am dishonest.  I prefer not to read minds, and to base decisions on policies proposed rather than some terror that is hidden around the corner in the minds of my political opponents. You are free to believe what you would like about Obama and Pelosi, but to hold that everyone should believe as you do about something inherently unknowable is the first step toward tyranny.  I happen to believe Barack Obama when he said that if he was starting with a clean slate he would prefer a single-payer plan - but he's not starting with a clean slate so that is not an option. I don't demand that you believe that, but if we're going to have a policy conversation it has to be about policies, not our beliefs.  Did you notice that the Democrats never even used the single-payer plan as a negotiating point with the GOP?  The Dems took it off the table before a single bi-partisan meeting was held.  The truth is, the Dems new they didn't have enough support within their own caucus for a single-payer system so they didn't even bother to try to beat the GOP over the head with it as a negotiating tool.  


So the slippery slope is something that the liberals in this country want to happen. It may not be slippery, but they’ll push it along anyway. 
Again, you are trying to read my mind and my intentions as well as that of millions of other liberals. You are effectively claiming because of something that the left might do in the future, you should oppose what they do now. Are the some liberals that want a single payer plan?  yes - we usually call them progressives rather than liberals (there is a difference).  But again, you have not provided an argument that shows how this can happen, you are merely making an assertion without any logic.  Remember the conservatives wanted to privatize social security, and even though they held all branches of the government but couldn't do it.  Are you saying that the left is more organized and will push this through?

Do you support a single payer system?
Do you think that is the best way to go? 

Actually, I don't support a single-payer system for the US, because I don't think that the American culture can handle it.  I lived in a country with a single-payer system (Australia) for 3.5 years, so I have some experience with the system.  My experience is anecdotal, but I can tell you that all my friends were relatively happy with their experiences (I can't say the same for friends here in the US).  Certainly my Australian friends are better off than the 40 million Americans with no coverage, but that is a comparison of a small anecdotal group with a large population, so it isn't particularly scientific.  However, scientific studies of medical outcomes throughout the world has shown that every single-payer system in every developed nation performs better than the US system.  Despite the science supporting a single-payer system, I am skeptical that it would work for us. I think that the US is somewhat unique in the interrelationships between the people, the states and the federal government - we are very different from the parliamentary systems that dominate much of the world (and many of the single-payer nations).  Personally, I think that a single payer system is impractical to get started in the US and probably wouldn't be effective or efficient.  But I can't say I speak for all liberals or progressives.  I just know what I read in the legislation.

History has shown that it is not a great option.

I would strongly disagree.  Scientific studies have shown the outcomes are better in countries with single-payer systems.  You can find all the anecdotes you want (and we can have dueling anecdotes), but I've got science on my side with this one.

Ok, on to the medical loss ratio. Very poor choice of words, but it doesn’t make the insurance industry guilty of malfeasance. I read up on it and it sounds like the medical loss ratio goes between 80%-90%. 

Agree that MLR is a poor choice of words and doesn't really reflect the complexities.  I don't claim that companies are committing fraud. I just think they are acting the way capitalist companies generally do.  Whenever companies can control a market and reduce competition, they will do it (read up some on Archer Daniel's Midland and their attempt to control the international lysine market - that was actually fraudulent).  For the insurance companies, they have an anti-trust exemption that allows them to get away with anti-competitive practices under the guise of "sharing best practices".  If the grocery store chains shared pricing data as "best practices" would you be surprised if they all priced things the same and prices slowly crept up?  I wouldn't.  It's starting in the beer industry right now after the recent consolidation into a few major international beer conglomerates.  


Health insurers profit margins are between 2%-5%. Do you know how pathetic that is? 2%-5% is not a huge profit. 
I think that 2% to 5% is a reasonable profit on a pass-through service.  Profit margins in pass-through services are often very different (and should be different) than value-added service business models.  For example grocery chains have very little value-added service; they put a small markup on every item, but can't mark it up too much because the industry is extremely competitive.  Thus, a company like Safeway has had annual revenue streams from $35 billion to $42 billion over the past five years and has profit margins of 2.2%, 2.2%,  3.1%, 3.3%, and 3.4%.   Note that the revenues of Safeway are comparable to the big health insurers - Wellpoint $61 billion and Aetna $31 billion in 2008.  (All the data is from the Schwab investor website). The difference between pass-through services and value-added services (e.g. accounting, computer networking, etc) is that the revenue streams are very large and typically very predictable in a pass-through service. In a capitalist system, such predictable profits are valued, which drives the profit margins down.  I don't have any problem with the level of profit that the health insurers make.  Indeed, most economist don't take issue with profits, because the amount is more or less appropriate.  The only caveat that I have is that the lack of competition makes health insurance profits pretty much guaranteed.  I don't have data back any more than 5 years, but in none of those years did Humana, Wellpoint, or Aetna have a loss.  In contrast companies that actually make things Caterpillar, Boeing, Ford, swung through both profits and loss during the same period.  When you have very little competition, there is no need to trim overhead or cut rates to get customers - you can just raise rates as needed and guarantee a profit.  


As far as the other 10-15%, of course that goes to cover overhead. They do have insurance execs, you have to have those. You have the people who negotiate contracts, you have to have some brick and mortar, phone lines… etc. You get the point. 
Very true, but this is the heart of the matter - how much should it actually take to run a health insurance company?  You dismiss what is the actual central point of the MLR argument as an irrelevancy.


Profits Ben are required for a private corporation. Now, I can understand that you may not like the profits… 
Again an ad hominem attack.  Not all of us on the left are wild-eyed communists.  In fact, I am a free market capitalist.  My problem is that when the market isn't free, capitalists become oligarchs.  When the oligarchs can control legislation, the system is set up for failure (but now we're into philosophy, which is neither here nor there).  Believing in the free market is not the same as being against all government regulation or programs. 


So tell me what gov’t system is going to best it. Don’t say Medicare or Medicaid, they pay far less to doctors than private insurance. Plus, Medicaid and Medicare are a 72 trillion dollar unfunded liability. Guess who’s going to have to pick up the bill for that some day, you and me. 
You've slipped into an argument about a directly subsidized program (Medicare) and have gone off track on the proposed unsubsidized public plan.  The unfunded liabilities in Medicare are essentially the problems that any and every system experiences as the population ages.  We could get into a deep discussion of this, but it would really be about how demographics alters the workforce age distribution and how the costs will be paid either by the elderly or for the elderly.  But such a discussion has nothing to do with the slippery slope argument or the medical loss ratio.  Please note again that the only subsidies proposed in the house plan will be available for low-income people to use to buy private insurance or insurance through the unsubsidized government plan.


The point is that private insurers have to be profitable or they go away. Gov’t doesn’t care if it’s profitable, they’ll just keep on raising your taxes to pay for it. 
We can have a discussion over whether or not there should be subsidies for low-income people, but that is neither here nor there on the public option.  To be clear again - the public option as proposed will be unsubsidized.  That is what is in the bill.  If we have to argue about what we are afraid might be in a future bill, then this discussion is a complete waste of time. The public option will have to break even.  The government will only provide subsidies through "vouchers". 

A bit more about the Medical loss ratio, tell me why that wouldn’t exist in a gov’t, not for profit plan. Will they have no administrative costs? Will they not need to pay people, rent, power, phone.. etc. You get the point. Those same people who deny benefits now will just be working for the Gov’t Ben. What’s the medical loss ratio for Medicaid and Medicare? Have you not read about how inefficient and fraught with fraud they are? 

The administrative costs for Medicare are 3% to 4%, which is comparable to an MLR of 96% to 97%.  You can't compute a MLR directly for a subsidized program because it doesn't take in premiums - it gets money from the government, spends some on administrative costs, and then sends out the rest in claims. You will see lots of people on the right trying to say that its an apples and oranges comparison between private MLR and the comparable 100% - admin for Medicare because 1) Medicare has a higher rate of fraud and because 2) Medicare has to care for the expensive elderly that has a larger revenue stream, so the admin charges are lower. There may be something to such arguments.  I would certainly never claim that the government is always more efficient than private industry.  My claim is simply that the government can help set up competitors to industry when industry has grown non-competitive.  I actually expect that the public option will not be able to get the same MLR as Medicare.  But, I do expect it to force the private insurance companies to actually compete for business.  


Have you not read that they are a $74 trillion unfunded liability? My Aunt was denied Medicaid. She has two prosthetic knees and chronic arthritis. But regardless of her need, she was told that she had to suck it up and deal with the pain for the next two years until she can get it. Isn’t that essentially the same as the Medical Loss ratio? Medicaid has decided that they can’t afford to cover her, so she’s denied. 
Again, you can't bring up a subsidized public program as an argument against an unsubsidized public program.  In terms of purely subsidized programs, I'm not quite sure what you are arguing here - are you arguing that because your aunt cannot get state-supported medicine (Medicaid) that we should should not have any state-supported medicine?  Your aunt's case is is entirely unrelated to the Medical Loss Ratio. Medicaid can only pay out what the government gives it.  If you and I don't give it enough, then they have to ration care.  In contrast, the MLR is the percentage of money taken in premiums that is paid out in claims.  Thus, an MLR of 80% says that for every $10 you take in, you pay out $8 is claims.   The MLR says nothing about whether a private company has enough money to pay out claims.  In private industry, they have to pay out all claims (taking a loss if need be, but doesn't seem to happen); except when the find nice legal loopholes to deny claims. It would be possible for a company to have an MLR of 85% and have to go into debt to pay its claims if it doesn't correctly estimate the likely future claims. Of course, its interesting that this doesn't seem to happen.  Its not clear to me whether you're aunt's problem is that Medicaid doesn't have enough money and she is considered lower priority than someone say on kidney dialysis, or it she doesn't qualify because she's not poor enough for subsidized care.  Whichever is the case, I can't see the relationship to either the slippery slope argument or the MLR that private companies operate at.


We really have a fundamental difference of opinion on who would be best suited to provide solutions for health insurance and health care. If the gov’t would get out of the way (insurance companies are heavily regulated by the way), they would offer a solution that the market would bare. HSA’s are a great example, it’s a low premium/ high deductable plan where you can get a lot of your deductable back if you. Let the insurance companies compete across state lines. Standardize the insurance requirements from state to state. 
Actually, I think our difference of opinion is on what is going on in the today's health insurance industry. Because the companies have been allowed to "share data" they all know what each other is charging and they don't actually compete.  You can look at the number of insurance companies that book businesses in your area and find its pretty small.  Most states have, at most 2 or 3 companies.  You seem to have a lot of faith in the companies wanting to compete.  If this is the case, then why didn't the previous administration develop a plan to do just what you say?  My opinion (and its just opinion - no proof) is that the insurance companies are on a gravy train.  The execs get good salaries, the companies are guaranteed to make a profit, and they are able to keep the government from interfering by intensive lobbying.  The proof that I offer is an observation - any competitive industry spawns innovation as companies try to get an edge over their competitors.  The health insurance companies have not produced any innovative products since the mid-90s (when they were previously scared by threatened health insurance reform).


Here's some numbers to try to make my point on the MLR clearer:  Wellpoint last year took in $61 billion, with $57 billion from premiums.  Their profit was $3.1 billion and they paid $632 million in income taxes, for a net income of $2.5 billion.  Debt service was $470 million.  Depreciation was $286 million. The numbers thus far don't sound too unreasonable.  Their claims payout was $48 billion and they had $9 billion carried on their books as General/Administrative expenses. That means that roughly for every 5 dollars they paid out, they had a dollar of expenses.  This number is what I consider the problem.   When my doctor charges the insurance company $200 for a visit, I know what the doctor did and how much time it took and the office equipment, nurses, etc that go into providing that service.  For that matter, I know what kind of educational effort was necessary to offer that service.  What I can't figure out is why it takes the insurance company $40 to process that $200 claim. Where is that money going when compared to what I get from the doctor.  Did the insurance company really provide $40 of value?  Similarly,  a heart attack may easily cost $50,000 in treatment, what is the insurance company doing with $10,000 of general and administrative expenses to handle the claim?  Somewhere, they are spending a lot of money inefficiently. I don't see any way to get them to compete except for a public option.   


Arguments for HSA and using the Federal government to abrogate the power of the states to regulate insurance industries have some merit. In my opinion, they aren't enough to get the insurance companies competing.  Competition will reduce their ability to spend corporate money on themselves (check out some of their salaries at the top).  I actually don't think it will affect profit margins, because Wall Street would stop investing.  If forced to compete, the will reduce their MLRs and innovate on new products.  We might not have to legislate an HSA if we can get them competing - they might come up with some practical innovations on their own.  That's what I'm looking for.


Its odd to hear a conservative argue for Federal regulation ("standardize regulation requirements") instead of state regulation.  However, from what I've seen of the "allow insurance companies to compete across state lines" argument, most of the proponents seem to want to keep a patchwork of state regulation, and then let the insurance companies choose the regulatory system that they likes.  I'm not so keen on letting the insurance companies buy off a state legislature.  OK, I know that's an ad hominem attack on the insurance companies - but unlike your attacks on Obama and Pelosi, I think that insurance companies will do just what any capitalist company must do - seek to maximize profit.  If the insurance companies can get a state legislature to require binding arbitration in all disputes and have the arbiter chosen by the insurance company, then they aren't doing anything "evil" per se, its just what the system allows.  I happen to think that giving large national companies the ability to pick and choose their regulatory environment is a bad idea.  This sort of approach has some strong parallels to the Savings and Loan collapse in the 1980s.  

And finally, I wanted to paste this article on the true financial situation the insurance company is in. Not really the profit mongers the Liberals in congress would have you believe.   

I'm not even going to bother with the article because its a self-serving polemic.  Nothing in the article considers the difference between high-revenue pass-through service industries and value-added service industry. It makes comparisons across industries that aren't credible and would never be used by an investor in choosing investments.  You can only compare companies in similar risk/reward ratios.  Companies with low risk generally make small profits.  Companies with high risk need to make large profits in good years to account for the possibility of bad years.  Companies with a large revenue stream and little value-added need to keep their overhead costs low in a competitive market.  Companies with a lot of value added can have higher overhead, because they can compete on quality. These are some of the basic tenets of the capitalist system.


In summary, I still have an open mind and am willing to be convinced that there is a slippery slope that will inevitably result in a single-payer plan if we have the proposed public option.  However, I have yet to see any facts that demonstrate this case.  I have tried to show that the only things provided above are assertion of that the Canadian comparison is valid and ad hominem attacks on the intentions of liberals in general and Obama and Pelosi in particular.  On the subject of MLRs, I believe that the evidence shows the industry is non-competitive, not because of profits, but because of the overhead costs to cover claims.  Health insurance companies are not providing value for the dollars spent.  Although HSA's may play a role in the future, I cannot see how they will improve the competitive structure.  The argument for allowing insurers to be regulated by one state while offering insurance in another poses significant problems for obtaining justice (i.e. when you live in Seattle and you insurer in Alabama denies your claim, how are you going to sue in the Alabama state court?)

9 comments:

Spencer said...

Great Post and great idea putting it in the blog.
Just reading through your blog.... I guess I could answer there. The Gov't option as planned will be subsidized with seed money to start, so.. it will be subisidized.

Regarding the comment about Democrats doing something insidious, I am referring the democrats in congress. But it does extend to a number of poeple I know who say that they hope that this Health Care legislation will eventually lead to a Single Payer system.
Regarding the comments Obama and Pelosi have made regarding the insurance companies, they have said that insurance companies make obscene profits as well as other democrats.

Ok ok, ad hominem attacks... granted. I'm not a great debater, but I'll work on it.

I will go away and do some research on how the Canadian system came to be and get back. You have some great points and have give me alot of information that I previously did not have on the MLR.
Have they predetermined in the house bill what the MLR would be for the Gov't provided insurance?
Look forward to more discussion.

Spencer said...

Here's the post on the slippery slope:
Look at the history of both social security and income tax. Both were touted as minor provisions. The social security tax rate was very low and the rules were such that very few would ever see a payout. And look what it's grown into. Same with income tax. The first rates were very low and the brackets were so high that only a very few even paid it. And again look where we are now. Government programs always expand.

Spencer said...

Insurance companies are companies just like any other company. No better and no worse. They are there to make a profit by providing a service or product that others deem to have value. Just like GE, Boeing or any other company. The people who work there and who run the company are no more moral or immoral than any other people running any other company. They run the gamut from outright scoundrel to altruistic philanthropist just like people at other companies do.

So what is the difference? We don't, for example, have much problem with auto insurance companies even though they will deny coverage to bad drivers. Even if a driver is bad through no fault of their own, such as an epileptic or sight impaired person. We don't take umbrage with life insurance companies that won't insure someone that is high risk. So the problem isn't insurance in general, it's medical insurance specifically.
... Read More
The question then, is how is medical insurance different from auto or life insurance? The answer is there are dramatic differences, but I will point out the biggest two. First, auto, life and other insurances are purchased individually. The consumer can decide which company to go with and what plan he wants to purchase. The insurance company has to deal directly with him and offer a product that suits him. The insurance company also has to provide a good enough quality of service to keep the consumer from taking his business elsewhere. None of this happens with medical insurance. You get whatever your company offers. The insurance company doesn't have to deal with you at all. You are a captive customer. And, although medical insurers swear up and down that it makes no difference, they are not facing reality. Not having the consumer engaged in choosing his own plan and not forcing the insurance company to deal directly with him is a huge difference and has a whole host of negative implications.

Second: we have become conditioned to using medical insurance to pay for nearly every single health care expense we have. This is not the way insurance is meant to be used. Look at auto, life, home, fire, flood and you will see a common theme. Insurance is a stop loss and is to be used for catastrophic events. You don't use flood insurance if your toilet backs up. You don't use auto insurance to buy new tires. But, you do use medical insurance to get a very routine test for strep throat. This type of scheme directly rewards the hypochondriac and provides no incentive at all to be frugal with medical expenses. In fact, for consumers who use a high deductible health plan coupled with a health savings account, a number of long term studies have shown that the people on those plans spend far less over all on medical expenses and are in fact healthier. That is after taking into account spending habits and health levels prior to entering the plan.

Those are the two biggest issues with health care today and the current plan not only does absolutely nothing to address either concern, it in fact makes each problem far worse.

I must attribute this post to my Brother, but I do agree with him.

Spencer said...

Some good information on the evolution of the Canadian Health Care System.

http://en.wikipedia.org/wiki/Health_care_in_Canada

Ben said...

Quick comment on your example of social security and medicare as evidence that government programs expand. What you are providing is an inductive argument by enumeration. Let's say that I'm completely ignorant about numbers but I have a calculator and a list of odd and even numbers. I then punch in the 1+1, 3+5, 5+7 and I observe that I always end up with even numbers. I then argue by inductive enumeration that two odd numbers added together will always be an even number. If anyone can show me this isn't true for any two odd numbers, then my argument fails. Naturally, you could push calculator buttons all day and not find a counter argument, because my induction observation was a correct guess at the underlying truths of number theory. Now lets say that instead of the above numbers, I punched in 5+5, then 15+15 then 25+25. I observe that the results always end with a zero. So I argue that any two odd numbers added to itself always equals a number ending in zero. My inductive argument fits all the facts that I've enumerated, but a single counter argument (e.g. 3+3=6) completely blows my argument away. So to counter your argument that government social programs must always expand, I give you the examples of welfare (reformed to sustainability in the 90s) school lunches, head start, student loans. Lots of social programs have not expanded. To convince me of the slippery slope, you'll need a clear mechanistic argument as to why it must be true (not examples of what might be true).

Ben said...

Spencer,
Sorry I haven't had time to follow up further. Beyond the slippery slope (addressed above) you raised a couple points.

1. Whether the insurance companies are just like any other. In my opinion - yes and no. The problem that I have is the recision mechanism - the ability of the companies to breach their contract with you over something that wasn't fraud and didn't have anything to do with your claim (the now famous you didn't report acne treatments, so we're denying you breast cancer treatments). To me, this is unethical business conduct. Not everything that is legal is ethical. Personally I think that one law that should be passed is that you can only deny a claim when you can prove relevant fraudulent misstatement of medical history. The fact that this has to be a law rather than an obvious business practice is shocking.

2. The comparison to auto insurance. Some people, because of their auto history, are simply uninsurable under free market conditions. Rather than deny them insurance, states have "assigned risk" pools that every insurance company must provide policies out of. The amount they can charge is strictly limited by the state. We do not have any assigned risk pool for health insurance nor do we have limitations on what insurance companies can charge. You also have to be careful with comparisons between auto and health insurance because of the strict policy limits that are a part of auto insurance. Most people have policy limits on auto that are way below policy limits on health. So the comparison can't be made directly.

3. On HSA's consumer choice, high-deductible plans etc. To some extent, I actually agree with you here. The problem is, that these are Republican ideas. Expecting the Democrats to put forward GOP ideas and pass them is a bit unrealistic. The GOP killed the Democrats health care reform in 93 then took control of congress in 94. They then held congress until 2006. During that 12 years they never seriously attempted to institute a Republican vision of health insurance reform. Truth is, I don't understand why we don't have a fully functioning national HSA system today. Why didn't they reform the system? If the GOP could push through two major tax cuts for the wealthy to explode our deficit (and do this on reconciliation to avoid a filibuster), why couldn't they get a top-to-bottom reform of health insurance to do exactly what you propose. Furthermore, even knowing that Obama was elected with a health insurance reform vision the GOP didn't bother to put a serious plan on the table and negotiate for a Republican vision. In my mind, HSA's have failed before they ever got a chance. I can't support something that "might" be better when its main proponents can't bother to put it together when they are in control. The GOP had their chance and blew it. The people have turned over control to the Democrats. Thus, even though I think that other approaches might be better, I also know that if we kill a workable plan today for an "ideal" plan tomorrow, we will never see the ideal plan. With 40 million people uninsured, premiums climbing, and our emergency rooms swamped, we can't afford to wait. If Obama's health care plan goes down, on what basis would we expect the GOP to come forward with a new one - should we just hope or can we look at history?

Ben said...

Spencer,
The link that you provided to the development of the Canadian system appears to back up my points. They didn't begin with an unsubsidized government-run insurance company and provide voucher subsidies for the poor that could be used with any private insurance company, as is in the Democrats bill. Instead, they began with a piecemeal system of tax-subsidized operations that they eventually consolidated into a national system. Given that the Dems bill allows for the subsidies for to used directly with private companies, the only question is whether the private companies can be as efficient as a government run unsubsidized insurer. Those who claim that the government is always inefficient shouldn't be worried, because private industry should obviously out-compete the government plan. You can't both claim that the government is inefficient and it can out-compete the private companies when both will be able to compete for the same level of operating subsidies. I don't think its worth getting into the start-up subsidy that the government would require because when you look at the books of the insurers the debt service (essentially equivalent of amortizing the start-up costs) are pretty miniscule.

Spencer said...

Hey Ben,sorry for the delayed response. Between starting a new job and being sick, I've not had much of an opportunity get online.
I guess enumeration is one way to look at the comparison between social security growth and health care growth. Another way to look at it is to look at the similarities. Social Security was started as a rather small modest program. The public option to health care is purported to start rather small by only insuring about 6 million people. They both offer services that are hard to argue with. Social security is a public trust that we take care of our seniors. Healthcare is a public trust that we provide medical coverage for all. They both had similar missions and starting points. Looking at the social security entitlement, there is no possible way you can ever reduce or eliminate that benefit because the public has come to expect that as a “right”. It’s not, but that’s beside the point. Health care is being pushed as a “right” of all Americans. I contend that it’s not, but again that’s beside the point. Once this bill passes, it will be viewed as a right and the people will look to the federal government to ensure that it becomes a right for all through the gov’t option of insurance, massive subsidies to the those who can’t afford it and imposing huge taxes on the rich and those with “Cadillac” plans to fund it. So regardless of who is providing it, the “right” to health insurance will flow from the feds… just as the right to social security flows from the feds. The cost to insure myself and my family runs about $15-$18k per year. The cost to fund my social security runs about $6-$7K per year. I am required to pay the social security and under the Obama plan will be required to pay the health insurance. What’s missing here? Choice is what’s missing. I don’t want to pay into social security. I want to have that money to invest myself. I don’t necessarily want my employer to be dumping 18K into my health insurance, I’d rather be able to have that money to buy an HSA or another plan of my choosing. The point is Ben, that I am much more able to make decisions regarding my health and my future than the federal gov’t. The way the system is now, I can’t do either very well. The type of system I envision would be one that offered more choice, this can be done with out offering a gov’t option.
That was a bit of a run-on.. I’m just trying to better illustrate my philosophy on the role of gov’t in our lives. I think that they are far too involved right now and show allow people more opportunities to make choices regarding such crucial things such as health care. Those options aren’t currently available nor are they offered in the plan before congress.

Spencer said...

I want to tie off on the slippery slope argument. The differences in gov’t between the US and Canada will not prevent the implementation of a single payer system. We have a system that would perfectly accommodate the foisting of a single payer system regardless of our desire for one. We have a hybrid free market system. It is not completely free as it is regulated by state and federal government. Those who regulate make the rules that those in the free market are governed by. Those who regulate are notorious for exempting themselves from regulation. Case in point is that congress exempts itself from the very plan it is trying to pass. They would no doubt not apply the same rules to the gov’t run health care plan that would apply to those truly in the free market. If you want more examples of this, I’ll work on finding them. This would give the gov’t plan an unfair advantage. The other unfair advantage would be that they are non-profit and could under-cut the private plans by that amount. I have no doubt that those in power would do this. See the link to the videos attached of prominent Democrats talking about how this plan is only a stepping stone to a single payer system. I’ve also attached a link to a critique of the plan before congress that substantiates the notion that this is only a stepping stone. Happy reading, look forward to your response.

http://blog.heritage.org/2009/08/03/still-not-convinced-the-public-option-is-a-trojan-horse-for-single-payer/


http://team.republicanwhip.house.gov/UploadedFiles/Pelosi_HC_Bill_Reading_Guide.pdf