Insurance Industry Lobbying

Today's program seems to be dismissing the idea that the insurance industry should feel threatened by healthcare legislation. One of Diane's guests asserted that they fear only a small loss of profits, and that they would by no means be driven out of business by a public option. But consider this. The Federal Government has the authority to:

* Mandate lower payments it makes to doctors to lower the costs incurred by the program (Insurance Agencies must negotiate payments with doctors, and can't unilaterally set the rules)
* Mandate that doctors and hospitals must accept its plan to improve access under the program (Doctors & Hospitals don't *have* to accept any particular kind of insurance, that's why the industry doesn't have the payment setting power the government does)
* Mandate the that the public and industry must pay taxes that will be funnelled to subsidies, artificually lowering its premiums to below their fair cost (The insurance industry only has premiums as a revenue source. They can only lower their premiums so much before they are driven out of business)

The Government alread does all of these things, to one degree or another, through medicare. It may be promising, even-steven, not to *use* any of these powers to drive the insurance industry out of business, it says it will set its payments, access, and prices at a level that will keep private insurance competitive. But I don't trust anyone that's putting a knife to my neck, even if he says that he's not going to use it. Isn't the insurance industry right to be scared by this?

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Replies to This Discussion

Permalink Reply by Giovanna on August 19, 2009 at 7:47pm: The fact is the public, all of us, subsidize the profits of the insurance by picking up in some form or another the industry's unprofitable customers. They have it made! So, yes, of course they are scared. They see their unfairly privileged position threatened by any serious attempt to provide health care to all Americans. But why should the public subsidize this particular industry? what we need is not health insurance, but health care. The insurance industry uses our need for health care, which we are all bound to have at some time or other in our lives, to make money off of of our need (while providing an ever poorer service.) The best care in this country is delivered by non profit institutions. We don't need to support insurance companies, and no one needs this middleman. It should go the way of horse shoes, buggies, LPs and selectric typewriters..losses hurt people at first but people always find jobs in the new economic activity that replaces the old stuff.; ▶ Reply to This

Permalink Reply by Matthew - NC on August 20, 2009 at 2:56am: I don't follow. How exactly do we "subsidize" the insurance industry by "picking up in some form or another the industry's unprofitable customers?"

Are you referring to the fact that healthy customers pay more than for the insurance than they would if they just paid out of pocket, so that when the unhealthy customers make use of their benefits for medical services, there's enough money for the insurer to pay for the benefits? Because if that's considered unfair, I don't see how the government will do anything different... but maybe I misread you there.

Also, please describe to me how the insurance industry is "unfairly privileged." Is it because we "need" their product? Does that mean that every industry that produces a "need" is unfairly privileged if the government isn't directly competing in its industry? Should the government start farming? Producing clothing and houses?

If healthcare is truly a universal human need, that everyone has a right to regardless of whether they can pay for it or not, then why are we spending more money on Americans? Every person in America can already go to the hospital in an emergency to recieve treatment, regardless of whether they can pay or not. Is it fair of us to spend more money on those people while there are men and women abroad with *zero* access to healthcare? People who live 50 miles from the nearest hospital in a nation with little in the way of transportation? From a "human rights" perspective, don't those people deserve help more than we do? Franky this whole business smacks to more to me of American Privilege than human needs or rights.

Giovanna said:
The fact is the public, all of us, subsidize the profits of the insurance by picking up in some form or another the industry's unprofitable customers. They have it made! So, yes, of course they are scared. They see their unfairly privileged position threatened by any serious attempt to provide health care to all Americans. But why should the public subsidize this particular industry? what we need is not health insurance, but health care. The insurance industry uses our need for health care, which we are all bound to have at some time or other in our lives, to make money off of of our need (while providing an ever poorer service.) The best care in this country is delivered by non profit institutions. We don't need to support insurance companies, and no one needs this middleman. It should go the way of horse shoes, buggies, LPs and selectric typewriters..losses hurt people at first but people always find jobs in the new economic activity that replaces the old stuff.; ▶ Reply to This

Permalink Reply by libertyanne on August 20, 2009 at 9:20am: Of course they should feel threatened assuming the legislation has some TEETH instead of just window dressing. Keep in mind insurance co's play NO role in providing health care---no meds, no beds, no doctors.
They take your money and drop you and raise your premiums as soon as you get sick.
But meanwhile they still have your money which they use to furnish lavish lifestyles and lobby against health reform. And the CEO's make thousands per hr. What's wrong with this picture of a shell game?; ▶ Reply to This

Permalink Reply by Matthew - NC on August 20, 2009 at 9:57am: No, they don't provide medicine or doctors. They create a pool which allows people to spread their risks. Without insurance, it would be free to be healthy, but anytime you got sick, you'd have to bear the full brunt of the costs. You are still free to accept that risk and live without health insurance today, I've done so in the past myself.

That risk spreading is a useful service, and it is right and fair for them to expect compensation for providing it. Just like anyone else providing a service, from a doctor to a man wiping a windshield, should rightly be compensated.

If you don't like the level of service, or you think they aren't spreading the risk well enough, go get another insurer. Or, better yet, start a company that addresses that need, and you'll have the insurance you want *and* be wealthy to boot. It seems to me that a government bazooka will just create more problems than it solves here.

libertyanne said:
Of course they should feel threatened assuming the legislation has some TEETH instead of just window dressing. Keep in mind insurance co's play NO role in providing health care---no meds, no beds, no doctors.
They take your money and drop you and raise your premiums as soon as you get sick.
But meanwhile they still have your money which they use to furnish lavish lifestyles and lobby against health reform. And the CEO's make thousands per hr. What's wrong with this picture of a shell game?; ▶ Reply to This

Permalink Reply by Hewitt Rose on August 20, 2009 at 10:25am: Theoretically a public option could be required of providers, funded, and expanded to the point where it could drive private insurance out of business. But a theoretical possibility of poor government policy is no basis for opposing government anything. Theoretically Medicare, Medicaid, or VA health care could be expanded to do all that you say, but is no basis for abolishing Medicare, Medicaid, and VA health care.

The point of a public option is to add a competitor to non-competitive health insurance industry, provide an option for the 47 million Americans who cannot afford health insurance, and reduce out of control health provider charges. Why is this bad?; ▶ Reply to This

Permalink Reply by Matthew - NC on August 20, 2009 at 10:59am: That's true, and if there were any attempt at altering Medicare or Medicade legislation to expand it, I have no doubt that the insurance industry would oppose it just as vehemently.

I'm not in principle opposed to healthcare from the sick, but a couple of points/questions:

*How is the current system "Noncompetitive?" Don't we have multiple insurance agencies competing with each other already?

*If the 47 million uninsured Americans can already go to a hospital to receive care in an emergency, regardless of their ability to pay, does it make us better off as a nation if we increase our already record levels of debt to increase their health coverage? Or increase tax burdens in the middle of a recession, if we're truly making this "deficit neutral?"

*If we're really interested in lowering provider costs, why aren't we increasing enrollments at medical schools? The easiest way to reduce the price of a good is to increase its supply, not to get the government to sweep in from on high and mandate that the item should be sold for less than it's market value (As medicare does to "cut costs"). Doing that just creates more demand without supply to service it, resulting in shortages.

This is a problem that needs to be addressed with sound economics, not with shortsighted positions based in an individual's sense of morality or outrage.

Hewitt Rose said:
Theoretically a public option could be required of providers, funded, and expanded to the point where it could drive private insurance out of business. But a theoretical possibility of poor government policy is no basis for opposing government anything. Theoretically Medicare, Medicaid, or VA health care could be expanded to do all that you say, but is no basis for abolishing Medicare, Medicaid, and VA health care.

The point of a public option is to add a competitor to non-competitive health insurance industry, provide an option for the 47 million Americans who cannot afford health insurance, and reduce out of control health provider charges. Why is this bad?; ▶ Reply to This

Permalink Reply by Hewitt Rose on August 21, 2009 at 12:45pm: How is the current system non-competitive?
The American Medical Association did a study in 2007 and found highly concentrated markets in 100% of the PPO health insurance products markets in 313 Metropolitan Statistical Areas and highly concentrated markets in 96% of the PPO/HMO health insurance product markets, using the Department of Justice horizontal merger guidelines. I don't have studies for big hospitals and big pharmaceutical companies, but know there is considerable anti-trust litigation in these areas, which suggests endemic market power problems.

More generally, the conditions necessary for a competitive market are missing in the health care industry. For many treatments, there is no customer choice. Do you ever hear ads for "discount surgery"? Would you ever take them up on it if you did hear such an ad? Supply is grossly distorted by the presence of health insurance in any form. Health care just cannot be a competitive market.

Even more generally, do you want to live in a society that regards health care as just another commodity no different in principle from the purchase of a car? Aren't you a little disturbed by TV ads hawking this drug or that therapy? Currently, for emergency care, we refuse to accept the logic of the market and deny care to anyone who can't pay. That would be immoral. Why does that moral logic not apply to routine health care?

Is it too expensive to cover the uninsured?
If we were to merely offer government health insurance to the uninsured with no other change to the system, it would cost us a trillion dollars over ten years. I don't think we could afford it, even though we spend three times that amount on health care currently. So, Obama's proposal, including the public option, is designed to cut the cost of health care. Insurance for the currently uninsured would be sold on an exchange, allowing an auction to find the best price. Everyone would be required to buy insurance, increasing the risk pool and so lowering costs. Medicare and Medicaid costs would be reduced by reducing payments to hospitals that treat the uninsured. Computerized medical records are intended to reduce the staggering administrative costs of coverage denials, appeals, litigation, and so on. All these costs cutting measures still don't add up to the added cost of extending coverage to the uninsured, but the measures do bring the cost into the affordable range.

But so far, this looks only at government revenue and expenses. Untreated sick people cost society at large a great deal of money for both treatment, lost opportunity cost of their work, and the draining of resources of their family and friends. If we are looking for economic stimulation, investment in people is an investment that pays. Further, health care costs for the insured continue to escalate rapidly, an average of 8.4% a year increase since 2005 for a standard family of four. The status quo is not sustainable. We have to reform health care to control costs.

If we're really interested in lowering provider costs, why aren't we increasing enrollments at medical schools?
That would actually make the problem worse. We already have too many specialists demanding high compensation and too few general practitioners and preventative health care providers. Our system is built on profit-generating expensive treatment for illness and not profit-minimizing inexpensive good health to prevent illness. Adding specialist doctors would not help.

You also assume that doctors control all the health care costs. They don't. Hospital services and drugs cost hugely. Health insurance must be paid.

What I have presented is sound economics, but, consistent with our resources, one must ask what are our moral duties as a society.

Matthew - NC said:
That's true, and if there were any attempt at altering Medicare or Medicade legislation to expand it, I have no doubt that the insurance industry would oppose it just as vehemently.
I'm not in principle opposed to healthcare from the sick, but a couple of points/questions:
*How is the current system "Noncompetitive?" Don't we have multiple insurance agencies competing with each other already?

*If the 47 million uninsured Americans can already go to a hospital to receive care in an emergency, regardless of their ability to pay, does it make us better off as a nation if we increase our already record levels of debt to increase their health coverage? Or increase tax burdens in the middle of a recession, if we're truly making this "deficit neutral?"

*If we're really interested in lowering provider costs, why aren't we increasing enrollments at medical schools? The easiest way to reduce the price of a good is to increase its supply, not to get the government to sweep in from on high and mandate that the item should be sold for less than it's market value (As medicare does to "cut costs"). Doing that just creates more demand without supply to service it, resulting in shortages.

This is a problem that needs to be addressed with sound economics, not with shortsighted positions based in an individual's sense of morality or outrage.; ▶ Reply to This

Permalink Reply by Matthew - NC on August 22, 2009 at 4:09pm: First off, thanks for the key in for that study. I'll be hunting that down and reading it. =)

Competition
However, if, as you say, our problem is overcentralization of market share, resulting in monopolistic market-patterns, why is the response to create a government program, rather than just breaking the monopolies up? The Federal Government didn't create a phone company to "compete" with AT&T, or start an oil company to "compete" with Standard Oil. Breaking monopolies into competing smaller groups is a far more efficient means of creating competition than creating a government monolith to compete with a private monolith.

Additionally, the belief that a government-company can solve the a lack of competition in a market carries with it the assumption that the government's presence makes the market more competitive. But, the addition of such a program, with all of its competitive advantages (the ability to run at a long term loss indefinately, to subsidize its customer base with tax payments, to mandate acceptance of it's program and payment levels by doctors & hospitals), drives private insurance *out* of the market, you will end up with *less* competition, rather than more. Kind of like adding a 250 lb boxer to to a 150 lb weight-class tournament. Sure, there's one more guy on the roster, but I'd hardly call the tournament more "competitive" now that he's on the board.

Cost
On the cost issue, I agree that the Trillion over 10 years is a figure that we could not afford. However, I guess I'm more of a cynic/pessimist on the final bill than you are. I know that there has been a lot of talk about the fat cutting, cost saving elements of this biting into the final bill, but when was the last time we ever had a government program actually cost *less* than we expected at the end of the day?

*Cash for clunkers, budgeted a billion dollars, had to be tripled after that ran out after a week
*Medicare, when originally budgeted in 1966 was estimated would cost $12 Billion in 1990 (including inflation). Actual cost in 1990? $107 billion and climbing ever since.
*Estimates of the cost of the Iraq war ranged from $50-200 billion at the outset. It's hard not to laugh reading that now.

Given all that, I am hardly inclined to believe that this "cost cutting," for which a hard number of savings has never been defined, is much more than window dressing. Like cutting a trillion dollar deficit by 50% in 5 years, or trimming a stimulus from $1 Trillion in borrowed money to $787 billion in borrowed money, and declaring "mission accomplished." That estimates show that a program will drive us down the drain at a marginally slower rate than what you originally thought isn't a reason to institute the program.

Additionally, the addition of a government insurer doesn't address a large number of the factors driving up insurance premiums.

1. State discrepancy in coverage regulations. (i.e. a policy in Wisconsin for a family of 4 is far cheaper than a policy with a similar deductible, etc in New York, the reason being that the New York State Government requires all its insurers cover a broader range of add ons, such as in vitro fertilization, which are expensive and unnecessary. But, as insurers can't offer a low-cost plan without those unnecessary procedures, everyone in NY pays for them).
2. Political refusal to address the issue of tort reform, which results in sky-high malpractice insurance costs and drives up the price for all of us in the most litigious society on Earth.
3. The simple fact of an aging population, living longer and giving birth to fewer children. As older people cost more to insure, a change in demographics to have more older people will invariably increase the costs of insurance as a simple matter of course.

Nothing that I have seen in this discussion addresses any of the above (I don't think there's much to do about the 3rd, but I think it is often omitted to make the rising costs seem more alarming), and adding a government run plan to the current system changes nothing. I think we're confusing two issues: Health Care Reform, to address the skyrocketing costs of Healthcare Services in this country, rooted in a belief that the business practices in the current market are unsustainable, and Universal Healthcare, a measure to make sure all Americans can get healthcare, rooted in a belief in a moral imperative to provide medical care to all Americans. The Left is intentionally blurring those two seperate issues to try to make us swallow the latter to get the former, but they are *not* the same issue, and just because a government program accomplishes the one doesn't mean it takes us anywhere on the other.

On number of doctors
I'm just going to have to disagree with you here. I'm not sure what effect more doctors would have on the % of GDP we spend on healthcare as a nation, but multiple providers competing in a given market would invariably reduce the cost of each given service on a per patient visit. Surgeries, checkups, all these things would be less expensive with more providers. Just like a town where many people fix computers will have better deals on computer repair than a town where only one woman knows how to do it. That's why the medical school enrollments are limited every year, to *prevent* a spike in the number of doctors from driving service fees down and reducing their standard of living. And while patients may not take advantage of an increase in doctors to lower their payments, insurance companies sure will. And pass those savings on to their customers by reducing rates to undercut their competition.

Insurance costs to individuals, similarly, could be reduced by loosening regulation to allow more cross-state competition, and allowing a greater variety in terms of covered services. If I'm 26 years old and single, why would I want a plan that covers in-vitro fertilization? I'd rather not pay for that coverage, and thereby obtain a lower rate. Let me customize a plan to pay for what I need, and not for what I don't, rather than force me into one big cover-all plan to eke money out of me for services I'll never use.

On Morality
We recognize a moral imperative to provide emergency services for those in need, but that is not the *only* moral imperative that exists. If providing healthcare to *some* Americans bankrupts *all* Americans, it isn't a proper moral argument that to state that we are morally bound to provide healthcare. Limited resources are a fact, and we must work within that boundary to obtain a better standard of living. To reach beyond it only paves our road to hell with good intentions. Given that we are overextended already, to the tune of over a trillion dollars a year, we need to be retrenching our government now, cutting *back* on services rather than expanding them, *increasing* taxes rather than lowering them, and creating a surplus which can be used to service our debts and get us back to a position of financial strength. Until we're standing on a firm footing, we cannot extend a hand to help others to their feet. Without that footing, such a hand would only pull us to lay on the ground beside them, hurting all and helping no one.

We get a financially sound government, debts paid, running a surplus, in the black. *Then* we start talking about what we can do with our extra money, not before.

Hewitt Rose said:
How is the current system non-competitive?
The American Medical Association did a study in 2007 and found highly concentrated markets in 100% of the PPO health insurance products markets in 313 Metropolitan Statistical Areas and highly concentrated markets in 96% of the PPO/HMO health insurance product markets, using the Department of Justice horizontal merger guidelines. I don't have studies for big hospitals and big pharmaceutical companies, but know there is considerable anti-trust litigation in these areas, which suggests endemic market power problems. More generally, the conditions necessary for a competitive market are missing in the health care industry. For many treatments, there is no customer choice. Do you ever hear ads for "discount surgery"? Would you ever take them up on it if you did hear such an ad? Supply is grossly distorted by the presence of health insurance in any form. Health care just cannot be a competitive market. Even more generally, do you want to live in a society that regards health care as just another commodity no different in principle from the purchase of a car? Aren't you a little disturbed by TV ads hawking this drug or that therapy? Currently, for emergency care, we refuse to accept the logic of the market and deny care to anyone who can't pay. That would be immoral. Why does that moral logic not apply to routine health care?
Is it too expensive to cover the uninsured?
If we were to merely offer government health insurance to the uninsured with no other change to the system, it would cost us a trillion dollars over ten years. I don't think we could afford it, even though we spend three times that amount on health care currently. So, Obama's proposal, including the public option, is designed to cut the cost of health care. Insurance for the currently uninsured would be sold on an exchange, allowing an auction to find the best price. Everyone would be required to buy insurance, increasing the risk pool and so lowering costs. Medicare and Medicaid costs would be reduced by reducing payments to hospitals that treat the uninsured. Computerized medical records are intended to reduce the staggering administrative costs of coverage denials, appeals, litigation, and so on. All these costs cutting measures still don't add up to the added cost of extending coverage to the uninsured, but the measures do bring the cost into the affordable range.

But so far, this looks only at government revenue and expenses. Untreated sick people cost society at large a great deal of money for both treatment, lost opportunity cost of their work, and the draining of resources of their family and friends. If we are looking for economic stimulation, investment in people is an investment that pays. Further, health care costs for the insured continue to escalate rapidly, an average of 8.4% a year increase since 2005 for a standard family of four. The status quo is not sustainable. We have to reform health care to control costs.

If we're really interested in lowering provider costs, why aren't we increasing enrollments at medical schools?
That would actually make the problem worse. We already have too many specialists demanding high compensation and too few general practitioners and preventative health care providers. Our system is built on profit-generating expensive treatment for illness and not profit-minimizing inexpensive good health to prevent illness. Adding specialist doctors would not help.

You also assume that doctors control all the health care costs. They don't. Hospital services and drugs cost hugely. Health insurance must be paid.

What I have presented is sound economics, but, consistent with our resources, one must ask what are our moral duties as a society.

Matthew - NC said:
That's true, and if there were any attempt at altering Medicare or Medicade legislation to expand it, I have no doubt that the insurance industry would oppose it just as vehemently.
I'm not in principle opposed to healthcare from the sick, but a couple of points/questions: *How is the current system "Noncompetitive?" Don't we have multiple insurance agencies competing with each other already? *If the 47 million uninsured Americans can already go to a hospital to receive care in an emergency, regardless of their ability to pay, does it make us better off as a nation if we increase our already record levels of debt to increase their health coverage? Or increase tax burdens in the middle of a recession, if we're truly making this "deficit neutral?" *If we're really interested in lowering provider costs, why aren't we increasing enrollments at medical schools? The easiest way to reduce the price of a good is to increase its supply, not to get the government to sweep in from on high and mandate that the item should be sold for less than it's market value (As medicare does to "cut costs"). Doing that just creates more demand without supply to service it, resulting in shortages.

This is a problem that needs to be addressed with sound economics, not with shortsighted positions based in an individual's sense of morality or outrage.; ▶ Reply to This

Permalink Reply by Hewitt Rose on August 24, 2009 at 6:17pm: Competition
You ask, why not just break up the large health insurance companies with market power? Mere market power does not violate the anti-trust laws, however bad a result that may be for customers, that's why. There is no legal authority to do so.

It may well be that health insurance is a natural monopoly due to network economics and increasing economies of scale. In an unregulated market, when costs decline to the full extent of market demand, the company with the lowest average costs wins the market for itself as a natural monopoly. It then restricts supply and charges monopoly prices. The usual response to natural monopoly is public utility regulation; that is, government price controls. I doubt that would make you happier.

You argue, again, that a government-provided health insurance company would necessarily drive out all private competitors. Obviously it doesn't. Some 60% of current health care costs are paid by government programs today, yet private health insurance is still with us. Government can choose to leave room for private insurers or not; there is nothing inevitable about it.

Cost
Cost cutting can work for government programs and could work for Obama's health care plan, if the Republican's would stop screaming about rationing. All health care programs ration, including the present system. Citing the Iraq war as proof all government programs increase in cost is not persuasive. For a more relevant example look at the VA program. It was a mess until the early 1990s until Clinton reformed it. Now it is a model program, one that cut costs and delivered better services. As another example, look to all the other countries that spend far less of their GDP on health care, have universal health coverage, and better health care than the US. It can be done.

Your analysis of what is driving up the cost of coverage sends you off point.

1. Yes state mandatory coverage drives up costs, but it guarantees coverage. So do we continue let insurance companies deny coverage for services and just take pride in our cost cutting? Isn't THAT rationing?

2. The highest estimate of the share of the cost of health care due to malpractice insurance is 10%. Tort reform is an illusion. Several studies have shown that the cost of malpractice insurance does not correlate with medical malpractice awards; they correlate with the return malpractice insurance companies get on their investments. Lower returns, means higher premiums and more blaming lawyers. Of course the companies and health care providers would like to eliminate liability for malpractice altogether, but where does that leave the victims of malpractice? Doctors do not police their own. Without tort liability you and I have no protection.

3. Yes, an older population has higher health care costs. Short of opening the immigration floodgates, there is not much anyone can do about that. It is hardly a criticism unique to Obama's health care proposals.

What is really driving up costs in the present system is growing market power of health insurers and the inherent market distortion of health insurance. For reasons I have stated, reliance on the present system or a free market in health care is a sure path to financial disaster.

You further criticize the Obama proposal for having two goals: universal health insurance and health insurance cost control. There is nothing inconsistent in those goals. Precisely because universal health insurance alone would increase costs, cost control is necessary to make the program affordable. Cost control is further desirable on its own account. Why does the radical right throw sand in the public's eye and claim that we can pursue one goal but not the other?

Number of doctors
You are arguing theory before facts. Don't rely on just me, ask some doctors, do some minimal research. No one doubts that we have an oversupply of expensive specialists and an under supply of cheaper general practitioners. No one doubts that medicine is tilted towards expensive curative treatments prescribed by specialists instead of inexpensive preventative care suggested by GPs. There is little doubt that medical schools make more money churning out specialists than GPs.

Look around you. Classical economic theory does not work in a market as flawed, shot through with externalities (benefits or costs not priced by the market) and as non-competitive as health care.

Morality
You don't really address the fundamental issue of the morality of making money off of sick people instead of treating them. Instead, you argue that we cannot afford to provide for 47 million uninsured Americans causally embracing a form of lifeboat ethics. Presumably, you would just let them die to save a buck.

Universal coverage is not prohibitively expensive. France spends 11% of GNP on health care. The Netherlands spends 10%. We spend around 16% currently, and it's increasing. France and the Netherlands provide universal health care, a higher quality of total care than the US (ranked 36th in the world), and lower waiting time for care than the U.S. Our system is both inefficient and inequitable. We should be able to do as well as France and the Netherlands.

Matthew - NC said:
First off, thanks for the key in for that study. I'll be hunting that down and reading it. =)

Competition
However, if, as you say, our problem is overcentralization of market share, resulting in monopolistic market-patterns, why is the response to create a government program, rather than just breaking the monopolies up? The Federal Government didn't create a phone company to "compete" with AT&T, or start an oil company to "compete" with Standard Oil. Breaking monopolies into competing smaller groups is a far more efficient means of creating competition than creating a government monolith to compete with a private monolith.

Additionally, the belief that a government-company can solve the a lack of competition in a market carries with it the assumption that the government's presence makes the market more competitive. But, the addition of such a program, with all of its competitive advantages (the ability to run at a long term loss indefinately, to subsidize its customer base with tax payments, to mandate acceptance of it's program and payment levels by doctors & hospitals), drives private insurance *out* of the market, you will end up with *less* competition, rather than more. Kind of like adding a 250 lb boxer to to a 150 lb weight-class tournament. Sure, there's one more guy on the roster, but I'd hardly call the tournament more "competitive" now that he's on the board.

Cost
On the cost issue, I agree that the Trillion over 10 years is a figure that we could not afford. However, I guess I'm more of a cynic/pessimist on the final bill than you are. I know that there has been a lot of talk about the fat cutting, cost saving elements of this biting into the final bill, but when was the last time we ever had a government program actually cost *less* than we expected at the end of the day?

*Cash for clunkers, budgeted a billion dollars, had to be tripled after that ran out after a week
*Medicare, when originally budgeted in 1966 was estimated would cost $12 Billion in 1990 (including inflation). Actual cost in 1990? $107 billion and climbing ever since.
*Estimates of the cost of the Iraq war ranged from $50-200 billion at the outset. It's hard not to laugh reading that now.

Given all that, I am hardly inclined to believe that this "cost cutting," for which a hard number of savings has never been defined, is much more than window dressing. Like cutting a trillion dollar deficit by 50% in 5 years, or trimming a stimulus from $1 Trillion in borrowed money to $787 billion in borrowed money, and declaring "mission accomplished." That estimates show that a program will drive us down the drain at a marginally slower rate than what you originally thought isn't a reason to institute the program.

Additionally, the addition of a government insurer doesn't address a large number of the factors driving up insurance premiums.

1. State discrepancy in coverage regulations. (i.e. a policy in Wisconsin for a family of 4 is far cheaper than a policy with a similar deductible, etc in New York, the reason being that the New York State Government requires all its insurers cover a broader range of add ons, such as in vitro fertilization, which are expensive and unnecessary. But, as insurers can't offer a low-cost plan without those unnecessary procedures, everyone in NY pays for them).
2. Political refusal to address the issue of tort reform, which results in sky-high malpractice insurance costs and drives up the price for all of us in the most litigious society on Earth.
3. The simple fact of an aging population, living longer and giving birth to fewer children. As older people cost more to insure, a change in demographics to have more older people will invariably increase the costs of insurance as a simple matter of course.

Nothing that I have seen in this discussion addresses any of the above (I don't think there's much to do about the 3rd, but I think it is often omitted to make the rising costs seem more alarming), and adding a government run plan to the current system changes nothing. I think we're confusing two issues: Health Care Reform, to address the skyrocketing costs of Healthcare Services in this country, rooted in a belief that the business practices in the current market are unsustainable, and Universal Healthcare, a measure to make sure all Americans can get healthcare, rooted in a belief in a moral imperative to provide medical care to all Americans. The Left is intentionally blurring those two seperate issues to try to make us swallow the latter to get the former, but they are *not* the same issue, and just because a government program accomplishes the one doesn't mean it takes us anywhere on the other.

On number of doctors
I'm just going to have to disagree with you here. I'm not sure what effect more doctors would have on the % of GDP we spend on healthcare as a nation, but multiple providers competing in a given market would invariably reduce the cost of each given service on a per patient visit. Surgeries, checkups, all these things would be less expensive with more providers. Just like a town where many people fix computers will have better deals on computer repair than a town where only one woman knows how to do it. That's why the medical school enrollments are limited every year, to *prevent* a spike in the number of doctors from driving service fees down and reducing their standard of living. And while patients may not take advantage of an increase in doctors to lower their payments, insurance companies sure will. And pass those savings on to their customers by reducing rates to undercut their competition.

Insurance costs to individuals, similarly, could be reduced by loosening regulation to allow more cross-state competition, and allowing a greater variety in terms of covered services. If I'm 26 years old and single, why would I want a plan that covers in-vitro fertilization? I'd rather not pay for that coverage, and thereby obtain a lower rate. Let me customize a plan to pay for what I need, and not for what I don't, rather than force me into one big cover-all plan to eke money out of me for services I'll never use.

On Morality
We recognize a moral imperative to provide emergency services for those in need, but that is not the *only* moral imperative that exists. If providing healthcare to *some* Americans bankrupts *all* Americans, it isn't a proper moral argument that to state that we are morally bound to provide healthcare. Limited resources are a fact, and we must work within that boundary to obtain a better standard of living. To reach beyond it only paves our road to hell with good intentions. Given that we are overextended already, to the tune of over a trillion dollars a year, we need to be retrenching our government now, cutting *back* on services rather than expanding them, *increasing* taxes rather than lowering them, and creating a surplus which can be used to service our debts and get us back to a position of financial strength. Until we're standing on a firm footing, we cannot extend a hand to help others to their feet. Without that footing, such a hand would only pull us to lay on the ground beside them, hurting all and helping no one.

We get a financially sound government, debts paid, running a surplus, in the black. *Then* we start talking about what we can do with our extra money, not before.; ▶ Reply to This

Permalink Reply by Matthew - NC on August 25, 2009 at 1:16am: Competition
If as you say the insurance markets are over-centralized, and companies have so much market share that they are able to push prices above the fair market price while keeping smaller competitors out of the market to prevent competition from forcing their prices down, then anti-trust law would be very applicable.

Your argument that insurance is a natural monopoly doesn't really hold water. The reason that utilities are a natural monopoly is because of the massive amounts of infrastructure investment creating a natural barrier against new companies entering the market, much like the way airlines, or other industries where startup costs are exorbitantly heavy. Insurance doesn't have such barriers to entry, as evidenced by the large number of small co-ops and similar local businesses that are always springing up in the states. A company that attempted to establish itself as the sole insurer in a given area, and then overcharge the residents of that area, would soon find itself undercut by a local co-op or rival company moving into that market, barring collusion or political gamesmanship to tilt the playing field (which, if its happening, is an issue to be addressed with anti-corruption and anti-trust measures as I stated above, not with the creation of a government healthcare plan).

However, let's assume I'm wrong and healthcare, as you say, is a natural monopoly, with the entity with the lowest average cost naturally pushing all other players out of the market (due to its ability to then price its products so low that rivals cannot compete). Wouldn't government, with its ability to price its products the lowest, be the natural winner of that monopoly race?

Clearly, in cases such as Medicare, or the VA, it doesn't drive everyone out of the market as a whole, as its role is narrowly defined to a certain segment of the population, but if healthcare is a monopolistic market as you argue, and the government opens up a plan where it competes broadly across the entire market, doesn't it become the monopoly the moment it so chooses? And is that a power we should be pass into its hands without concern?

Cost
Yes, all systems ration. Nowhere have I argued differently, or stated that I "oppose rationing" - don't confuse me with a congressional republican. =)

Now, given that 15% or so of Americans are now uninsured, and we're planning to get them all insured through a public option, unless someone has a secret bunker with a 15% increase in our number of doctors, nurses, hospitals, medicine, scalpals, etc, we are going to see an increase in wait times until our resources catch up to the numbers of patients seeking care (assuming the AMA doesn't keep enrollments low so that we keep our "doctor shortage" and they keep their high salary figures). But that's not the armageddon that certain people make it out to be (on the other hand, its hardly the complete fiction, other people claim it is).

That being said, it's not really fair to say to people who are uncomfortable with that increase in wait time that they aren't entitled to be concerned or upset because "all healthcare systems ration." If someone prefers our current mix of cost-, time-, and quality-rationing, and would rather not sacrifice time for cost, or cost for quality, or time for etc etc etc, they certainly are entitled to push for that preference to be reflected in government policy.

1. State mandatory coverage guarantees coverage, but of what? Broken legs or Botox? Not all coverage is necessary, and when a state mandates coverage of a service that isn't necessary for all people (say, fertility treatments, rather than flu shots), it ends up driving up costs for everyone. Wouldn't it be better to open things up and allow people to build their own insurance plan? Each service you want covered costs a little more, and you get exactly what you pay for. Everyone then has the freedom to customize a plan to their level of need. Then we keep insurance companies' feet to the fire to make sure everyone *actually* gets what they paid for (denying a service that should be covered under a contract is still breaking a contract, after all). And we get more than just "pride in costcutting" we get the ability to minimize our own premiums by purchasing services commensurate with our needs. Someone young like me can buy into a plan with a high deductible (catastrophe insurance), families can get a more expanded plan including flu shots, etc, and no one pays for more than they use.

Again, I never indulged in a rationing argument, so referencing it here doesn't really counter a point I made.

2. Not to be trite, but this argument is kind of misleading. If malpractice insurance premiums correlate to the return on investment on malpractice insurance, and their income comes from premiums, and their expenses are a combination of administrative costs and awards payments, then malpractice insurance premiums are necessarily correlated to malpractice awards. Your argument defeats itself.

3. This was more an item that I wanted to point out because, given our demographic shift, an increase, on average, of an individual's premium for health insurance is, at least to some degree, inevitable. The size of that increase clearly isn't sufficient to account for all the increases we're seeing, but it is a kind of lie-by-omission to ignore our shifting demographics when waving an alarm flag to push reform through.

Implying that I'm a radical might be a nice rhetorical flourish, but that doesn't make it so. The assertion that we can have cost cutting without Universal Healthcare isn't "Radical," it's flat simple truth. In this debate alone we've both touched on all kinds of cost-cutting measures which could be taken without any Universal Healthcare initiative. And they would have a greater effect if taken without such an initiative. It is rather the Left and the Administration that need to stop trying to scare Middle America into line with their public option by pretending that without a Public Option, rising health insurance costs cannot *possibly* be addressed. That's just giving people a false choice between cost measures *with* universal healthcare and absolute destruction. Which just isn't the case.

Number of Doctors
I actually do have to amend my argument here, as I overlooked something foolish. In addition to increasing our number of doctors, we need to have competitive bidding for their services so that costs can come down, rather than just keeping the arbitrary payment levels currently set by Medicare. Since insurance companies use Medicare as a baseline for minimum payment levels, as long as Medicare payments are arbitrarily fixed, there will be an artificial price floor and more doctors will not create more competition.

If we were to allow bidding, and an actual market, however, in concert with increasing our number of specialists, we would see a drop in the cost of their services. Not only that, but our shortage of primary care doctors (much like our shortage of nurses) would lead to higher prices for their services, resulting in more medical school students choosing primary care, and in time, resolving our shortage.

Economics *does* work here, its just that a number of factors are gumming up the works and we need to clean them out. More suppliers still equals lower prices, as long as we don't have a Medicare Price Floor.

Morality

I don't know what to tell you here except that the world *is* "lifeboat morality". Resources are limited, even in a country as prosperous as this, and we allocate those limited resources as best we can to improve our standard of living. The assumption you make when you assert that I'd "let people die to save a buck" (aside from the one about my character) is that I *have* a buck. Our government already does *not* have a buck. That's why estimating it will be over a trillion dollars in the hole this year. We need to stop pretending that Washington DC is a limitless horn of plenty.

The programs that have been worked out abroad have been worked out in countries with different spending commitments, different trade balances, and different debt ratios, and different medical attitudes and industries. That France spends a lower % of its GDP on healthcare than we do is admirable, but how many doctors per capita do they have? How many prescriptions does the average Frenchman take? How often does the average citizen see a doctor, and how long does he see him/her for? How big is their annual deficit/surplus without it and how much national debt are they servicing annually?

Simply making a basic %GDP comparison across countries and then asserting "oh, we can just do what they do" is naive at best. You don't look at your neighbor's budget when you're deciding whether you can afford a new car or not, you look at your own. We can look to foreign nations for examples of cost cutting measures that may be implemented, but when determining whether or not we can afford a proposed solution, we need to look at whether it fits into our budget. And I've got a trillion dollar budget deficit that's telling me that a brand new 100 billion dollar a year health plan doesn't fit without new taxes or cuts to some other services.

Our little boat is filling with water, and we need to be dumping water *out*, not *in*. I'm not in principle opposed to healthcare, or cash for clunkers, or banking bailouts, if we have a surplus we're sitting on and some people need help. Heck, I'd be a lot more sunny on the matter if our leaders were at least being honest about the cuts or taxes elsewhere that were being considered to keep the thing budget neutral (I'd still have personal freedom issues, but at least the "fiscal train wreck" ones I have now would be assuaged). But we don't have a surplus and our leaders aren't talking about the burdens we'll bear to pay for a public option, because it's been judged politically inconvenient. So until I see a black bottom line, I'm gonna push against this, and that's as a man who's gone *without* health insurance in the past when *I* was squeezed out during some hard times.

Hewitt Rose said:
Competition
You ask, why not just break up the large health insurance companies with market power? Mere market power does not violate the anti-trust laws, however bad a result that may be for customers, that's why. There is no legal authority to do so. It may well be that health insurance is a natural monopoly due to network economics and increasing economies of scale. In an unregulated market, when costs decline to the full extent of market demand, the company with the lowest average costs wins the market for itself as a natural monopoly. It then restricts supply and charges monopoly prices. The usual response to natural monopoly is public utility regulation; that is, government price controls. I doubt that would make you happier. You argue, again, that a government-provided health insurance company would necessarily drive out all private competitors. Obviously it doesn't. Some 60% of current health care costs are paid by government programs today, yet private health insurance is still with us. Government can choose to leave room for private insurers or not; there is nothing inevitable about it.

Cost
Cost cutting can work for government programs and could work for Obama's health care plan, if the Republican's would stop screaming about rationing. All health care programs ration, including the present system. Citing the Iraq war as proof all government programs increase in cost is not persuasive. For a more relevant example look at the VA program. It was a mess until the early 1990s until Clinton reformed it. Now it is a model program, one that cut costs and delivered better services. As another example, look to all the other countries that spend far less of their GDP on health care, have universal health coverage, and better health care than the US. It can be done.

Your analysis of what is driving up the cost of coverage sends you off point.

1. Yes state mandatory coverage drives up costs, but it guarantees coverage. So do we continue let insurance companies deny coverage for services and just take pride in our cost cutting? Isn't THAT rationing?

2. The highest estimate of the share of the cost of health care due to malpractice insurance is 10%. Tort reform is an illusion. Several studies have shown that the cost of malpractice insurance does not correlate with medical malpractice awards; they correlate with the return malpractice insurance companies get on their investments. Lower returns, means higher premiums and more blaming lawyers. Of course the companies and health care providers would like to eliminate liability for malpractice altogether, but where does that leave the victims of malpractice? Doctors do not police their own. Without tort liability you and I have no protection.

3. Yes, an older population has higher health care costs. Short of opening the immigration floodgates, there is not much anyone can do about that. It is hardly a criticism unique to Obama's health care proposals.

What is really driving up costs in the present system is growing market power of health insurers and the inherent market distortion of health insurance. For reasons I have stated, reliance on the present system or a free market in health care is a sure path to financial disaster.

You further criticize the Obama proposal for having two goals: universal health insurance and health insurance cost control. There is nothing inconsistent in those goals. Precisely because universal health insurance alone would increase costs, cost control is necessary to make the program affordable. Cost control is further desirable on its own account. Why does the radical right throw sand in the public's eye and claim that we can pursue one goal but not the other?

Number of doctors
You are arguing theory before facts. Don't rely on just me, ask some doctors, do some minimal research. No one doubts that we have an oversupply of expensive specialists and an under supply of cheaper general practitioners. No one doubts that medicine is tilted towards expensive curative treatments prescribed by specialists instead of inexpensive preventative care suggested by GPs. There is little doubt that medical schools make more money churning out specialists than GPs.

Look around you. Classical economic theory does not work in a market as flawed, shot through with externalities (benefits or costs not priced by the market) and as non-competitive as health care.

Morality
You don't really address the fundamental issue of the morality of making money off of sick people instead of treating them. Instead, you argue that we cannot afford to provide for 47 million uninsured Americans causally embracing a form of lifeboat ethics. Presumably, you would just let them die to save a buck.

Universal coverage is not prohibitively expensive. France spends 11% of GNP on health care. The Netherlands spends 10%. We spend around 16% currently, and it's increasing. France and the Netherlands provide universal health care, a higher quality of total care than the US (ranked 36th in the world), and lower waiting time for care than the U.S. Our system is both inefficient and inequitable. We should be able to do as well as France and the Netherlands.

Matthew - NC said:
First off, thanks for the key in for that study. I'll be hunting that down and reading it. =)

Competition However, if, as you say, our problem is overcentralization of market share, resulting in monopolistic market-patterns, why is the response to create a government program, rather than just breaking the monopolies up? The Federal Government didn't create a phone company to "compete" with AT&T, or start an oil company to "compete" with Standard Oil. Breaking monopolies into competing smaller groups is a far more efficient means of creating competition than creating a government monolith to compete with a private monolith. Additionally, the belief that a government-company can solve the a lack of competition in a market carries with it the assumption that the government's presence makes the market more competitive. But, the addition of such a program, with all of its competitive advantages (the ability to run at a long term loss indefinately, to subsidize its customer base with tax payments, to mandate acceptance of it's program and payment levels by doctors & hospitals), drives private insurance *out* of the market, you will end up with *less* competition, rather than more. Kind of like adding a 250 lb boxer to to a 150 lb weight-class tournament. Sure, there's one more guy on the roster, but I'd hardly call the tournament more "competitive" now that he's on the board.

Cost
On the cost issue, I agree that the Trillion over 10 years is a figure that we could not afford. However, I guess I'm more of a cynic/pessimist on the final bill than you are. I know that there has been a lot of talk about the fat cutting, cost saving elements of this biting into the final bill, but when was the last time we ever had a government program actually cost *less* than we expected at the end of the day?

*Cash for clunkers, budgeted a billion dollars, had to be tripled after that ran out after a week
*Medicare, when originally budgeted in 1966 was estimated would cost $12 Billion in 1990 (including inflation). Actual cost in 1990? $107 billion and climbing ever since.
*Estimates of the cost of the Iraq war ranged from $50-200 billion at the outset. It's hard not to laugh reading that now.

Given all that, I am hardly inclined to believe that this "cost cutting," for which a hard number of savings has never been defined, is much more than window dressing. Like cutting a trillion dollar deficit by 50% in 5 years, or trimming a stimulus from $1 Trillion in borrowed money to $787 billion in borrowed money, and declaring "mission accomplished." That estimates show that a program will drive us down the drain at a marginally slower rate than what you originally thought isn't a reason to institute the program.

Additionally, the addition of a government insurer doesn't address a large number of the factors driving up insurance premiums.

1. State discrepancy in coverage regulations. (i.e. a policy in Wisconsin for a family of 4 is far cheaper than a policy with a similar deductible, etc in New York, the reason being that the New York State Government requires all its insurers cover a broader range of add ons, such as in vitro fertilization, which are expensive and unnecessary. But, as insurers can't offer a low-cost plan without those unnecessary procedures, everyone in NY pays for them).
2. Political refusal to address the issue of tort reform, which results in sky-high malpractice insurance costs and drives up the price for all of us in the most litigious society on Earth.
3. The simple fact of an aging population, living longer and giving birth to fewer children. As older people cost more to insure, a change in demographics to have more older people will invariably increase the costs of insurance as a simple matter of course.

Nothing that I have seen in this discussion addresses any of the above (I don't think there's much to do about the 3rd, but I think it is often omitted to make the rising costs seem more alarming), and adding a government run plan to the current system changes nothing. I think we're confusing two issues: Health Care Reform, to address the skyrocketing costs of Healthcare Services in this country, rooted in a belief that the business practices in the current market are unsustainable, and Universal Healthcare, a measure to make sure all Americans can get healthcare, rooted in a belief in a moral imperative to provide medical care to all Americans. The Left is intentionally blurring those two seperate issues to try to make us swallow the latter to get the former, but they are *not* the same issue, and just because a government program accomplishes the one doesn't mean it takes us anywhere on the other.

On number of doctors
I'm just going to have to disagree with you here. I'm not sure what effect more doctors would have on the % of GDP we spend on healthcare as a nation, but multiple providers competing in a given market would invariably reduce the cost of each given service on a per patient visit. Surgeries, checkups, all these things would be less expensive with more providers. Just like a town where many people fix computers will have better deals on computer repair than a town where only one woman knows how to do it. That's why the medical school enrollments are limited every year, to *prevent* a spike in the number of doctors from driving service fees down and reducing their standard of living. And while patients may not take advantage of an increase in doctors to lower their payments, insurance companies sure will. And pass those savings on to their customers by reducing rates to undercut their competition.

Insurance costs to individuals, similarly, could be reduced by loosening regulation to allow more cross-state competition, and allowing a greater variety in terms of covered services. If I'm 26 years old and single, why would I want a plan that covers in-vitro fertilization? I'd rather not pay for that coverage, and thereby obtain a lower rate. Let me customize a plan to pay for what I need, and not for what I don't, rather than force me into one big cover-all plan to eke money out of me for services I'll never use.

On Morality
We recognize a moral imperative to provide emergency services for those in need, but that is not the *only* moral imperative that exists. If providing healthcare to *some* Americans bankrupts *all* Americans, it isn't a proper moral argument that to state that we are morally bound to provide healthcare. Limited resources are a fact, and we must work within that boundary to obtain a better standard of living. To reach beyond it only paves our road to hell with good intentions. Given that we are overextended already, to the tune of over a trillion dollars a year, we need to be retrenching our government now, cutting *back* on services rather than expanding them, *increasing* taxes rather than lowering them, and creating a surplus which can be used to service our debts and get us back to a position of financial strength. Until we're standing on a firm footing, we cannot extend a hand to help others to their feet. Without that footing, such a hand would only pull us to lay on the ground beside them, hurting all and helping no one.

We get a financially sound government, debts paid, running a surplus, in the black. *Then* we start talking about what we can do with our extra money, not before.; ▶ Reply to This

Permalink Reply by Matthew - NC on August 25, 2009 at 9:08am: Number of Doctors, Edited

You know, I've been thinking about this scenario all morning, and I think I need to retract this. Price of respnding at 1AM, I guess, and being too anxious to find a middle ground. The more I've mulled this this morning, the more it seems to me that if I'm an insurance company, and I see a flood of doctors in the market, I'm not going to wait for medicare. I'm going to go to each doctor and say, "This is the number of patients in my plan, and this is the price I want. If you don't like it, we'll go to someone else." I'll use the supply surplus to squeeze them for every nickel I can.

Then, to grow my company and undercut my competition, I'll use those low costs to offer lower premiums and expand my client base, snatching clients away from my competitors. This is the only response to additional doctors entering the market that seems reasonable to me, especially in light of the fact that the AMA limits the supply of doctors (much like OPEC does with Oil) to keep their incomes high. More doctors may or may not result in more primary care docs, but that's not what I asserted. Even if they all follow the current model and become specialists, that helps us by creating a specialists surplus that drives prices of specialist services down.

If you can supply a reasonable explanation of how a surplus of providers will cause the fees for services paid on a per-service basis (that's the figure that's key here, not how much GDP do we spend as a nation, but how much it costs to visit a doctor, have a surgery, get an MRI, etc) to go up, rather than down, I'm anxious to hear it, but it just isn't passing the common sense test on this end.

Don't get me wrong, I have great respect for the use of studies in a debate, but when one flies in the face of all logic (like a corporate global warming study, or a big tobacco cancer study), it doesn't just automatically trump a reasoned argument. I'm going to need a very good, *very* believable explanation to make me buy into the idea that increasing the number of specialist docs in the US would drive the fees for specialist services up, rather than down.

If I'm misinterpreting what you're trying to argue here, feel free to correct me.; ▶ Reply to This

Permalink Reply by Stephanie Engle on August 27, 2009 at 7:21pm: Yeah - I think you're right. I spoke with karen Ignani months ago regarding post hurricane health concerns and wonder how . . .

1) The new health system (let's say HR 676) would be structured - there are few details that elaborate on the numbers -
2) How the already "jobless economy (to use Rep. Sherrod Brown's term) will ABSORB massive lay-offs from the insurance industry: though I am grossly frustrated with the industry (health ins. generally speaking).

I do think a "tighter fee scale" for medical services should be implemented; malpractice premiums slashed; and deductibles should shrink significantly.

It's just out-of-control.; ▶ Reply to This