Senators Mobilize to Protect Insurance Industry from Competition
Olympia Snowe (R-ME) and Mary Landrieu (D-LA)
Olympia Snowe is open to a compromise on a public option, but she wants a “trigger” mechanism in order to protect private health insurance firms from the threat of “unfairly” needing to compete with cheaper alternatives:
In an Associated Press interview in Portland, Snowe said it would be unfair to include a government-run health insurance option that would take effect immediately.
“If you establish a public option at the forefront that goes head-to-head and competes with the private health insurance market … the public option will have significant price advantages,” she said.
A significant price advantage is, of course, a good thing if you’re interested in delivering quality affordable coverage to everyone. Cheaper is a good thing. But not to Senator Snowe. As Chris Bowers says “It is pretty amazing that many moderates and industry figures are actually arguing that the problem with including a public option in health care reform legislation is that a public option would lower the cost of health insurance.” Unfortunately, it’s not just a handful of moderates. The more liberal of the two Senate committees working on health reform has come up with a weak public option that would do some good but ultimately lack significant cost advantages over private insurance.
It’s worth noting that in Maine (see PDF) 78 percent of the insurance market is controlled by a single firm, WellPoint.
74 Responses to “Senators Mobilize to Protect Insurance Industry from Competition”
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June 30th, 2009 at 2:30 pm
“There is no distinctly native American criminal class except Congress.” — Mark Twain
June 30th, 2009 at 2:32 pm
It’s also worth noting that her top two contributors are the finance/insurance and health industries:
http://www.opensecrets.org/politicians/industries.php?cycle=2010&cid=N00000480&type=I
June 30th, 2009 at 2:34 pm
A significant price advantage is, of course, a good thing if you’re interested in delivering quality affordable coverage to everyone.
It is not a good thing if it is cheaper because it is subsidized by the taxpayers.
June 30th, 2009 at 2:35 pm
I thought the whole point of health care reform was to rein in out of control costs.
June 30th, 2009 at 2:42 pm
Has anyone proposed that the public plan be subsidized by taxpayers?
June 30th, 2009 at 2:43 pm
If government health has a price advantage then why is Medicare unsustainable? It seems that medicare has a price disadvantage, it cannot continue services with the current prices.
This is, once again, CAP changing the accounting rules to favor their particular program.
June 30th, 2009 at 2:44 pm
It’s also worth noting that her top two contributors are the finance/insurance and health industries
In Snowe’s case, I don’t think it really matters. She is exceptionally popular in her state and doesn’t have to fear a challenge from the right or any Democrat. She just appears to be really “moderate”.
June 30th, 2009 at 2:53 pm
Olympia Snowe wants a trigger before ‘a government-run plan that would take effect if the private insurance market fails to deliver affordable coverage’.
I don’t need Olympia Snowe controlling a trigger. The whole point of a government option is that I would be able to choose ‘a government-run plan that would take effect if the private insurance market fails to deliver affordable coverage’. I don’t need Olympia Snowe’s help to do that.
But then, of course, she knows that.
June 30th, 2009 at 2:54 pm
The more liberal of the two Senate committees working on health reform has come up with a weak public option that would do some good but ultimately lack significant cost advantages over private insurance.
I don’t think Matt is justified in claiming this. It is true it is possible that the public option would end up with merely average costs, but I think it is more likely that HHS would be able to negotiate relatively low costs.
Anyway, I am fairly confident the “progressives” in the Senate and House aren’t going to fall for this trigger nonsense, which should be sufficient to kill it.
June 30th, 2009 at 3:00 pm
are these senators effectively restraining trade?
June 30th, 2009 at 3:02 pm
Re John
Has anyone proposed a public plan not subsidized by taxpayers? I always thought subsidies were a given.
June 30th, 2009 at 3:02 pm
At what point will someone call Matt on his bullshit? Public plans like Medicare and Medicaid, and the proposed public plan if it pays Medicare reimbursement or close to it, are subsidized by private insurance. Increasing the number covered under these plans will only exacerbate the subsidy, eventually driving the private insurers out of business.
One of two things has to be true: either Matt knows about the subsidy and the effect of bringing more people onto a public plan and he is being disingenuous to score partisan points, or he is unaware of the subsidy and thus completely unqualified to write about this topic. So he’s either a liar or he’s full of shit.
This is probably 10-15 posts in the last few weeks on this topic, each one more dishonest than the last. How long can someone get away with spewing such utter nonsense before someone besides random commenters calls him on it?
June 30th, 2009 at 3:03 pm
I’m so tired of this stupid posturing about protecting “competition” in what is essentially an industry controlled by price-fixing monopolies and the fatuousness of our media who can’t ever seem to point this out. AGGGH!
June 30th, 2009 at 3:04 pm
When I have talked to my more conservative friends about the public option lately, they have all been under the impression that the public option could be run at a loss so as to create an impossible competition scenario for private insurers. I started thinking about it and couldn’t find any info about whether or not the public option would be allowed to do that. I don’t think it would be fair to allow the public option to operate at a loss. Would that, indeed, be the case?
June 30th, 2009 at 3:17 pm
Increasing the number covered under these plans will only exacerbate the subsidy, eventually driving the private insurers out of business.
The horror!
June 30th, 2009 at 3:19 pm
[T]hey have all been under the impression that the public option could be run at a loss so as to create an impossible competition scenario for private insurers.
Why would a government sponsored public plan, running at a loss, necessarily create “an impossible competition scenario for private insurers”? Isn’t Amtrak a government sponsored institution that operates at a loss? That hasn’t put all other modes of transportation out of business. As far as I can tell, people still take cars or airplanes. Why wouldn’t it be the same for health insurance?
I’m legitimately asking, since I have no clue.
June 30th, 2009 at 3:20 pm
Yes, heaven fucking forbid we show any concern or interest in taking care of our fellow citizens. After all, I may have to pay an additional $50 a year!! OH NOEZ!!!!11!!eleven!!11!
You know, for a bunch of people who claim to be devout little Jesus followers, conservatives don’t seem big on that whole “helping the sick and poor” part of the story.
For them, compassion should be tossed aside if it interferes with corporate profits, or when it may cost them less than a few bucks a month.
What a bunch of greedy, self-centered pricks.
June 30th, 2009 at 3:21 pm
Public plans like Medicare and Medicaid, and the proposed public plan if it pays Medicare reimbursement or close to it, are subsidized by private insurance.
Care to explain this? Are you trying to say that Medicare et al are “subsidized by private insurance” because they reimburse at lower rates than the private plans? Because if so, you seriously misunderstand the definition of the word subsidize.
June 30th, 2009 at 3:22 pm
I don’t think it would be fair to allow the public option to operate at a loss.
Let’s rephrase this. If insurance companies can deny people with pre-existing conditions insurance as the only way for them to make a “profit”, then it is moral and ethical to justify the availability of healthcare solely on the basis of whether or not it operates at “a loss”? Is that fair? once you start getting into the *necessity* of profit in decisions which have immmense impacts on peoples’ lives, then I’m not sure that the word “fair” should be used as justification for the profit.
I would think that, since the right wing perceived wisdom is that the government couldn’t run a lemonade stand, then surely there surely there should be some players in the open market who could provide what the government would do, but at a profit. If they can’t, then is it “fair” to everyone who’s lives and health are at stake to have to sacrifice themselves and their health so as to justify profit in the industry?
Along the same lines, shouldn’t we question whether it is “fair” for the government to provide education and defense to the populace when that is clearly taking away “profit” from private market providers? That can’t be “fair”, can it?
June 30th, 2009 at 3:31 pm
Actually, I have a feeling that the public option or any new scheme of government subsidized health care will help speed up the process of the US government going out of business.
June 30th, 2009 at 3:36 pm
Re golddog
Your Amtrak example doesn’t make sense to me. Instead, suppose the government sponsors a car company — and decides that it’s okay to run it at a loss as long as everyone has an electric car.
But examples aren’t even necessary. Sure, public plans might leave the higher-end market open to private insurers. But whichever market the public plans cover will probably be closed to the private sector, since there’s no way for private companies to impose taxes on non-customers in order to charge customers less. It will be “impossible” for private insurers to compete in this market.
June 30th, 2009 at 3:40 pm
Wasteful healthcare has been our fastest growing industry, responsible for the bulk of growth in private sector GDP for years. Healthcare inefficiency is still one of the few things Americans do better than anyone else. To some, “controlling costs” is just killing off a very successful sector of our economy.
June 30th, 2009 at 3:48 pm
As long as we keep talking about this issue as if it were, say, tennis lessons, instead of health care, then we are not getting to the point.
Those on the right (mostly) who suggest that this is about “competition” or “the free market” (which is never free, but let’s set that aside), argue about health care as though it were some marginal activity that, while involving large sums of money, is the same as other leisure activities. So if we were talking about running tennis lessons for free by offering large subsidies, people might well cry foul that doing so is a waste of taxpayer money and a burden on free enterprise.
But this is health care. Providing the means to be healthy, stay healthy, recover from injuries, disease, aid the elderly and the young who can’t help themselves. People’s lives are being ruined and people are suffering and the discussion is at this point stuck to the profit motive? Or the marginal costs?
I guarantee you the stupidest, most selfish parts of this debate (in DC, mostly, and on cable news) are being run and articulated by people who have NEVER had to worry about this issue in a close-up fashion.
June 30th, 2009 at 3:51 pm
Care to explain this? Are you trying to say that Medicare et al are “subsidized by private insurance” because they reimburse at lower rates than the private plans? Because if so, you seriously misunderstand the definition of the word subsidize.
Yes, that it what happens, and no, I do not misunderstand the meaning of the word subsidize. Medicare/caid reimburse at such a low rate that hospitals and doctors lose money on those patients. They make this up by charging more to private insurers. The private insurers subsidize the public plans. It is not that difficult to understand.
Increasing the number covered under these plans will only exacerbate the subsidy, eventually driving the private insurers out of business.
The horror!
Maybe you were too quick to post your snark and forgot about that fact that without the private insurers to subsidize the public plans there is no longer enough money to cover the cost of care. Maybe you should focus a little more on building a sustainably financed system rather than wanting to get revenge on the evil private insurers.
June 30th, 2009 at 3:57 pm
duckhawk:
I think I understand what you’re saying, but I still have a few questions. Why are we assuming that people will automatically switch to the government plan? Yes, the government has access to more money, but I don’t see how that necessarily equates to a better plan (aren’t large government bureaucracies inefficient; I would think that private companies could try to do more with less).
Even if the plan the government offered is definitively better in quality and price, then from the perspective of the consumers, we’re still winning because we can now choose a cheaper and better plan. A public plan seems to maximize coverage for the consumer.
I’m a big fan of competition, but only because it brings down prices for the consumer. I would rather have a scenario where we can achieve a lower price with less competition than a scenario where we preserve competition, but keep a higher price level.
June 30th, 2009 at 4:08 pm
You’re assuming that the government will subsidize a public plan more heavily than it subsidizes private plans. Government currently subsidizes private insurers by about $150 billion a year through tax deductions and another $40 billion for medicare part d subsidies. Considering projected price increases, that will mean about $2.5 to 3 trillion in government subsidies to private insurance over the next 10 years.
June 30th, 2009 at 4:15 pm
Wait, so the insurance companies being “subsidized” by refusing to pay for treatment for the sick is okay, but the government plan – required to pay for everyone – can’t be subsidized at all?
What kind of moron thinks this makes sense?
June 30th, 2009 at 4:21 pm
Not really a good example, Amtrak isn’t a perfect substitute for other forms of transportation.
Still, the Herfindahl-Hirschman index for health insurance companies on a state by state basis is pretty damn high.
June 30th, 2009 at 4:25 pm
The bills being floated right now don’t exclusively subsidize the public option. Instead, lower-income people would get subsidies they could use for any of the plans in the Exchange (or “Gateway”, or whatever they end up calling it).
Cross-subsidies would arise only if providers are required to accept payment from the public option at rates below incremental cost. Of course, if the public plan does something as simple as use its scale to negotiate relatively low rates, critics will call that a cross-subsidy.
June 30th, 2009 at 4:25 pm
Please direct me to the shareholder lawsuits directed at hospitals to force them to stop accepting medicare and medicaid patients. If they don’t exist, then hospitals are not losing money on those programs.
Hospitals are incurring opportunity costs by accepting these patients, not losses. While a hospital could make more treating a privately insured patient, they don’t lose money treating a medicare patient. The proof is, they accept them.
Another side to this is that the medicare patients subsidize capacity. Remember, the alternative to medicare patients are not privately insured patents, it is some privately insured patients and some empty beds. While a hospital may incur opportunity costs treating some medicare patients, they gain profit by having a medicare patient instead of an empty bed.
There are some institutions that find that their opportunity costs for treating medicare patients are larger than those of having empty beds. They don’t accept medicare patients.
June 30th, 2009 at 4:38 pm
Wait, so the insurance companies being “subsidized” by refusing to pay for treatment for the sick is okay
Yes, they refuse to pay so much that they pay out 80% of premiums in claims, and earn 5% profit margins. Pure evil!
June 30th, 2009 at 4:39 pm
Another side to this is that the medicare patients subsidize capacity. Remember, the alternative to medicare patients are not privately insured patents, it is some privately insured patients and some empty beds. While a hospital may incur opportunity costs treating some medicare patients, they gain profit by having a medicare patient instead of an empty bed.
Indeed. As I would put it, a cross-subsidy from A to B occurs only if the price charged to B is less than the incremental cost of serving B, and the price charged to A is greater than the total stand-alone cost of serving A. And in voluntary transactions, providers shouldn’t be serving Medicare patients at less than incremental cost.
June 30th, 2009 at 4:42 pm
Please direct me to the shareholder lawsuits directed at hospitals to force them to stop accepting medicare and medicaid patients. If they don’t exist, then hospitals are not losing money on those programs.
Hospitals are incurring opportunity costs by accepting these patients, not losses. While a hospital could make more treating a privately insured patient, they don’t lose money treating a medicare patient. The proof is, they accept them.
Hospitals operate at a -9.7% margin on Medicare and -14.7% on Medicaid. They are losing money. Do the Medicare/caid patients make a contribution to fixed expenses? Of course they do, it is not a -100% operating margin, but the simple fact is that hospitals and doctors need private insurance to make up for underpayment from these programs, and all the furor about the evil private insurers and how they should go out of business is going to leave us holding the bag for those costs.
June 30th, 2009 at 4:45 pm
And in voluntary transactions, providers shouldn’t be serving Medicare patients at less than incremental cost.
There are many reasons providers are compelled to accept Medicare patients beyond just the cost of providing the care (i.e. it not completely voluntary), and the cost becomes less of a concern for them when there are privately insured patients to make up the difference.
June 30th, 2009 at 4:52 pm
Hospitals operate at a -9.7% margin on Medicare and -14.7% on Medicaid.
But again, the relevant question is price versus incremental cost.
There are many reasons providers are compelled to accept Medicare patients . . . .
“Compelled”? What do you have in mind?
. . . cost becomes less of a concern for them when there are privately insured patients to make up the difference.
Prices below incremental costs should always be a concern, even for non-profits. But I’m not convinced yet that is really going on.
June 30th, 2009 at 4:54 pm
You’re confusing “losing money” with “not making as much as they want.” There is a difference.
It’s simple: Doctors who oppose a public insurance plan do so because they will no longer be able to charge whatever the holy hell they want like they do now.
For example, next time you go to the doctor, ask them for how much your procedure/exam/whatever is going to cost. Not in terms of copays, but what they will actually charge for the procedure.
They won’t because they can’t. It’s different depending on which insurance you have because of the way the system is set up. As of now, doctors and hospitals literally charge as much as they can to see what sticks. Depending on your insurance, they write off a certain amount due to their contracts with different insurers. You’re left paying the difference, up to an out-of-pocket max.
But if you don’t have insurance, you don’t get a discount. There is no write off. You have to pay 100% of the cost — as cost usually yanked out of thin air.
(Note: I’ve worked in medical billing and for an insurance company, and have had two back surgerie. So I have an understanding of our health care system that most would never want, and I wouldn’t wish on anyone.)
It’s a stupid system, and any comprehensive reform MUST include billing reform: letting patients know up front what it will cost. Considering it’s the only industry that fails to do this, I think it’d go a long way to having better-educated and informed consumers.
Great point, and totally true.
It’s stunning that everyone I know who has had, or has a loved one with, a major health issue is for a public plan, while those who have never gone through such misfortune don’t see the need. There’s also assholes like John McCain who rail against government health care … even though he’s had government-ran health care his entire life.
If conservatives want to fight against health care, fine. But I don’t want to hear them bitch when they’re seen as industry lackeys who don’t give a shit about their fellow Americans’ health because it interferes with corporate profits.
June 30th, 2009 at 4:59 pm
So you are telling me that only 4/5ths of the money paid to insurance companies is actually used for treatment? The rest goes to profit and overhead? Sounds like a rather inefficient way to provide healthcare. Even if the government merely managed to remove the drag from profits it would cut costs 5% – without having done anything about the other inefficiencies – merely taking you at your word.
But somehow you think that the 20% waste that comes from the insurance industry is nothing to be concerned about, and you don’t mention the waste at the doctor’s end – requiring a staff just to deal with billing, yet another source of wasted funds.
But the dumbest thing is that you think that the 5% profit is what makes me loathe the insurance companies. You, sir, are an idiot. It is not the profits that are the problem – it is the denial of care, refusal to pay, and the generally heavy hand of the insurance companies trying to secure their profits at the expense of the health of those they are insuring that makes them evil you ignorant twit.
June 30th, 2009 at 5:02 pm
Link?
Also, the constant worry about profits shows why the health care discussion in this nation is so screwed up: people like AB are more worried about a hospital’s profit margin than they are about providing needed care to their fellow Americans.
Nice priorities.
Oh, and last I checked, the Hippocratic oath didn’t include, “And you are entitled to make a healthy profit.” Lots in there about helping others and doing no harm, but nothing about having the right to a Lexus instead of a Honda.
June 30th, 2009 at 5:33 pm
To take AB’s side for a change, people should worry about profits, or at least costs. Our capacity to spend on healthcare is limited, as it should be. Being mindful of costs makes the healthcare buck go further. Paying people to worry about this provides a net benefit to us all. I don’t begrudge someone making a profit for providing a beneficial service. If the profit goes away, so will the service.
Do you think you should not worry about whether you make money or not while performing your job? Does your job impact anyone’s health? If it doesn’t, why aren’t you dedicating whatever it takes to improve someone’s healthcare that next little bit?
June 30th, 2009 at 5:36 pm
It might be worth it if insurerers performed the funtion of keeping costs down, but they don’t. All they provide is risk spreading. That isn’t worth it.
June 30th, 2009 at 5:51 pm
AB:
“Hospitals operate at a -9.7% margin on Medicare and -14.7% on Medicaid.”
I’ve had several doctors I know tell me that Medicare reimbursement rates are becoming the norm for private insurors, so I don’t know where you’re getting your stats. Medicaid reimbursement rates are lower than private insurors, but as others have pointed out, you need to learn the meaning of opportunity cost, also known as “something is better than nothing.”
June 30th, 2009 at 5:55 pm
Njorl–
Show me where I posted that we shouldn’t worry about costs. They are a huge concern that the private health insurance market has proven itself incapable of handling well.
But AB isn’t show any concern about costs – he’s worried about profits. If he were concerned about costs, he’d be whining about the 20% administrative overhead in the private insurance sector. He’d be asking why doctors charge $600 for a ten minute appointment. Why patients get four bills from five places for one office visit.
He’s not. He’s whining about profit margins. Big difference.
June 30th, 2009 at 6:41 pm
And Co-President Snowe is yet another beneficiary of state and federal legislator health benefits her entire post-graduation life.
Medicare/caid reimburse at such a low rate that hospitals and doctors lose money on those patients.
Based on what, you fucking shill? The hourly cost of running an office that needs to employ five billing clerks to deal with private insurance profiteers?
June 30th, 2009 at 6:48 pm
Wellpoint ripped off the gov`t to the tune of $400 million dollars,so the point of a cheaper public option is good for all and will run at a low overhead, imagine that 2to3 percent vs 30 percent.I`ll take a public option that won`t deny me because of my medical past.Rick Scott ripped off Medicare to the tune $1.7 billion,money before people is disgusting.This is the saddest commentary on health care today.The re-pukes are pro-life and pro-death penalty and for the health insurance companies that rip off the tax payers who ultimately foot the bill for them ripping off medicare.
June 30th, 2009 at 9:49 pm
As other people have pointed out, the reason people have a problem with a public plan is because people are worried that it can undercut private insurers unfairly, because (according to this concern) it does not have to make the books balance while private companies do. That is, it could undercut all private competition by operating at a loss.
Moreover, I question how true it is that Medicare has low, low, low administrative costs. If they truly have 5% or less administrative costs (I recall hearing something like this) compared to 15% for private insurers, then where does the savings come from? Does Medicare just have no paperwork?
I rather suspect that a lot of the savings come either from pawning the administration costs off on the hospitals, and other parts of the savings come from having administrative work done off budget. For example, are administrative offices for Medicare rented from the government using Medicare money (paid into the general fund) or is Medicare run out of government offices using general fund money? If the latter, then that is essentially a general fund subsidy of Medicare.
This is what people are afraid of; that the government plan will undercut private insurers by cheating on the bookkeeping.
June 30th, 2009 at 10:18 pm
I was speaking with The Mrs about his, and here’s the thing we don’t get:
The average American with insurance pays $12K a year when all is said and done — premiums, copays, etc.
The average American family makes $40Kish a year.
So if we went with a fully gov’t-ran plan, and charged everyone an extra 10% in taxes for it, the average American family would wind up $8,000 ahead!
Yet if anyone proposed a 10% tax increase, people would go ballistic, even though they’d save a small car each year.
Why the hell is that? Why can’t anyone with authority point out the sheer, mind-numbing stupidity of our current system when framed as above?
A majority of Americans are already okay with paying more for universal coverage. If someone presented it like this, the momentum would be unstoppable, IMHO.
June 30th, 2009 at 10:22 pm
[...] ~ June 30th, 2009 There is an increasing tendency among pundits to note that one insurance company controls most of the insurance plans in a state. This company is [...]
June 30th, 2009 at 10:29 pm
What you suspect is very different from what you can support, isn’t it Glaivester?
But never mind that. Let’s compare two companies. One, using every tool at its disposal finds ways to avoid covering anyone who might cost them money and, when confronted with those it has mistakenly covered, finds ways to avoid paying then uses this to rid themselves of such troublesome individuals. The other takes any and all comers, without regard to all of those issues that the first uses to ensure profitability.
Which one do you think will run at a profit? Why?
This is a point that all the fucking morons whining about an unfair playing field want to ignore. The playing field will be unfair – to the government. And the current system does not work.
Defenders of the status quo haven’t explained what they would do. Those who do end up with dumb ass solutions that merely extend the status quo by forcing individuals to fund ever greater insurance company profits.
One dipshit even suggested that there be a lifetime cap – ensuring that all a company needs to do is charge more over the expected lifetime than that cap and – tada – profit is ensured. Sure, that’s a really fucking stupid idea, but there you go, that’s the quality of “ideas” from idiot insurance company shills.
June 30th, 2009 at 11:04 pm
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July 1st, 2009 at 1:13 am
Some dipshit must be thinking that insurance companies generate charges for medical services. Sheesh, what a moron.
Anyone who believes that service or payment is not denied in government paid health care systems is too stupid for words.
July 1st, 2009 at 1:41 am
AMERICA’S NATIONAL HEALTHCARE EMERGENCY!
It’s official. America and the World are now in a GLOBAL PANDEMIC. A World EPIDEMIC with potential catastrophic consequences for ALL of the American people. The first PANDEMIC in 41 years. And WE THE PEOPLE OF THE UNITED STATES will have to face this PANDEMIC with the 37th worst quality of healthcare in the developed World.
STAND READY AMERICA TO SEIZE CONTROL OF YOUR NATIONAL HEALTHCARE SYSTEM.
We spend over twice as much of our GDP on healthcare as any other country in the World. And Individual American spend about ten times as much out of pocket on healthcare as any other people in the World. All because of GREED! And the PRIVATE FOR PROFIT healthcare system in America.
And while all this is going on, some members of congress seem mostly concern about how to protect the corporate PROFITS! of our GREED DRIVEN, PRIVATE FOR PROFIT NATIONAL DISGRACE. A PRIVATE FOR PROFIT DISGRACE that is in fact, totally valueless to the public health. And a detriment to national security, public safety, and the public health.
Progressive democrats the Tri-Caucus and others should stand firm in their demand for a robust public option for all Americans, with all of the minimum requirements progressive democrats demanded. If congress can not pass a robust public option with at least 51 votes and all robust minimum requirements, congress should immediately move to scrap healthcare reform and request that President Obama declare a state of NATIONAL HEALTHCARE EMERGENCY! Seizing and replacing all PRIVATE FOR PROFIT health insurance plans with the immediate implementation of National Healthcare for all Americans under the provisions of HR676 (A Single-payer National Healthcare Plan For All).
Coverage can begin immediately through our current medicare system. With immediate expansion through recruitment of displaced workers from the canceled private sector insurance industry. Funding can also begin immediately by substitution of payroll deductions for private insurance plans with payroll deductions for the national healthcare plan. This is what the vast majority of the American people want. And this is what all objective experts unanimously agree would be the best, and most cost effective for the American people and our economy.
In Mexico on average people who received medical care for A-H1N1 (Swine Flu) with in 3 days survived. People who did not receive medical care until 7 days or more died. This has been the same results in the US. But 50 million Americans don’t even have any healthcare coverage. And at least 200 million of you with insurance could not get in to see your private insurance plans doctors in 2 or 3 days, even if your life depended on it. WHICH IT DOES!
If President Obama has to declare a NATIONAL STATE OF EMERGENCY to rescue the American people from our healthcare crisis, he will need all the sustained support you can give him. STICK WITH HIM! He’s doing a brilliant job.
THIS IS THE BIG ONE!
THE BATTLE OF GOOD Vs EVIL!
Join the fight.
Contact congress and your representatives NOW! AND SPREAD THE WORD!
God Bless You
Jacksmith – WORKING CLASS
July 1st, 2009 at 1:53 am
Wow, Will Allen shows himself to be a complete moron by failing to understand simple English and instead creating some alternate reading – but you can’t really expect Will “Let’s get some brown people killed for my comfort” Allen to fight anything more than strawmen.
You know, if he were somewhat less stupid he might be able to point out where anyone suggested that a government system wouldn’t deny care. Hm…arguing against points not made, creating arguments out of whole cloth. Yep, it must be our favorite sociopath and supporter of torture (voting for guys who signed off on torturing people to death – good job fuckwit) Will “if people exceed their lifetime cap I’m perfectly willing to let them die” Allen.
July 1st, 2009 at 2:10 am
What you suspect is very different from what you can support, isn’t it Glaivester?
The point I am making is that saying that the public plan can undercut private plans or that there is no way for private plans to compete (at least in terms of price) with the public plan is not the same thing as saying that the public plan is more efficient.
July 1st, 2009 at 7:44 am
It is indeed a common talking point to complain that Medicare has “hidden” administrative costs due to various functions being performed by the government “off the books”. The big ones include tax collection as a substitute for acquiring premiums (including things like marketing), and Congress as a substitute for executive-level management. The basic problem with this talking point is similar to what we were discussing above: only the relevant incremental costs can be attributed to Medicare, and those will be quite low. For example, we have not actually added any more members of Congress thanks to having Medicare, so you can actually attribute no costs as far as salaries, benefits, and so on for members of Congress to Medicare, since none of those costs are incremental.
Moreover, even when people have overstated these costs and attributed them to Medicare, Medicare has still ended up with much lower administrative costs. So the next trick people play is to start calculating costs per capita instead of costs as a percentage of claims paid. This, of course, makes no sense, and it makes a difference only because claims paid per capita is high for Medicare due to the population it serves.
So, Medicare does in fact have lower administrative costs. And to the extent that is in part because it can make use of government services at a low incremental cost, that doesn’t make those cost savings any less real.
July 1st, 2009 at 10:46 am
the next trick people play is to start calculating costs per capita instead of costs as a percentage of claims paid. This, of course, makes no sense, and it makes a difference only because claims paid per capita is high for Medicare due to the population it serves.
No, that makes perfect sense to calculate them per capita, because the entire reason people mention the admin costs is to point out how much cheaper the gov’t can do it, but by moving younger, healthier people onto a public plan you will not get admin costs that are as low as Medicare because the claim costs are lower.
But DTM, the real issue is that in the big picture the admin costs don’t really matter that much. It’s not even worth wasting much time discussing. Cost growth is the problem. Wipe out private admin costs and profits and all you’ve done is buy yourself a couple of years. It is a red herring.
Way too much insanity happened in between comments to address it all, but this one is worth replying to:
But the dumbest thing is that you think that the 5% profit is what makes me loathe the insurance companies. You, sir, are an idiot. It is not the profits that are the problem – it is the denial of care, refusal to pay, and the generally heavy hand of the insurance companies trying to secure their profits at the expense of the health of those they are insuring that makes them evil you ignorant twit.
If denial of care and refusal to pay are so prevalent, why is it that costs continue to grow so rapidly, and why do insurers still pay such a high percentage of premiums out in claims? The cognitive dissonance must be deafening for you. On one hand the private insurers have failed us by not controlling costs, but on the other they just deny care and refuse to pay claims. So which one is it? And will the government not need to have a heavy hand to control costs? Can you address actual arguments or are we just here to call names?
July 1st, 2009 at 10:50 am
longtime Ezra Klein commenter wisewon (it’s a shame that he comments so infrequently since Ezra’s move to WaPo) sums things pretty nicely here:
http://voices.washingtonpost.com/ezra-klein/2009/07/a_smart_critique_of_the_public.html
And for those asking for my source for the private/public cost shifting numbers, the Milliman study is here:
http://www.milliman.com/expertise/healthcare/publications/rr/pdfs/hospital-physician-cost-shift-RR12-01-08.pdf
July 1st, 2009 at 12:27 pm
No, that makes perfect sense to calculate them per capita, because the entire reason people mention the admin costs is to point out how much cheaper the gov’t can do it, but by moving younger, healthier people onto a public plan you will not get admin costs that are as low as Medicare because the claim costs are lower.
This still makes no sense. There is no reason to assume that Medicare’s per capita administrative costs would stay the same if you expanded the program to cover younger people with fewer claims per capita. In other words, a person sitting at home healthy doesn’t impose much in the way of administrative costs on their health insurance provider (except the costs of collecting their premiums, where again Medicare has a large natural advantage).
But DTM, the real issue is that in the big picture the admin costs don’t really matter that much. It’s not even worth wasting much time discussing. Cost growth is the problem. Wipe out private admin costs and profits and all you’ve done is buy yourself a couple of years. It is a red herring.
This also makes no sense. It is true that reducing administrative costs ALONE won’t be enough to solve all the problems with health care. But it is worth discussing because unnecessary administrative costs certainly contribute to the inefficiency of our health care system on a cumulative basis. In other words, every year we spend something like 10-15% on unnecessary administrative costs is going to amount to a huge waste of resources, and that will continue to be true even if we manage to do a better job controlling cost growth.
If denial of care and refusal to pay are so prevalent, why is it that costs continue to grow so rapidly, and why do insurers still pay such a high percentage of premiums out in claims?
You do realize there is an answer to this apparent paradox, right? A higher amount of spending on health care is good for health insurance companies PROVIDED that they can collect enough in premiums to make a steady profit margin on that spending. So, they have an incentive to encourage certain forms of spending in order to be able to justify collecting more in premiums, thereby increasing their profits. In other words, no one would buy insurance that didn’t cover anything, so a profit-maximizing insurance company has to pick SOMETHING to cover.
But they also have an incentive to discourage other forms of health care spending, namely in cases where they can’t expect to collect enough in premiums to profit. So, for example, that is the basic logic behind the preexisting conditions issue: not covering the relevant claims helps maximize their profits, because they can’t expect to collect enough in premiums to make a steady profit in covering those claims.
And will the government not need to have a heavy hand to control costs?
Yes, ANY insurance scheme requires rationing of some sort (something many defenders of the status quo are reluctant to admit). But because the government’s goal won’t be profit-maximization, they can instead seek to approve those claims which have the greatest impact on health outcomes, not those claims which maximize their profits. And that can lead to a more efficient overall system.
July 1st, 2009 at 12:49 pm
And for those asking for my source for the private/public cost shifting numbers, the Milliman study is here . . . .
Ah yes, an industry-commissioned study. As I suspected, it goes off track right in the definitions. It defines a “cost shift” as “the difference between the actual payment and the payment amount that would have resulted in an equal margin by payer.” It then describes such cost shifts as a “subsidy” (or “hidden tax”). But again, that isn’t the proper definition of a cross-subsidy. For this to be a cross-subsidy, the price for Medicare patients would have to be below incremental cost, AND the price for private insurance patients would have to be above stand-alone cost.
But maybe they really did figure out the aforementioned hospital “margins” for Medicare patients in terms of incremental costs . . . no, of course they didn’t. They allocate all operating expenses “in proportion to billed charges” using “a single hospital specific cost-to-charge ratio to allocate expenses”. This methodology necessarily allocates both incremental AND a proportionate share of non-incremental costs to Medicare patients. Again, that is the wrong measure of costs if you are trying to determine if there is a cross-subsidy.
So to sum up, this industry-commissioned study actually failed to demonstrate that there is a real cross-subsidy going on. Which makes sense–again, we really shouldn’t expect hospitals and other providers to be voluntarily taking on Medicare patients if they are systematically getting compensation less than their incremental costs.
July 1st, 2009 at 1:35 pm
This still makes no sense. There is no reason to assume that Medicare’s per capita administrative costs would stay the same if you expanded the program to cover younger people with fewer claims per capita. In other words, a person sitting at home healthy doesn’t impose much in the way of administrative costs on their health insurance provider (except the costs of collecting their premiums, where again Medicare has a large natural advantage).
The point is not that the per capita admin costs stay the same, the point is that the percent of claims numbers so frequently cited are misleading and so the gap between public/private is much much smaller than the 3%/20% numbers people love to toss around. Your healthy person sitting at home does not impose much in the way of admin costs on a public or a private insurer, so I’m not sure why you’d even mention that.
This also makes no sense. It is true that reducing administrative costs ALONE won’t be enough to solve all the problems with health care. But it is worth discussing because unnecessary administrative costs certainly contribute to the inefficiency of our health care system on a cumulative basis. In other words, every year we spend something like 10-15% on unnecessary administrative costs is going to amount to a huge waste of resources, and that will continue to be true even if we manage to do a better job controlling cost growth.
You are mistakenly assuming that much of those costs are pure waste and unnecessary spending. Private insurers do a much better job at preventing fraud, so those are dollars well spent. And a lot of those expenses are money spent to try and control costs, something that the public plan is going to have to do as well if we’re going to slow cost growth, so the gap between public/private shrinks even more. Of course they won’t ever converge, since the public plan does not need to earn a profit, but like I’ve said repeatedly, those percentages are for practical purposes irrelevant, because all it does is slightly delay but not prevent our health spending from consuming the entire economy.
A higher amount of spending on health care is good for health insurance companies PROVIDED that they can collect enough in premiums to make a steady profit margin on that spending. So, they have an incentive to encourage certain forms of spending in order to be able to justify collecting more in premiums, thereby increasing their profits. In other words, no one would buy insurance that didn’t cover anything, so a profit-maximizing insurance company has to pick SOMETHING to cover.
It is not an answer to the paradox at all. Do you really think the insurers are fine with the runaway cost growth because they get a slice? That’s not true at all, because the cost growth is completely unsustainable and threatens their entire business model. If you really think that the mentality is “8% medical trend? No problem, we’ll get 5% of a bigger pie” then you honestly know very little about what it takes to run a health insurer. Any insurer run with that mentality would be out of business in a few years.
But they also have an incentive to discourage other forms of health care spending, namely in cases where they can’t expect to collect enough in premiums to profit. So, for example, that is the basic logic behind the preexisting conditions issue: not covering the relevant claims helps maximize their profits, because they can’t expect to collect enough in premiums to make a steady profit in covering those claims.
That is not at all the logic behind pre-ex, so your point is just completely false. The logic behind pre-ex is twofold: 1)covering them is completely antithetical to the concept of insurance, and 2)the anti-selection inherent to covering pre-ex conditions (in the absence of a mandate) would wipe out an insurer overnight. An insurance policy is supposed to protect you from unforeseen occurences, not just be a third-party to pay your completely predictable bills.
Yes, ANY insurance scheme requires rationing of some sort (something many defenders of the status quo are reluctant to admit). But because the government’s goal won’t be profit-maximization, they can instead seek to approve those claims which have the greatest impact on health outcomes, not those claims which maximize their profits.
So then they should show that they can do that with Medicare before moving even more people into an unsustainable system. This idea of “We have a public plan that we’ve failed to put on a path to sustainability, but trust us, we’ll do it this time” is ludicrous.
And as for people being reluctant to admit that rationing is necessary, I think you’ll find that is a much bigger problem for those advocating a government-run plan. Insurers did a good job of rationing care with HMOs in the 1990’s, and the public revolted.
July 1st, 2009 at 1:57 pm
Ah yes, an industry-commissioned study.
Somehow I knew that ad hominem would be the first order of business.
It defines a “cost shift” as “the difference between the actual payment and the payment amount that would have resulted in an equal margin by payer.” It then describes such cost shifts as a “subsidy” (or “hidden tax”). But again, that isn’t the proper definition of a cross-subsidy. For this to be a cross-subsidy, the price for Medicare patients would have to be below incremental cost, AND the price for private insurance patients would have to be above stand-alone cost.
This is absolutely false. You accuse them of going off-track when your definition is almost nonsensical. Your focus on incremental cost is way off-base, and just serves to understate the extent to which private insureds cover the cost of those on public plans.
They allocate all operating expenses “in proportion to billed charges” using “a single hospital specific cost-to-charge ratio to allocate expenses”. This methodology necessarily allocates both incremental AND a proportionate share of non-incremental costs to Medicare patients.
And your point is? You absolutely should allocate a portion of non-incremental costs to Medicare patients. The cost of treating them is not just the incremental cost, of course you have to allocate a proportionate share of fixed expenses to those patients. Their methodology put public and private insureds on an apples to apples basis, you’re suggesting they should cherry pick costs to make it look like Medicare reimbursement covers the cost of providing care, which it clearly doesn’t.
So to sum up, this industry-commissioned study actually failed to demonstrate that there is a real cross-subsidy going on.
So you’re going to question the professional integrity of these actuaries when you are the one making fallacious remarks on how to evaluate the costs? Excellent
Which makes sense–again, we really shouldn’t expect hospitals and other providers to be voluntarily taking on Medicare patients if they are systematically getting compensation less than their incremental costs.
Yes we would, because they just pass on that cost to the rest of us. And 27% of them don’t take on those patients, because they cannot get enough extra payment from private insureds to cover the costs. And that number grows as more of them cannot afford it.
July 1st, 2009 at 2:16 pm
The point is not that the per capita admin costs stay the same, the point is that the percent of claims numbers so frequently cited are misleading.
You haven’t shown that comparison is “misleading” just by showing that if you adopted an alternative basis for comparison, a basis that makes no sense to adopt, then you would get a different answer. Instead, first you have to show that this alternative basis is the better one, and you can’t, because it clearly isn’t.
Your healthy person sitting at home does not impose much in the way of admin costs on a public or a private insurer, so I’m not sure why you’d even mention that.
Think it through: it demonstrates why a per capita measure of health insurance administrative efficiency makes no sense. Of course I agree it makes no sense for both Medicare and private insurers alike, which is also why it makes no sense to use it as a basis for comparing them. Which is my point.
Private insurers do a much better job at preventing fraud, so those are dollars well spent.
To the extent you can quantify and demonstrate the truth of that claim, using rigorous methods, I would be happy to deduct the necessary costs from the comparison. In doing so, don’t forget to account for false positives (claims denied on the grounds of fraud which are not in fact fraudulent).
but like I’ve said repeatedly, those percentages are for practical purposes irrelevant, because all it does is slightly delay but not prevent our health spending from consuming the entire economy.
You can say this as many times as you like, but it still doesn’t make sense. Both controlling cost growth AND eliminating unnecessary costs are important, because even if we control cost growth, unnecessary costs will be wasting resources on a cumulative basis.
Do you really think the insurers are fine with the runaway cost growth because they get a slice? That’s not true at all, because the cost growth is completely unsustainable and threatens their entire business model.
I am happy to consider the possibility that there might be some amount of total spending on health care that even the health care insurance industry would voluntarily like to avoid. Collective action problems may keep them from achieving such a goal, however, and more importantly there is no guarantee that this amount would be anything close to the optimal amount for the country as a whole.
The logic behind pre-ex is twofold: 1)covering them is completely antithetical to the concept of insurance, and 2)the anti-selection inherent to covering pre-ex conditions (in the absence of a mandate) would wipe out an insurer overnight. An insurance policy is supposed to protect you from unforeseen occurences, not just be a third-party to pay your completely predictable bills.
This is just a more jargon-laden way of saying what I said: insurance companies don’t cover these cases because doing so would be unprofitable for them in light of the premiums they could collect. I fully realize that is a basic feature of for-profit insurance schemes (that is rather the point: see below).
So then they should show that they can do that with Medicare before moving even more people into an unsustainable system. This idea of “We have a public plan that we’ve failed to put on a path to sustainability, but trust us, we’ll do it this time” is ludicrous.
And by this same logic it is equally “ludicrous” to rely on the private insurance industry to control costs, since they have failed to do so as well. Accordingly, we have to look outside the U.S. for examples of health insurance systems that are doing a better job of controlling costs.
And as for people being reluctant to admit that rationing is necessary, I think you’ll find that is a much bigger problem for those advocating a government-run plan.
I agree all sides to these debates have a tendency to point at the other side’s rationing as if they didn’t have to ration themselves. Myself, I am perfectly willing to keep stating that ALL insurance schemes require some kind of rationing.
The question then becomes on what basis we will ration. If we want to ration by ability to pay–as we of course do with many sorts of good and services–then a private insurance model makes sense. If we instead want to ration on the basis of health outcomes, then a private insurance model doesn’t make sense. And that is basically the choice we have to make, with the rest of this back and forth really just being an exercise in alternatively obscuring and then restoring a clear sense of that choice.
July 1st, 2009 at 2:42 pm
Somehow I knew that ad hominem would be the first order of business.
The Latin phrase you were looking for was “cui bono”.
You accuse them of going off-track when your definition is almost nonsensical. Your focus on incremental cost is way off-base, and just serves to understate the extent to which private insureds cover the cost of those on public plans.
“My” definition of cross-subsidies is the standard definition of cross-subsidies in economic literature. By the way, this is the sort of thing peer review is designed to deal with.
Their methodology put public and private insureds on an apples to apples basis, you’re suggesting they should cherry pick costs to make it look like Medicare reimbursement covers the cost of providing care, which it clearly doesn’t.
No, I am suggesting that they should have used the standard definition of a cross-subsidy if they want to claim there is a cross-subsidy. As for whether Medicare “covers the cost of providing care”, we can’t answer that question with this study, because the study simply assumes away the need to determine the actual costs in question. Again, a peer-reviewed study would presumably not be making these mistakes.
So you’re going to question the professional integrity of these actuaries when you are the one making fallacious remarks on how to evaluate the costs?
Again, I would be happy to subject my definition of cross-subsidies to neutral peer-review. Maybe they would too, but all we know is that they didn’t do so.
Yes we would, because they just pass on that cost to the rest of us.
It also doesn’t make sense that “the rest of us” would put up with that. That is part of the logic of the standard definition of a cross-subsidy: if they are charging us more than our stand-alone costs, we should be able to take that money and fund an alternative which doesn’t charge us a cross-subsidy.
But even if for some reason we had no such alternative, it wouldn’t make sense for them to take that money from us and then use it to subsidize Medicare patients. Instead, they should just take it as profits (or salaries and gold-plating, if they are a non-profit).
And 27% of them don’t take on those patients, because they cannot get enough extra payment from private insureds to cover the costs.
Or, more likely, because for 27% of them they wouldn’t get revenues over incremental costs by covering those patients, but for 73% of them they do. In other words, your raw data (minus your analysis) is actually consistent with providers just making normal economic decisions.
July 1st, 2009 at 2:51 pm
You haven’t shown that comparison is “misleading” just by showing that if you adopted an alternative basis for comparison, a basis that makes no sense to adopt, then you would get a different answer. Instead, first you have to show that this alternative basis is the better one, and you can’t, because it clearly isn’t.
I’m sorry, but you are just completely 100% wrong here. It’s not that difficult to understand, but I guess I’ll have to use some numbers to show you why.
Assume you have two insurers, each with 1000 members. Insurer A has members with avg claims of $1000/year, Insurer B’s members have avg claims of $2000/year, so the pure premium (i.e. before any loading for expenses/profit/etc) is $1M for A and $2M for B. Since both insurers are the same size they have the same fixed expenses of $100K per year. The variable costs are a percentage of claims, let’s say 5% for both, $50K and $100K of variable costs respectively. So total expenses are $150K and $200K, and the expense ratios as a percent of the pure premium are 15% and 10% (150K/1M and 200K/2M). Look, one might say, Insurer B is so much more efficient than insurer B, their expense ratio is so much lower. But on a per member basis, Insurer A only has expenses of 150/mem compared to 200/mem for B.
You can substitute in different numbers to get a closer comparison between Medicare and a private insurer, but the point remains the same, you cannot compare the expenses as a percent of premium or claims when your two populations have a radically different amount of claims/member, because the mix between fixed and variable costs will lead you to a very misleading conclusion. In this scenario, even if we assume Insurer A really is way less efficient and its variable costs are 15% of claims compared to 5% for B, the expense ratio difference of 25% vs 10% looks far worse than the more apples to apples exp/member comparison of $250 vs $200. No one is suggesting that Medicare does not actually have lower expenses than private insurance, but throwing out the flawed and misleading numbers calculated as a percent of claims is a very bad comparison. The gap is not nearly as big as the numbers usually tossed around would suggest.
July 1st, 2009 at 3:11 pm
“My” definition of cross-subsidies is the standard definition of cross-subsidies in economic literature. By the way, this is the sort of thing peer review is designed to deal with.
No, I am suggesting that they should have used the standard definition of a cross-subsidy if they want to claim there is a cross-subsidy.
So you’d rather play semantics games instead of addressing the real point, that the total costs of providing care to Medicare patients are not covered by the revenue they receive, and they make up the difference by charging more to everyone else. Without everyone else to pick up the ab those reimbursements are unsustainable.
As for whether Medicare “covers the cost of providing care”, we can’t answer that question with this study, because the study simply assumes away the need to determine the actual costs in question. Again, a peer-reviewed study would presumably not be making these mistakes.
It does not assume away anything. You can compare directly the price paid for services between the two populations, and you know how much profit the hospital made. It’s not that difficult to understand. Again, some numbers:
If the Toyota dealership charges you $95 for a Corolla because you’re a member of their club and charges me $155 for the same car, with an underlying cost of goods sold of $100 each they make $50 in profit . They sold you yours at a 5% loss, and made up the difference by making a 55% profit on me. That is a cost shift, and that is what happens in hospitals today. If everyone becomes a member of the Toyota club they can’t sell them cars at $95 each anymore.
July 1st, 2009 at 3:29 pm
Since both insurers are the same size they have the same fixed expenses of $100K per year. The variable costs are a percentage of claims, let’s say 5% for both, $50K and $100K of variable costs respectively.
You assume here that there are large “fixed” costs, or, more properly, costs that arise on a per capita basis. In one of your two cases, those costs are actually twice the size of their per claim costs.
But why on earth should I believe that is a plausible assumption? Again, the person sitting at home healthy imposes very little in the way of administrative costs on the insurer (particularly if that insurer is Medicare). So, a realistic assumption should have the costs per capita being much, much smaller than the costs per claim.
You can substitute in different numbers to get a closer comparison between Medicare and a private insurer, but the point remains the same, you cannot compare the expenses as a percent of premium or claims when your two populations have a radically different amount of claims/member, because the mix between fixed and variable costs will lead you to a very misleading conclusion.
Again, unless there are actually a lot of administrative costs for the person sitting at home healthy, the per claims measure is going to be much, much closer to the ideal measure than a per capita measure.
Now if your argument is now just that there is some small error in the comparison due to the relatively small portion of administrative costs that are per capita, then fine–there is probably some such small error. But again, it is nonsensical to actually try to swap per capita for per claim, because that is undoubtedly introducing a much larger error.
The gap is not nearly as big as the numbers usually tossed around would suggest.
You really have not proven this at all. Assuming, as is plausible, that the per capita costs are very small in comparison to per claims costs, particularly for Medicare, then at most the gap is only going to be slightly smaller, or in other words it is in fact going to be nearly as big, should we even bother to correct for this very minor source of error.
July 1st, 2009 at 3:45 pm
So you’d rather play semantics games instead of addressing the real point, that the total costs of providing care to Medicare patients are not covered by the revenue they receive, and they make up the difference by charging more to everyone else. Without everyone else to pick up the ab those reimbursements are unsustainable.
It is not just semantics: the study doesn’t actually prove any of those conclusions–rather, it simply assumes those conclusions in its definitions. And again, peer review probably would have caught this and saved us a lot of pointless discussion.
You can compare directly the price paid for services between the two populations, and you know how much profit the hospital made.
But you are obviously missing a crucial kind of information: detailed information about costs. Again, this is what the study just assumes away when it allocates costs.
If the Toyota dealership charges you $95 for a Corolla because you’re a member of their club and charges me $155 for the same car, with an underlying cost of goods sold of $100 each they make $50 in profit .
See, here you have included in your hypothesis the incremental cost of the good, namely $100. Similarly, it appears you have also assumed that is the stand-alone cost. Fine, by assumption this is a clear cross-subsidy case: one person buys the good below incremental cost, and one person buys it above stand-alone cost.
But again, your Medicate study doesn’t actually provide the incremental and stand-alone costs necessary to make that determination. It simply assumes they are equal, and yet that is not a valid assumption (indeed, it is almost surely wrong).
They sold you yours at a 5% loss, and made up the difference by making a 55% profit on me.
Finally, note this makes no sense: they shouldn’t sell me mine if they are taking a loss (in the real world they might if those costs were sunk, but that wan’t in the hypothetical and it actually changes the analysis). Rather, they should just take the profit they can make on selling you yours and call it a day. Meanwhile, you really ought to be doing some comparison shopping, don’t you think?
July 1st, 2009 at 3:55 pm
You assume here that there are large “fixed” costs, or, more properly, costs that arise on a per capita basis. In one of your two cases, those costs are actually twice the size of their per claim costs.
Cut them in half to $50K, so that the fixed costs are much smaller percentage of the total. Using the “A is less efficient” per claims assumption of 15% vs 5% for B. You end up with expense ratios of 20% and 7.5%, leading one to think B is nearly 3 times as efficient, while per member the difference is only 200 vs 150. The per capita number is the important one because it represents what each person is paying in admin costs. You don’t get higher premiums because you have more claims, so each member would pay that same amount.
But why on earth should I believe that is a plausible assumption? Again, the person sitting at home healthy imposes very little in the way of administrative costs on the insurer (particularly if that insurer is Medicare). So, a realistic assumption should have the costs per capita being much, much smaller than the costs per claim.
There are a lot of fixed costs. An insurer needs a building with electricity and running water, executives, actuaries, underwriters, call center reps, etc. There is also the large upfront cost of acquiring a policyholder that is capitalized over the life of the policy. Even if a person is not submitting claims there are fixed expenses that must be allocated.
Again, unless there are actually a lot of administrative costs for the person sitting at home healthy, the per claims measure is going to be much, much closer to the ideal measure than a per capita measure.
How can you say this when I’ve just shown that differing claim experience amongst two populations wildly distorts the true efficiency of an insurers admin costs?
You really have not proven this at all. Assuming, as is plausible, that the per capita costs are very small in comparison to per claims costs, particularly for Medicare, then at most the gap is only going to be slightly smaller, or in other words it is in fact going to be nearly as big, should we even bother to correct for this very minor source of error.
You’re assuming away the most critical piece when you actually have no working knowledge of the actual expense structure. Why you think you’re qualified to do so is beyond me. And you’re missing the key point; people assume a public insurer would be able to match the low admin costs of Medicare, when in reality the lower avg claim amount exaggerates how low the admin costs really are.
July 1st, 2009 at 4:05 pm
Finally, note this makes no sense: they shouldn’t sell me mine if they are taking a loss (in the real world they might if those costs were sunk, but that wan’t in the hypothetical and it actually changes the analysis). Rather, they should just take the profit they can make on selling you yours and call it a day.
See, this illustrates perfectly how you just are not understanding this. You can sell some things at a loss when others are there to make up the difference. Why can I buy a plane ticket for less than the cost of the fuel to get me there? Because business class purchasers will pay extra and last minute business travelers will pay
whatever price they charge because they need to fly today.
Meanwhile, you really ought to be doing some comparison shopping, don’t you think?
As should people seeking health care, but they don’t do it because third party payment has reduced incentives to control cost to virtually zero.
July 1st, 2009 at 4:19 pm
Cut them in half to $50K, so that the fixed costs are much smaller percentage of the total.
Try at least an order of magnitude less and get back to me.
There are a lot of fixed costs. An insurer needs a building with electricity and running water, executives, actuaries, underwriters, call center reps, etc.
To support your example, you need costs for those things to vary with the number of insured, but not with the number of claims. Most of what you are citing wouldn’t be like that (e.g., you can bet more claims means more activity for the call center).
How can you say this when I’ve just shown that differing claim experience amongst two populations wildly distorts the true efficiency of an insurers admin costs?
Because your hypothetical case depended on wildly implausible assumptions about costs. That is what the “unless there are actually a lot of administrative costs for the person sitting at home healthy” part of my statement was referring to.
You’re assuming away the most critical piece when you actually have no working knowledge of the actual expense structure.
If you have real, verifiable, numbers to support the magnitudes in your hypothetical, feel free to share them.
And you’re missing the key point; people assume a public insurer would be able to match the low admin costs of Medicare, when in reality the lower avg claim amount exaggerates how low the admin costs really are.
You mean higher average claim amount. Anyway, I already acknowledged there may be some slight error of the kind you described. You have just given me no reason to believe the magnitude of that error is anything more than tiny in the case of Medicare.
July 1st, 2009 at 4:30 pm
See, this illustrates perfectly how you just are not understanding this. You can sell some things at a loss when others are there to make up the difference.
But why would you?
Why can I buy a plane ticket for less than the cost of the fuel to get me there? Because business class purchasers will pay extra and last minute business travelers will pay
whatever price they charge because they need to fly today.
And again, you demonstrate why you need to pay careful attention to what is an incremental cost and what is not. In your car case, selling another car cost the dealer another $100, so it makes no sense to sell another car at $95. But in this case, since the plane is already going anyway, the incremental cost of filling what would otherwise be an empty seat is going to be very small, and so it makes sense to give you a ticket for a low price as long as it is above that small incremental cost. Of course, if the incremental fuel used just due to the weight of you and your luggage itself cost more than your ticket, they actually shouldn’t fill that empty seat with you. And in fact they won’t sell you a ticket under those circumstances, because that would be stupid.
As should people seeking health care, but they don’t do it because third party payment has reduced incentives to control cost to virtually zero.
I’m not sure what you have in mind here. If I started an insurance company that refused to mindlessly cross-subsidize other patients, and thereby I could charge less in premiums, you are telling me that I couldn’t get anyone to buy my policies?
July 1st, 2009 at 5:09 pm
But why would you?
Seriously? You don’t know why any business sells stuff at a loss? You don’t understand that there can be strategic reasons to do so? Do you think the big for-profit hospital systems could get the growth and market share they want with the negative stigma of not covering Medicare patients? You don’t think there is political pressure to cover Medicare patients. You’ve never heard someone talk about a particular unprofitable aspect of a given business model as a “cost of doing business”?
Medicare is not a “loss leader” in the sense of many consumer goods, but there are some similarities there. You seem to suggest that no business ever loses money on the incremental cost of a transaction. Best Buy loses plenty on the people who buy nothing but CD’s there, which they sell below the cost they paid for the actual disc, i.e. the incremental cost. It’s OK, because know some of them will buy Monster cables and extended warranties to make up for it. If everyone started buying nothing but CD’s, the cost of the CD’s would have to go up.
I’m not sure what you have in mind here. If I started an insurance company that refused to mindlessly cross-subsidize other patients, and thereby I could charge less in premiums, you are telling me that I couldn’t get anyone to buy my policies?
I’m saying that one of the reasons costs are so high is because when someone else pays all the bills you have no incentive to be cost-conscious or to make sure you’re getting the most cost-effective treatment.
July 1st, 2009 at 9:55 pm
Medicare is not a “loss leader” in the sense of many consumer goods, but there are some similarities there.
“Loss leaders” are properly understood as a form of marketing for other products, and so actually the “loss” should just be treated as a cost attributable to those other products. I don’t see how that is supposed to apply to Medicare, and even if that was true it would also suggest you were entirely wrong about the economic relationship here: Medicare would necessarily be making providers more profitable through this marketing effect, as opposed to Medicare cutting into their profits.
In any event, you haven’t even come close to proving providers are actually systematically taking a loss on Medicare patients anyway–certainly the study you cited did not do the work necessary to prove that.
I’m saying that one of the reasons costs are so high is because when someone else pays all the bills you have no incentive to be cost-conscious or to make sure you’re getting the most cost-effective treatment.
Yes, that is what is known as a moral hazard problem: once a person has insurance, they may lose the incentive to do things like negotiate rates. But insurance companies are supposed to be dealing with that problem through their own rate negotiations with providers. So if the private insurance companies are systematically failing to deal with the moral hazard problem through their rate negotiations, that indicates a mass failing on their part, and would provide all the more reason to replace them as soon as possible.
July 2nd, 2009 at 9:30 am
“Loss leaders” are properly understood as a form of marketing for other products, and so actually the “loss” should just be treated as a cost attributable to those other products. I don’t see how that is supposed to apply to Medicare, and even if that was true it would also suggest you were entirely wrong about the economic relationship here: Medicare would necessarily be making providers more profitable through this marketing effect, as opposed to Medicare cutting into their profits.
Um, did you notice I said it is not a loss leader in the traditional sense, just that there were similarities? There are reasons beyond cost that providers feel compelled to accept Medicare.
In any event, you haven’t even come close to proving providers are actually systematically taking a loss on Medicare patients anyway–certainly the study you cited did not do the work necessary to prove that.
Yes it did, you just incorrectly dismiss their methods. The fact that you find yourself more qualified to analyze hospital and doctor cost data than health actuaries is laughable. We’ve got countless anecdotes of doctors leaving Medicare because reimbursement is too low, and the one study we have indeed shows that reimbursements are too low, but you reject all of that out of hand with nothing to back you up besides this idea that they take Medicare so that in itself must mean the reimbursements are adequate.
Yes, that is what is known as a moral hazard problem: once a person has insurance, they may lose the incentive to do things like negotiate rates. But insurance companies are supposed to be dealing with that problem through their own rate negotiations with providers. So if the private insurance companies are systematically failing to deal with the moral hazard problem through their rate negotiations, that indicates a mass failing on their part, and would provide all the more reason to replace them as soon as possible.
Insurers do negotiate rates with providers, but they have much less control over growth in utilization, and the one time they tried to control utilization (HMOs) the public rejected it. When they try to control costs by not paying for certain treatments that are unnecessary they are demonized for denying care. Public opinion does not allow the insurers to control costs in the way that is needed. It is either disingenuous or very ignorant to suggest that the insurers are at fault for not controlling costs.
July 2nd, 2009 at 12:42 pm
And hey, what do you know
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