Comments on Tuesday’s post itemizing medical market failures suggest that many think private insurance fails via excess administrative costs, and via excess costs of enforcing contact details. Private insurers, many think, charge too much and try too hard to renege on their promises. Let me explain why this sounds odd to an economist.
All of the projections I've seen for Medicare are dismal- the costs are projected to go up so much, that we would have to either double taxes or eliminate all other spending to fund it. So obviously, Medicare will have to be slashed. My question is, what would a single payer system do that Medicare doesn't, to avoid the same fate?
That's a terrible op-ed. He argues that health insurance isn't like food, it's like insurance, and then fails to discuss how it's fundamentally different from other insurance markets, which work successfully. It's true that you can't predict whether your house will burn down, but you can and do buy insurance against it and that market works fine.
His point about trust is an interesting one -- we don't trust HMOs to make healthcare decisions for us, and points toward one of the problems (doctors), but doesn't really explore it.
I'm really interested in your using this lens to evaluate Medicare. Medicare is a large government-run health "insurance" system that has incredibly happy users. In what ways does it fail to live up to your ideals?
I'm not sure that single-payer is clearly better, but I'll support it being fundamentally different than food.
In the market for food, I shop for the food, I choose the food, I pay for the food, and I eat and enjoy or not the food. In the market for healthcare, Food is a 2-way interaction.
I purchase insurance from competing options whose differences I can't really tell -- that's if they let me. I ask my doctor -- except the Insurance company tells me which doctor to ask -- who then tells me what services I need. The doctor gives me the services, and then asks the insurance company to pay for the services.
This is also fundamentally different from other insurance in the inclusion of the doctor, and the fact that I'm not insuring against risk or loss -- I'm not buying a certain amount of money in response to certain actions that happen to me -- I'm insuring against the doctor determining that I need a certain service. Since the insurance company determines whether a service is paid for and the doctor determines whether a service is needed, and when, I cannot properly evaluate whether the insurance is adequate to my needs. Health insurance is a 3-way interaction.
Now, if you have another 3-way interaction to compare it to, this might get interesting.
Good explanation for the failure of failure of private insurance.This must be realized by all private insurance company which introducing their products in network marketing companies for mass moving of their products, actually this will give all credits and publicity to the networkmarketing company. But if insurance company realize this all these benifits are for them only.
Government insurance should externalize cost by denying treatment. However, it should be done explicitly. You should know up front what treatments the government will pay for and what they won't. In today's health care world, you do not know what insurance will cover or deny until you ask. Let the private insurance industry fill in the gaps.
If you're 85 years old with an incurable cancer the government should not pay for a hip replacement. That's just stupid. Government should pay for palliative care, but that's all.
There's got to be limits. One of the many problems with the current system is that the limits are not explicit. I wish there was more discussion of limits to health care in the current discussions, but apparently those conversations are off limits for political reasons.
"why couldn’t private insurers make those same production choices? If they could have done so, but didn’t expect consumers to want such a product, then there would have to be some market failure that induces a bad product mix."
Exhibit A: market failure that induces a bad product mix. combine the investor community pressure with the decreased competition (as seen by concentrated regional market shares).
WENDELL POTTER: Well, there's a measure of profitability that investors look to, and it's called a medical loss ratio. And it's unique to the health insurance industry. And by medical loss ratio, I mean that it's a measure that tells investors or anyone else how much of a premium dollar is used by the insurance company to actually pay medical claims. And that has been shrinking, over the years, since the industry's been dominated by, or become dominated by for-profit insurance companies. Back in the early '90s, or back during the time that the Clinton plan was being debated, 95 cents out of every dollar was sent, you know, on average was used by the insurance companies to pay claims. Last year, it was down to just slightly above 80 percent.So, investors want that to keep shrinking. And if they see that an insurance company has not done what they think meets their expectations with the medical loss ratio, they'll punish them. Investors will start leaving in droves.I've seen a company stock price fall 20 percent in a single day, when it did not meet Wall Street's expectations with this medical loss ratio.For example, if one company's medical loss ratio was 77.9 percent, for example, in one quarter, and the next quarter, it was 78.2 percent. It seems like a small movement. But investors will think that's ridiculous. And it's horrible.
Thanks, Psychohistorian... I think I understand what the people who disagree with the current system are thinking a little better now. Don't agree, but I don't think they're crazy.
"Plenty of people will probably choose to go uninsured in this equilibrium, particularly given upper bounds and bankruptcy incentives"
First of all, bankpuptcy is itself a form of redistributist social insurance. Secondly, if we hold redistribution as a normative goal, it's not clear why the government couldn't specialize in insuring the highest-risk portion of the population (so as to set a standard of care) and let everyone else be served by private insurance.
Doug - yes, that's correct. And here's what I think people think is special about education: it's so important that children get it, and that it have a certain content, that the choices of the parents must be overriden, and if the parents cannot afford it (or choose not to pay for it) then it must nevertheless be paid for (meaning the taxpayer pays).
That is nothing about the adversarial relationship. Similarly, I expect that the argument about the adversarial relationship in medicine is a rationalization, and is one of many arguments that people come up with after they have already decided, for other reasons, to advocate single-payer.
If your idea of efficient insurance is that everyone pays roughly the actuarial cost of their insurance plus a small premium for management etc., then your system is entirely nonredistributive and the government can't really have an advantage. Plenty of people will probably choose to go uninsured in this equilibrium, particularly given upper bounds and bankruptcy incentives, though this depends on the legal responsibilities of health care providers.
If you believe that people who have higher actuarial risk should have their costs defrayed by those fortunate enough to have lower actuarial risk, the market will not achieve an efficient outcome with out at least moderate intervention. This system could redistribute based on income, but it need not necessarily. I'd think that most people believe those who are unfortunate (especially for exogenous reasons) should get some kind of subsidy. Hence all the complaints about rejection or discrimination due to pre-existing conditions.
Admittedly, people want others to get this subsidy, but they are not so keen on paying for it.
Arguments that education should be socialized need to show what is special about education, how it is fundamentally different from food, clothing, computers, auto repair, and so on. The adversarial logic of the buyer/seller relationship is something that education has in common with every other market and is thus not a way in which it is fundamentally different.
Explanations of why single-payer systems are better than private systems need to explain why this does not extend to everything. For example, by the same reasoning, single-payer food supply should be superior to private food supply. Granted, there aren't insurance companies involved, but there are relationships whose logic is just as adversarial, since the adversarial logic of the relationship derives from the adversarial logic of buyer/seller relationships, which logic is present in any buyer/seller relationship.
Arguments that medicine should be socialized need to show what is special about medicine, how it is fundamentally different from food, clothing, computers, auto repair, and so on. The adversarial logic of the buyer/seller relationship is something that medicine has in common with every other market and is thus not a way in which it is fundamentally different.
All of the projections I've seen for Medicare are dismal- the costs are projected to go up so much, that we would have to either double taxes or eliminate all other spending to fund it. So obviously, Medicare will have to be slashed. My question is, what would a single payer system do that Medicare doesn't, to avoid the same fate?
That's a terrible op-ed. He argues that health insurance isn't like food, it's like insurance, and then fails to discuss how it's fundamentally different from other insurance markets, which work successfully. It's true that you can't predict whether your house will burn down, but you can and do buy insurance against it and that market works fine.
His point about trust is an interesting one -- we don't trust HMOs to make healthcare decisions for us, and points toward one of the problems (doctors), but doesn't really explore it.
Robin,
I'm really interested in your using this lens to evaluate Medicare. Medicare is a large government-run health "insurance" system that has incredibly happy users. In what ways does it fail to live up to your ideals?
I'm not sure that single-payer is clearly better, but I'll support it being fundamentally different than food.
In the market for food, I shop for the food, I choose the food, I pay for the food, and I eat and enjoy or not the food. In the market for healthcare, Food is a 2-way interaction.
I purchase insurance from competing options whose differences I can't really tell -- that's if they let me. I ask my doctor -- except the Insurance company tells me which doctor to ask -- who then tells me what services I need. The doctor gives me the services, and then asks the insurance company to pay for the services.
This is also fundamentally different from other insurance in the inclusion of the doctor, and the fact that I'm not insuring against risk or loss -- I'm not buying a certain amount of money in response to certain actions that happen to me -- I'm insuring against the doctor determining that I need a certain service. Since the insurance company determines whether a service is paid for and the doctor determines whether a service is needed, and when, I cannot properly evaluate whether the insurance is adequate to my needs. Health insurance is a 3-way interaction.
Now, if you have another 3-way interaction to compare it to, this might get interesting.
Here's more about malfunctioning health insurance markets at baseline scenario:
http://baselinescenario.com...
Your answer please.
I'll let Paul Krugman answer this one.
Why Markets Can't Cure Healthcare
Good explanation for the failure of failure of private insurance.This must be realized by all private insurance company which introducing their products in network marketing companies for mass moving of their products, actually this will give all credits and publicity to the networkmarketing company. But if insurance company realize this all these benifits are for them only.
Government insurance should externalize cost by denying treatment. However, it should be done explicitly. You should know up front what treatments the government will pay for and what they won't. In today's health care world, you do not know what insurance will cover or deny until you ask. Let the private insurance industry fill in the gaps.
If you're 85 years old with an incurable cancer the government should not pay for a hip replacement. That's just stupid. Government should pay for palliative care, but that's all.
There's got to be limits. One of the many problems with the current system is that the limits are not explicit. I wish there was more discussion of limits to health care in the current discussions, but apparently those conversations are off limits for political reasons.
"why couldn’t private insurers make those same production choices? If they could have done so, but didn’t expect consumers to want such a product, then there would have to be some market failure that induces a bad product mix."
Exhibit A: market failure that induces a bad product mix. combine the investor community pressure with the decreased competition (as seen by concentrated regional market shares).
http://www.pbs.org/moyers/j...
WENDELL POTTER: Well, there's a measure of profitability that investors look to, and it's called a medical loss ratio. And it's unique to the health insurance industry. And by medical loss ratio, I mean that it's a measure that tells investors or anyone else how much of a premium dollar is used by the insurance company to actually pay medical claims. And that has been shrinking, over the years, since the industry's been dominated by, or become dominated by for-profit insurance companies. Back in the early '90s, or back during the time that the Clinton plan was being debated, 95 cents out of every dollar was sent, you know, on average was used by the insurance companies to pay claims. Last year, it was down to just slightly above 80 percent.So, investors want that to keep shrinking. And if they see that an insurance company has not done what they think meets their expectations with the medical loss ratio, they'll punish them. Investors will start leaving in droves.I've seen a company stock price fall 20 percent in a single day, when it did not meet Wall Street's expectations with this medical loss ratio.For example, if one company's medical loss ratio was 77.9 percent, for example, in one quarter, and the next quarter, it was 78.2 percent. It seems like a small movement. But investors will think that's ridiculous. And it's horrible.
Thanks, Psychohistorian... I think I understand what the people who disagree with the current system are thinking a little better now. Don't agree, but I don't think they're crazy.
"some extra insurance technology only available to government insurers. But what could that extra tech be?"
Huh??? Taxes and machine guns, obviously.
"Plenty of people will probably choose to go uninsured in this equilibrium, particularly given upper bounds and bankruptcy incentives"
First of all, bankpuptcy is itself a form of redistributist social insurance. Secondly, if we hold redistribution as a normative goal, it's not clear why the government couldn't specialize in insuring the highest-risk portion of the population (so as to set a standard of care) and let everyone else be served by private insurance.
Doug - yes, that's correct. And here's what I think people think is special about education: it's so important that children get it, and that it have a certain content, that the choices of the parents must be overriden, and if the parents cannot afford it (or choose not to pay for it) then it must nevertheless be paid for (meaning the taxpayer pays).
That is nothing about the adversarial relationship. Similarly, I expect that the argument about the adversarial relationship in medicine is a rationalization, and is one of many arguments that people come up with after they have already decided, for other reasons, to advocate single-payer.
If your idea of efficient insurance is that everyone pays roughly the actuarial cost of their insurance plus a small premium for management etc., then your system is entirely nonredistributive and the government can't really have an advantage. Plenty of people will probably choose to go uninsured in this equilibrium, particularly given upper bounds and bankruptcy incentives, though this depends on the legal responsibilities of health care providers.
If you believe that people who have higher actuarial risk should have their costs defrayed by those fortunate enough to have lower actuarial risk, the market will not achieve an efficient outcome with out at least moderate intervention. This system could redistribute based on income, but it need not necessarily. I'd think that most people believe those who are unfortunate (especially for exogenous reasons) should get some kind of subsidy. Hence all the complaints about rejection or discrimination due to pre-existing conditions.
Admittedly, people want others to get this subsidy, but they are not so keen on paying for it.
Arguments that education should be socialized need to show what is special about education, how it is fundamentally different from food, clothing, computers, auto repair, and so on. The adversarial logic of the buyer/seller relationship is something that education has in common with every other market and is thus not a way in which it is fundamentally different.
Explanations of why single-payer systems are better than private systems need to explain why this does not extend to everything. For example, by the same reasoning, single-payer food supply should be superior to private food supply. Granted, there aren't insurance companies involved, but there are relationships whose logic is just as adversarial, since the adversarial logic of the relationship derives from the adversarial logic of buyer/seller relationships, which logic is present in any buyer/seller relationship.
Arguments that medicine should be socialized need to show what is special about medicine, how it is fundamentally different from food, clothing, computers, auto repair, and so on. The adversarial logic of the buyer/seller relationship is something that medicine has in common with every other market and is thus not a way in which it is fundamentally different.