Healthcare Crisis: Step 1 Get the States Out
The government is beginning again on its long and to date ill-fated trek into the world of healthcare. We have all heard the cries about rising costs, the aging population and millions of uninsured. The task is daunting and I like the consensus building that President Obama is beginning prior to crafting an ultimate strategy.
Competition has a bad name these days, but it is what drives efficiencies and costs reductions more aggressively than any other factor. Right now, State by State regulation of health insurers prevents open competition in many parts of our country.
These regulations require separate corporate entities in each state, differing reuired coverages, and layers of fees, costs, rules and regulations. Each State adds layers of costs to every insurer. Most important, however, State regulations help prevent smaller players with innovative ideas from getting started. The State-by-State regulatory gauntlet is too great a barrier to entry into the markets.
Unlike the past, nearly all companies are multi-state. Most, even the smallest producers and service providers, are national or international in scope. State control is no longer relevant.
If we want to really make headway in crafting a strategy, we should take baby steps.
Step One should be to nationalize regulation of the health insurance industry, pre-empting the separate regulations of the States. This would open competition, reduce costs and expand options for everyone.
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46 Responses to “Healthcare Crisis: Step 1 Get the States Out”
There are so many potential solutions like this one which have not been attempted (another obvious one is delinking insurance from employment by ending the tax advantage of employer based health insurance.)
And then there's some real innovative thinking that might help the markets function better in health insurance, and could eliminate the problem of losing insurance coverage when you become chronically ill. Here's an article analyzing one such proposal, and the original article by John Cochrane published at Cato.
Actually, though, I didn't consider carefully what the author here is proposing. Instead of nationalizing the regulation of the insurance industry, there are very good reasons for using the same construct we use with other corporate regulation- let each state regulate and let corporations decide which state's regulations to work under. That way the state's compete to create regulations which are effective but not overly cumbersome.
CS – I think the term you're looking for is “race to the bottom”. Corporations don't want effective regulations and if you give them the opportunity to bribe their way to freedom they might just take it.
By the way, what happens to people who are unable to afford the expected cost of their medical problems?
I must agree with Ryan on this one. The health corps will just go to the state with the least amount of regulation. I'm a big federalist, but I believe regulation needs to be at the federal level on something as big as health care.
Yes, competition and lack of real oversight worked so well on Wall Street.
Rudi, as I'm sure you're aware, you're pointing out an example of failure to regulate at the national level, which has nothing to do with whether individual states will appropriately keep regulations rigorous enough to protect consumers.
I wrote another comment which is pending in moderation (replied to Ryan vis disqus) but I'll just note that apparently I was mistaken in thinking that people here could think past black and white “corporations=evil, regulations=good”.
As I said in that other pending comment- why would any of you believe that a state government would allow regulations to get that lax in order to lure an insurance company? Do you know of any examples of other industries (which currently are able to choose which state's regulations they want to abide by) are allowed to run amok because of a state that would rather get the business located there than keep adequate oversight?
Obama is building a consensus? Really? Where? According to this article in yesterday's New York Times, the House Dems writing the health care bill aren't even letting OTHER DEMOCRATS give input.
http://www.nytimes.com/2009/05/12/us/politics/1…
Obama's campaign line about working both sides of the aisle was just that – a line. And it pisses me off.
Corporations aren't evil, but they're not really moral entities at all. They can't be trusted to do anything beyond what is profitable. Hence regulation, which makes certain undesirable activities unprofitable.
As for the states… well, how much looser are you willing to make the rules in exchange for thousands of jobs and a nice infusion of tax revenue? Especially if you're a small one.
LOL, treen, well, it's a consensus among those who are allowed to express an opinion because they hold the consensus opinion. Anyone else, including moderate Democrats, can STFU.
Well, again, Ryan, we allow that kind of competition between the states for all kinds of other industries, so can you name an example where you believe there's been a rush to the bottom that harmed the consumers because of a state having lax regulation in order to lure business to their state?
Not a one. Hmm. Course, I can't really name an example where it benefited anyone either. (Et tu?) That one gets chalked up to ignorance, though. About the only other comment on that particular issue though is loosening the corporate leash seems to be a bit of a magic cure-all these days.
Credit Cards.
Fair enough, DQ. I was actually surprised that Ryan punted because I thought that there probably were some examples. I guess with regard to healthcare though, I presume that state governments will be aware that they're under scrutiny to keep rational oversight in place.
See, pushing for an answer even when you assume there's a decent one available can sometimes pay off. ^_^ ('Tis but a scratch, though.)
Speaking of which, what happens to people who are unable to afford the expected cost of their medical problems? Is there really any kind of corporate solution to that?
Ryan: “Speaking of which, what happens to people who are unable to afford the expected cost of their medical problems?”
Since we're talking about costs now, I suppose its fair to take a look at all of the new 'sin taxes' that are coming to help fund this overahaul:
http://online.wsj.com/article/SB124208505896608…
First it was tobacco, but now its soda, fats, and <gasp!> beer.
Since the market is always right, they get the privilege of dying early and in pain…
I'm going to toss in a reply to DQ to avoid some of the unnecessary back and forth to get to my point. (If I'm going about this the wrong way, feel free to point it out.)
I'm going to anticipate the free-market proponents not going with the “dying early and in pain” part. If you can't afford the expected cost of your health care, then you either a) gamble with no or partial insurance or b) find money to pay for insurance elsewhere, say, from the government.
Thus, if we have the government paying you money to buy the insurance you can't otherwise afford, they're paying for 1) the actual cost of your insurance and 2) profit for the insurance company. Wouldn't it be cheaper then to cut out the third party and just have the gov't give you health insurance?
Ryan: no, it wouldn't be cheaper, for the same reason it wouldn't be cheaper to have the government take over all the gas stations and grocery stores and Taco Bells.
Dr J: The corporate solution isn't much of a solution, given that it can never get everyone covered. Someone is always going to be too poor to pay for it, and it seems these days there's a lot of someones.
I would also like to point out that gas stations, grocery stores and Taco Bells provide things. Insurance companies give you your (collective) own money back, although they will try their best not to. (A dead customer is never unsatisfied!) It seems like a prime candidate for nationalization, considering that health care is only optional when dying is an acceptable outcome.
The state of NY was also supposed to regulate. But the Dems were bought off and neglected to watch over the mess.
Ryan, agreed, the poor are always going to need help. But today even the middle class can't afford their medical bills, which are continuing to grow. Demanding that a smaller and smaller fraction of the population pay the bills for a larger and larger majority plainly won't work. The only sustainable system is one where the average person can afford the average lifetime's health care.
You folks on the left have the strangest way of talking about insurance companies. You seem to figure that for a few thousand bucks a year, they should be able to keep everyone from dying (or spend millions trying). Those strike me as very high expectations. Meanwhile you complain they don't provide anything, while lamenting the many people forced to live without their services. How you're figuring the government can square this circle is quite a mystery.
There seems to be an implicit assumption that the federal government is somehow going to be better or more efficient than what we already have, whether we're talking about insurance commissions or healthcare insurance. My response is generally to look at what the federal government is already doing with TriCare, the VA and Medicare. Medicare is going bankrupt, the great majority of doctors in my area do not accept Tri-Care because they pay so poorly and are so difficult to deal with, and the VA is a chronically underfunded bureaucratic behemoth that controls costs mainly by deciding who they will see and who they won't.
There is no reason to assume that federal control of healthcare or health insurance will be any better than private insurance when experience actually shows the opposite. The primary advantage of nationalized healthcare would be universal coverage, otherwise in all other aspects there's a good chance it will be worse than what most of us already have.
On the state insurance commissions, I have dealt with them on a rare occasion and found them to be responsive although I didn't always agree with them. I would much rather deal with someone in Des Moines (I am in Iowa) than in Washington, DC.
I suppose the primary advantage of a military is that you don't get conquered by anyone who wants your land, too. You're paying through the nose for health care, and even after it has become obvious that people are getting screwed, you insist on doubling down on the private health care model that sets you apart from all those countries with lower costs and better results. http://www.nationmaster.com/graph/hea_spe_per_p…
The efficiency component is that the insurance companies stop leeching off the patients, and billing becomes slightly less complicated when you don't have to deal with every insurance plan under the sun.
There is a serious problem with the federalist approach of state by state regulation. An individual state lacks the “muscle” to regulate properly. Example: If an individual state were to require all health insurance to cover pre-existing conditions, insurance corps could opt out of that state or charge exhorbitantly higher premiums there than in other states. This makes good business sense, but not good public health sense. It also makes little public health sense, in a mobile society, to be forced to change insurance carriers or coverage details when a family moves from one state to another.
The great leverage enjoyed by the insurance industry is the threat to leave a state if its regulations are not to the company's liking. A national regulatory structure takes away that leverage and allows health insurance regulation to be based on good public health sense…assuming politicians and bureaucrats are capable of good policy and regulation. I know, quite an assumption.
Ryan, I think we disagree about how much fat there is in the insurance companies and those billing procedures. Insurance is just one fraction of our total health care spend, much of it administrative work that must be borne somewhere. If you could work a major transformation of the insurance function, you might decrease overall costs by 10%. In other words, you'd delay the tide of rising costs by only one or two years. We don't need a 10% improvement, we need a 10x improvement.
We also disagree about “doubling down.” The current health care system is a long way from a free market. If it were–if you had to pay doctors yourself and shop for insurance companies yourself–we would have a system that could meet the needs of the middle class. Then we'd just have to subsidize the poor, and we'd be much better off.
Hmm…I don't think that one comment of mine ever showed up. It also doesn't seem like anyone read the linked article that I started off with. I asked what you meant by that question, Ryan, about how to handle people who can't pay higher premiums for insurance when they have a chronic health condition- because the article that I linked to was precisely about one idea of how to handle that. Did you read it?
tidbits- I think you misunderstand. The idea of having the states compete to attract insurance companies is based on the idea that the insurance companies based in any particular state would follow the regulations of that state, but could market and sell their product in any state. Customers would not have to change plans if they moved.
The question being asked here was whether or not some states would go overboard with deregulation under that scenario in order to attract insurance companies to locate in their state. I can understand that concern, but like Dr_J I don't see the current problems being mainly ones of underregulation. The liberal solution seems to always be to impose via fiat- say, in this case, to legislate that insurance companies can't refuse anyone coverage. But the idea in the article I linked to showed a way to make it profitable for insurance companies to provide coverage to sick people as well as well people- so you wouldn't have to mandate it, the companies would actually be competing with each other to provide that service. If they can charge the higher rates necessary to provide coverage to people with chronic illness, they would do so willingly (and the idea is that the consumers would be insured to pay for the higher premiums in that situation- and the government could perhaps kick in to fund the people who are currently chronically ill so that they too could pay higher premiums for medical insurance.
Ryan, those kinds of stats are so misleading because you're comparing apples to oranges.
You're assuming that all of the inefficiency in our system goes to profit taking, but what if the per person spending here is higher because we actually do use more healthcare services (and more expensive services) per capita? And don't tell me that that's disproven by the outcome stats like longevity (which is skewed because of much higher death rates from homocide, suicide, and accident in the US- when you factor that out the longevity difference disappears).
And perhaps the reason that we require more medical care per person is because of our lousy lifestyle choices? In what other country do people eat as much fast food and drive their cars everywhere instead of walking? All you have to do is look at comparative stats for obesity, diabetes, coronary artery disease and the precursor of the latter two, metabolic syndrome- to see why it just logically costs more to keep our population at the same health level as a country where people eat less trans fats and get regular exercise.
Think about it- what if what I'm saying is true and it just costs more to provide healthcare to Americans? What then for the government solutions that you favor- we'll go broke (even faster than we currently are.)
Ryan- why would any one state fail to regulate?
And I don't understand your question. The article explains that insurance would be handled with two tiers- one would be the traditional model of an insurance policy which pays out for medical treatments, and then a second policy insures against a serious illness which would cause your premiums to rise. This means that insurance companies would then compete for sick people as well as well people, and they'd be able to appropriately raise rates on the sick people without it being cost prohibitive for those people to afford the higher rates.
CS
just in time I see.
“Think about it- what if what I'm saying is true and it just costs more to provide healthcare to Americans? ”
You're kidding right? So Americans, who receive no preventative care because insurance companies won't pay for it, are just a world wide anomaly? What a coincidence. Obviously, preventative care wouldn't affect “obesity, diabetes, coronary artery disease “
If private health insurance has working solutions for the above critics, why exactly have they not implemented any of them? I mean, if the chronically ill can be served for a profit, why haven't they? And if they can be served for a profit, why wouldn't a federal insurance do better simply because they don't have to make that ungodly profit?
As to the slight of hand concerning the normalizing of violent deaths in the US to explain lower life expectancy, Finland, Switzerland, and France have violent death rates higher than us, but they all have longer life expectancies than we do. How do they do that without corporate middlement?
Your arguments are just corporate health care talking points, and those talking points come from corporations that only want to maximize profits and minimize services.
You're kidding right? So Americans, who receive no preventative care because insurance companies won't pay for it
I have worked in health care for over 20 years, and private health care is much more likely to cover preventive visits than Medicare and Medicaid. Until a few years ago Medicare covered no routine physicals at all, now they will cover a one-time Medicare welcome physical. They will not cover screening blood sugars or cholesterol panels except in the medicare welcome physical. Medicare is starting to loosen up in the last year or so though. Here in Iowa Medicaid wouldn't cover routine paps, etc until this year.
All employer sponsored insurance in my town that I can think of will cover routine physicals.
HemmD, according to http://en.wikipedia.org/wiki/List_of_countries_…, Switzerland, Finland, and France have lower homicide rates than the US.
Private insurance hasn't delivered everything you want in health care because you're not their customer. Odds are your HR department is their customer and demands different things of them than you probably wish. You can be sure universal health care is way down their priority list.
And why does the market work that way? Because the government rigs it that way with tax incentives. Yes, the same government you're claiming will solve all these problems.
Hemm, all the stats I've seen verify that the US longevity rates are skewed by the deaths by violence and accident (and Dr. J gives one source which disproves your claim) so please provide some evidence to back up your claim that this is wrong.
And DaGoat is right about private insurance being better at providing preventative healthcare. In addition, the factors that I'm describing are lifestyle choices that have little to do with access to healthcare. Just about everyone knows that eating jelly donuts for breakfast and supersized Big Macs for lunch, and driving everywhere instead of walking- is unhealthy. My point is that those factors of American lifestyle are surely affecting our NEED for medical interventions- and I point to the high rates of obesity, metabolic syndrome, diabetes and coronary artery disease which are all strongly influenced by our diet and sedentary habits.
Dr_J
Try a link from te right who shows that the US does not lead countries in violent death:
http://www.guncite.com/gun_control_gcgvintl.html
“If your doctor didn't charge so much, you wouldn't need insurance at all.” … “So why does the market work that way? Because the government rigs it “
Your argument is a tautology. Insurance companies are needed as only they stand between you and rigged government laws. Except, of course, that it was the insurance company's lobbying efforts that have created the rigged governmental system. If private insurance was the answer you so fervently endorse, their profits would not keep increasing as the amount of care is continually lessened.
Your private insurance answer makes the second highest cause of bankruptcy due to medical bills. All the solutions provided by private insurance companies are predicated on their profit and nothing more.
Hemm, that link only says that gun deaths in the US aren't the only cause of our proportionately high rate of death from violence. When you include violent crime as well as suicide and accident (mainly auto accidents), you STILL have a much higher rate of death of younger people which has nothing to do with the quality of our health care system, yet affects our longevity.
You claim that it's industry propaganda to point this out- but it's actual propaganda on the other side to try to include those kinds of deaths in the stats about longevity because you're using data which is skewed for reasons that have nothing to do with the quality of healthcare.
Hemm, I'm always amused by folks apologizing for government's failures as “the government caved to group X, therefore it's group X's fault.” The government reliably caves to one interest group or another, that's why faith in it is misplaced.
In any case, I'd love to some reference that the insurance industry created the current system. My understanding was employer-sponsored health care arose in the aftermath of WWII, when government salary caps incented companies to compete for workers with benefits like health care and pension plans rather than cash.
And perhaps you could help me uncover some data to back up this idea that insurance companies are making crazy profits? Based on what I can find on Google, their margins are in the single digits:
Unitedhealth Group (UNH): 3.67%
Wellpoint (WLP): 4.07%
AFLAC (AFL): 7.58%
Aetna (AET): 4.47%
Cigna (CI): 1.51%
Unum Group (UNM): 5.54%
Humana (HUM): 2.24%
Health Net (HNT): 0.62%
All really good points, Dr. J, especially your first paragraph. I'm always completely perplexed by people who see that lobbyists from various interests often influence public policy in ways that have negative outcomes for citizens, and yet the same people believe that the government which sells out to the highest bidder like that is to be considered to have pure intentions of running programs only for the best interests of the public.
Dr_J I sent ths at 950 am this morning.
It's clear they have no dog in the fight and had no influence on the way things are done. The fact that health care lobbying of 365.1 million 3/4 year for 2008 clearly was done to help promote noble politicians who just insist on skewing the laws to favor insurance companies out of sense of fairness.
As to profits, You're right, they're not making that much.
Unitedhealth Group (UNH): $2.98 billion could find total employees – 3.67% down after 0ne time charge for fraud
“The 2008 results included one-time pre-tax charges of about $1.28 billion: a fourth-quarter charge of $350 million for settlement of a class-action suit related to out-of-network medical services; $882 million in previous settlement and legal costs related to two class-action lawsuits;”
Wellpoint 2.5 billion profit – 41700 total employees
For the full year, WellPoint reported net income of $2.5 billion, or $4.76 per share, down 14 percent from $3.3 billion, or $5.56 per share, in 2007.
The insurer took a full-year charge of $759.6 million, or $1.45 per share, for investment losses, and an impairment charge of $90.8 million, or 17 cents per share. A favorable resolution of certain federal and state taxes added a benefit of $473 million, or 90 cents per share.
AFLAC $1.3 billion profit – 7,949 total employees – Realized investment losses were $655 million in 2008,
Your right, their barely scraping along. If they would just be left alone in the middle and got better investment and legal advice, they'd do much better
HemmD, $3 billion profit on $81 billion revenue means 96.5% of the money they take in goes right back out the door. That doesn't seem out of line relative to other Fortune 500 companies. Hewlett Packard made $8 billion last year, a 7% margin, and Apple's $4.8 billion profit gave them almost a 15% margin.
And even these billions are tiny numbers in a $3 trillion health care market. Refund every nickel of profit every insurance company makes–maybe, what, $50 billion? You'd make health care less than 2% cheaper, which is how much it goes up in 4 months.
Dr_J
It's clear they have no dog in the fight and had no influence on the way things are done. The fact that health care lobbying of 365.1 million 3/4 year for 2008 clearly was done to help promote noble politicians who just insist on skewing the laws to favor insurance companies out of sense of fairness.
As to profits, You're right, they're not making that much.
Unitedhealth Group (UNH): $2.98 billion could find total employees – 3.67% down after 0ne time charge for fraud
“The 2008 results included one-time pre-tax charges of about $1.28 billion: a fourth-quarter charge of $350 million for settlement of a class-action suit related to out-of-network medical services; $882 million in previous settlement and legal costs related to two class-action lawsuits;”
Wellpoint 2.5 billion profit – 41700 total employees
For the full year, WellPoint reported net income of $2.5 billion, or $4.76 per share, down 14 percent from $3.3 billion, or $5.56 per share, in 2007.
The insurer took a full-year charge of $759.6 million, or $1.45 per share, for investment losses, and an impairment charge of $90.8 million, or 17 cents per share. A favorable resolution of certain federal and state taxes added a benefit of $473 million, or 90 cents per share.
AFLAC $1.3 billion profit – 7,949 total employees – Realized investment losses were $655 million in 2008,
Your right, their barely scraping along. If they would just be left alone in the middle and got better investment and legal advice, they'd do much better.
If you are uninsured and does not have insurance, you should check out the website http://UninsuredAmerica.blogspot.com – John Mayer, California
Right, the money they take in is whose exactly? It's not like it's out of their pocket. As long as the “little” profit is increased by denying service to customers, you got to admit that it's only good business to do so.
Thanks, but no thanks. If you want to keep private insurance as the middleman, make them serve everybody. No cut outs of those who have the audacity to get sick.
And what about the fraud? Is that just good business too?
Denying contractually-obligated service to customers is not good business, and insurance companies do much less of it than progressives like to represent. Michael-Moore-ists attempt to hold insurers to some higher moral contract than what's actually written on the policies. I don't think that's reasonable.
Obviously it's your money they're taking in, and obviously you could decline to give it to them and simply pay doctors directly. You don't, of course, because what you really want is more medical care than you can pay for. And hey, so do I. But we're not going to get it by simply demonizing insurance companies.
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