Gattaca, Gattaca, Gattaca!
Julian Sanchez | December 29, 2005, 10:11am
There are a couple odd things about yesterday's Washington Post op-ed calling for legislation to bar insurance companies from making use of genetic screening information. The most obvious one is that nowhere in eight paragraphs do we see the words "adverse selection." This is always a problem in insurance, of course: Insurance firms and their customers have asymmetrical information about the policy-holder's health. So people who know they're likely to become ill load up on more extensive coverage, while people who're more confident about their health stick with stripped-down plans. Which, in turn, drives up the cost of covering the people remaining in the more robustly covered pool, increasing premiums and magnifying the effect still further by driving out healthier customers at the margin. Genetic screening, of course, makes the problem far more acute. Maybe that's not a knock-down argument against legally entrenching this information asymmetry by barring insurers' access to genetic information (though I think it's a pretty good one), but it's just plain bizarre to see a treatment this length that doesn't even acknowledge the problem.
My second beef is that this piece—like many others—seems to operate on a strange conception of what "insurance" is supposed to do. Insurance is about spreading risk—which is why you can't generally buy fire insurance after your house burns down. If you already know you've got a disease, you don't need insurance; you just need health care. If the known risk of some condition manifesting in some individual is, say, 80 percent, and you require it to be covered as though it were 3 percent, I think it's fair to say you're no longer really talking about "insurance" in any terribly meaningful sense. What you're actually doing is using a private insurer as cover to create a health care subsidy.
Ken Shultz | December 29, 2005, 2:15pm | #
Private insurance companies base their billing on Medicare rates, but actually pay LESS. It's Medicaid that actually pays the least and is the biggest money loser for facilities.
In regards to the suggestion that private insurance companies are actually paying less, I believe you are mistaken.
There are theoretical situations in which a private payor might pay a smaller percentage than what the hospital would get for a Medi/Medi patient. ...when a private insurance patients went to an unapproved hospital, for instance.
In practice, the admitting department is going to call the insurance company on admission and verify status. If the hospital is unapproved by the insurer, and the company will only pay a tiny percentage, then they won't admit the patient. ...They may transfer the patient to an approved hosptial.
The only way they'd admit the patient is if the patient came through by way of the ER.
I'm not talking about any individual code when I was quoting my (admittedly well rounded) percentages. That's what they actually pay--weighted for the most frequently occuring codes, etc.
The CFO and CEO of the hospital where I worked always wanted one report from me every morning--Case Mix. How many private insurance patients do we have per Medi/Medi patient. If the number got below--and this was some years ago--I'd say it was about 1 per 8, we were losing money. Anything better, and we were good. We lost money on Medi/Medi, and we could make up for 8 money losers with one private insurance patient.
That's why hospitals with demographics that have higher concentrations of private insurance patients do well and the rest don't. Here in LA, Harbor UCLA and County USC and King Drew are always in financial trouble and about to close. They don't have that problem in the nice parts of Orange County, in the nice parts of North County San Diego, etc. It's about getting the private insurance patients. ...When hosptitals talk about marketing to doctors, I think that's half of what they're talking about.
Stevo Darkly | December 29, 2005, 8:13pm | #
I haven't had time to read the whole thread yet, so apologies if this has already been addressed, but I think I have some important info re:
Why are there no insurance groups formed on an ad hoc basis outside of the employer group?
I don't know about anyone else, but I would have thought that churches, unions and social groups would be ideal for this.
The answer is: Once upon a time, social groups
did.
See:
How Government Solved the Health Care Crisis: Medical Insurance that Worked ? Until Government "Fixed" It
Excerpts from linked article:
Eighty years ago, Americans were also told that their nation was facing a health care crisis. Then, however, the complaint was that medical costs were too
low, and that health insurance was too
accessible. But in that era, too, government stepped forward to solve the problem. And boy, did it solve it!
In the late 19th and early 20th centuries, one of the primary sources of health care and health insurance for the working poor in Britain, Australia, and the United States was the fraternal society. Fraternal societies (called "friendly societies" in Britain and Australia) were voluntary mutual-aid associations. Their descendants survive among us today in the form of the Shriners, Elks, Masons, and similar organizations, but these no longer play the central role in American life they formerly did. As recently as 1920, over one-quarter of all adult Americans were members of fraternal societies. (The figure was still higher in Britain and Australia.) Fraternal societies were particularly popular among blacks and immigrants...
The principle behind the fraternal societies was simple. A group of working-class people would form an association (or join a local branch, or "lodge," of an existing association) and pay monthly fees into the association's treasury; individual members would then be able to draw on the pooled resources in time of need. The fraternal societies thus operated as a form of self-help insurance company...
... The kinds of services from which members could choose often varied as well, though the most commonly offered were life insurance, disability insurance, and "lodge practice."
"Lodge practice" refers to an arrangement, reminiscent of today's HMOs, whereby a particular society or lodge would contract with a doctor to provide medical care to its members. The doctor received a regular salary on a retainer basis, rather than charging per item; members would pay a yearly fee and then call on the doctor's services as needed. ... [Deleted for space: Discussion of mechanisms for controlling quality of service and avoiding abuse of system.]
Most remarkable was the low cost at which these medical services were provided. At the turn of the century, the average cost of "lodge practice" to an individual member was between
one and two dollars a year. [Equivalent of about a day's pay for the average person. Also about equal to one doctor's house call on the ordinary market.]...
... Yet licensed physicians, particularly those who did not come from "big name" medical schools, competed vigorously for lodge contracts, perhaps because of the security they offered; and this competition continued to keep costs low.
The response of the medical establishment, both in America and in Britain, was one of outrage... Such low fees, many doctors charged, were bankrupting the medical profession. Moreover, many saw it as a blow to the dignity of the profession that trained physicians should be eagerly bidding for the chance to serve as the hirelings of lower-class tradesmen. It was particularly detestable that such uneducated and socially inferior people should be permitted to set fees for the physicians' services, or to sit in judgment on professionals to determine whether their services had been satisfactory. The government, they demanded, must do something.
And so it did. In Britain, the state put an end to the "evil" of lodge practice by bringing health care under political control. Physicians' fees would now be determined by panels of trained professionals (i.e., the physicians themselves) rather than by ignorant patients. State-financed medical care edged out lodge practice; those who were being forced to pay taxes for "free" health care whether they wanted it or not had little incentive to pay extra for health care through the fraternal societies, rather than using the government care they had already paid for.
In America, it took longer for the nation's health care system to be socialized, so the medical establishment had to achieve its ends more indirectly; but the essential result was the same. Medical societies like the AMA imposed sanctions on doctors who dared to sign lodge practice contracts. This might have been less effective if such medical societies had not had access to government power; but in fact, thanks to governmental grants of privilege, they controlled the medical licensure procedure, thus ensuring that those in their disfavor would be denied the right to practice medicine.
Such licensure laws also offered the medical establishment a less overt way of combating lodge practice. It was during this period that the AMA made the requirements for medical licensure far more strict than they had previously been. Their reason, they claimed, was to raise the quality of medical care. But the result was that the number of physicians fell, competition dwindled, and medical fees rose... As with any market good, artifical restrictions on supply created higher prices -- a particular hardship for the working-class members of fraternal societies.
The final death blow to lodge practice was ... [Well, you really should go to the link and read the article. Basically, it was a combination of private-party stupidity and short-sightedness, with goverment power acting as an enabler.]
CrackerBarrel | December 30, 2005, 1:35am | #
I got to this thread late-- sorry.
A couple of points.
Driving is not a privilege, it's a skill. Driving on a road that someone else owns is the privilege, like the privilege that I grant you when I allow you, explicitly or implicitly, to walk on my property. Since I own the property, I could refuse you. If I owned a road, I might want you to have liability insurance before I let you drive on it, with a "hold harmless" clause that exempts me from liability if you harm the life or property of the other drivers I allow on my road. My old Lions Club had to get a temporary rider on its policy whenever it held an event at our local high school, holding the school district harmless from anything we did that might harm our patrons at the event. Similarly, the bank that held the mortgage on my house required me to have paid-up fire insurance on it. Much as we Libertarians don't like it, the govt. owns almost all of the roads. Given that, it seems reasonable that the govt. requires us to demonstate competence at the wheel (OK,OK, don't start-- I know the driving tests are a joke, mostly) and to have insurance. Is that so they're held harmless?
And I *can* see someone driving without a license but having insurance. I don't know about your insurance, but mine is attached to the *car(s)* I own, and I don't have to submit proof of a license to get it, I have to submit proof of the car's registration (indirectly makes sure that the car meets basic safety standards; I know, I know, insurance companies should be doing that and licensing drivers, too, instead, and are better equipped and motivated to do it-- another subject). I could own cars that I let others drive, and the govt. wants me as an owner to insure for liability when the cars get into accidents.
As a retiree on fixed income, I'd like to get me some of that high deductible, lower premium medical insurance, especially since my wife ahs a number of years to go before she qualifies for Medicare. Can someone post the name of a company? Yes, we plan to use Medicare. I know it helps keep the evil juggernaut rolling, but damn it, they took part of our money all the while we worked. If we had saved it, maybe we could afford to opt out of Medicare. We drive on govt. roads, too.
Jennifer, I want Cletus (or anyone) to be held responsible for his actions to the fullest possible extent. But as someone observed, There will always be murderers, and uninsured deadbeat drivers. Makes sense to protect ourselves from losses they cause when we can.
I have a hunch that this thread is growing stale. I wonder if anyone will read this post.
CrackerBarrel
Stevo Darkly | December 30, 2005, 2:02am | #
Jennifer (et al.), the problem of "what happens if someone like Cletus causes me damage that he cannot possibly pay for?" has come up in connection with anarcho-capitalist "libertopias" especially, with no government and no "public" (government-owned) property. That's because in "Ancapistan" there are no "crimes" (offenses against the State or "society"), only torts (offenses against individuals), and the emphasis is not so much on punishing the perpetrator as in providing restitution to the victim. Presumably offenders would not be simply locked up or put to death, because that doesn't do anything for the victim.
However, the fact that there is no "public" property is one of the keys to the solution.
The solution is a form of liability insurance that we can call restitution insurance. Cletus (and just about everyone else) pays for coverage in the event that he ever incurs a humongous debt that he can't possibly pay for. If the arbitrators find Cletus owes you a restitution, Cletus' insurance company pays restitution to you if Cletus can't.
Then probably the insurance company turns around and tries to recover as much of the cost from him as it can. Maybe it sets him to manufacturing license plates (if such exist in Ancapistan). This would be built into the contract between Cletus and his insurance company. The terms won't be
too outrageously onerous for Cletus (e.g., "In exchange for us paying off your claim, you have to let us kill you and sell off your organs to recover the costs") because there would be many competing restitution insurers competing for Cletus' business, which would keep the "costs" from being too arbitrarily unreasonable.
But the insurance company probably won't depend on recovering its entire payment from Cletus in order to keep itself solvent. Most of its revenue will come from collecting the premiums of all its other customers, presumably few of whom will ever submit a claim to be paid out.
This type of insurance will be feasible at affordable rates if:
A) The total number of people paying for restitution insurance is very large (approaching "almost everyone"). This will provide the funding for any claims that have to be paid out. These claims will be very large but also relatively few in number.
B) A relatively small proportion of customers ever have to submit a claim for the insurance company to pay out, because they have incurred a debt they cannot possibly pay off by other means. I suspect this would be the case. This is comparable to people declaring bankruptcy today. What percentage of the population currently declares bankruptcy? It's a very small minority, right?
Now, I know that prerequisite (A) must raise this question in your mind: What in hell could possibly compel almost everyone to buy restitution insurance? Especially irresponsible and/or low-income folks like Cletus? Especially if one's chances of ever having the insurance company pay off a claim, after you've paid all those premiums, are very low? Especially if there is no government to force people to buy such insurance?
The answer: Market forces and the absence of "public" property.
Before I hire you to do anything for me, before I buy anything from you, before I sell you anything, before I let you set foot on my property, one thing I will probably want to know is, "Do you carry any restitution insurance?" Because if you don't, you're a risky person to deal with. There's a chance you could incur a debt to me, or damage me, or wrong me, and I would never be able to collect restitution from you. I'd tend to avoid having any dealings with you, in favor of other people who
do carry restitution insurance. This will make life much more difficult -- if not impossible -- for you. This is your incentive for buying restitution insurance, and you'll work very hard and creatively to find a way to scrape up the pennies you need to do so.
In Ancapistan, you can't run to the government to escape your responsibilities. (Although you might get a charity to pick up the tab for your premiums, if you can convince them that you really are trustworthy. That's likely to be hard work, too, with some strings attached.)
Also, as the owner of a private highway, I will want to see proof of Cletus' restitution insurance before I sell him the sticker-with-embedded-microchip that gives him access to my highway. I don't want him plowing into one of my streetlights that he has no way of paying for. And I don't want my other customers to find out that I let such a risky person onto the highway to imperil them -- I'd lose their business. Therefore, if Cletus doesn't have restitution insurance, he doesn't have the opportunity to plow into Jennifer's car and injure her. If he does have the insurance then, god forbid, if he wrecks Jennifer's car and injures her, his ins. co. will pay for it.
Since I'll be away from the WWW until Tuesday, I'll try to anticipate a couple of objections:
- Cletus is unlikely to submit a claim lightly or act in a riskier manner simply because he has restitution insurance to cover it (the "moral hazard" problem) because he would be penalized. The company has the right to make him work to partly pay off his debt. At the very least, his rates will go up. Plus, if it's known he had to have a claim paid off, he'll become known as a risky person to deal with.
- There is a problem if the restitution insurance company gets hit with such a big claim, or so many claims, that
it can't afford to pay off Jennifer. This is a problem that insurance companies already deal with today. One solution is reinsurance: Insurance companies in turn pay for coverage by reinsurers, which pay the claims they themselves can't. It's a matter of figuring out the odds of various payouts, what premium needs to be charged to cover it, make a profit, yet still be affordable, etc. Actuaries figure it out and make it work.
Restitution insurance is also discussed here:
www.libertarian.co.uk/lapubs/philn/philn031.pdf
Now I have to go. Happy New Year, all!
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