Health Care Reform and the Great Switch

Personally, I thinks it’s fairly likely at this point, that one of the current “health care reform” bills will become law. However, though I come to this with characteristic lateness (increasing busy-ness seems to make topical blogging near impossible) I think it’s worth spending a moment on one of the fascinating contradictions which has gone mainly unremarked in the whole debate.

One of the primary arguments put forward by advocates of health care reform over the last 2-3 years has been, essentially, that health insurance companies are evil. People froth at the industry term of “medical losses” for when insurance companies pay out for medical expenses. (Something which, in fact, happens with over 80% of the monies collected in the form of insurance premiums.) Others rail against how the profit motive has destroyed health care and driven costs to astronomical levels — apparently oblivious to the fact that there are several major not-for-profit insurers, and they don’t provide care any more cheaply than for-profit ones. And yet, despite these and many other rhetorical assaults on the whole idea of health insurance as a commercial product, the centerpiece of the proposed health care reform bills was to legally require everyone in the US to purchase health care insurance, and then provide government subsidies for those who couldn’t afford the premiums. (Thus “shoveling” government money into the insurance industry in the same way in which Medicare Part-D, which all good progressives are now against, did with the pharmaceutical industry.)

Why in the world did a movement which had so long railed against private insurance suddenly decide to require and subsidize it, rather than pushing for the government or non-profit approaches to health provision which had so long appealed to it?

One answer is, of course, political pragmatism. The bills as constructed were very nearly able to pass — indeed, I remain mildly surprised that they didn’t. Though now that they’ve become so unpopular (as was probably inevitable once people had a bit of time to think about them) I no longer think it’s politically possible. But there was a time when it seemed like these bills were just moderate enough to pass. Still, why was this moderation acceptable to the health care reform movement? It’s almost as if the environmentalist movement suddenly got behind a “compromise” bill which required everyone to buy Hummers, while subsidizing those who couldn’t afford it.

Frankly, I think, pragmatism covers a lot, that and the political tribalism which led people to think that anything supported by the Democrats and labeled “health care reform” must be something they would like, regardless of what the actual content was.

However, there is, I think, a more interesting explanation as to why progressive strategists considered this a good first step in health care reform: On the surface, it would seem that these bills would have greatly strengthened private insurance, by forcing every American to buy into it. However, it would have in the process set up an opportunity for outrage. There were two highly predictable results of the legislation as drafted:

1) The cost of health insurance would go up for most people, due to the requirement that insurance companies issue policies even to people who were already suffering major health problems, and not charge people who were old or sickly significantly more.
2) Insurance companies would post record profits, because even if new legal requirements make them slightly less profitable, the acquisition of 20 million or more new clients would life their total dollars in profit even if their profit percentages went down.

The combination of health insurance rates rising even higher and insurance companies posting record profits would allow progressive populists to level the charge that insurance companies were profiteering. This would lead naturally to a demand that insurance rates to regulated. “We tried to work with the free market,” the rhetoric would go, “but the insurance companies were driven by greed and tried to profiteer on people’s suffering.” Of course, price controls will lead rapidly to either bankruptcy on the part of the insurance companies, rationing, or nationalization — quite possibly all of the above. Or, perhaps, to an elaborate appearance-saving approach in which prices are fixed on the front end while costs are subsidized on the back end, turning insurance companies into public entities in all but name.

So while the current bills certainly do nothing to nationalize or “socialize” medicine, it is probably a pretty decent step for those who think that is a good idea.

34 Responses to Health Care Reform and the Great Switch

  • I think if that were the plan Democrats wouldn’t have pushed so hard to include a public option in the bill.

  • “Plan” is a strong word. I just think it’s exactly how the aftermath of passing such a bill would be likely to play out. (Though whether progressives would be successful in then passing price controls or conservatives would win with some other approach instead I have no idea.)

    Also, I’d note that while I think it’s pretty sure that price controls would result in a government take-over being necessary, many progressives seem to imagine that price controls are perfectly healthy for an industry.

    I’ll put it this way: I think that progressives demanding price controls would be the inevitable result of the current health care reform bill passing — and my opinion is that this would result in the insurance companies being effectively or actually nationalized before much longer after that.

  • I thought your post was about why progressives support subsidies for insurance companies (i.e. the motivations behind the policy, not its likely results).

  • I think I’d say that for most there’s a “deal with the devil” element of “we’ll play with private insurance if that’s the best way of getting everyone coverage now.” In that sense, mandating private insurance may seem like the metaphorical crap sandwich when you’re rather have single payer, but if it’s the only thing possible, it’s considered acceptable. However, I think that willingness to compromise with “capitalism” would vanish the moment that rates went up and rhetoric about “record profits” started flying.

    I would imagine that there are, however, a number among progressive policy wonks who’ve thought the thing though and see pretty clearly that the next step after this would be price controls and increasing amounts of regulations in regards to what policies cover until one incrementally reaches a point where insurance companies aren’t functionally private entities.

    But like I said in the post, I think for most rank and file progressives anything put forward by Democrats with the title of “health care reform” is considered acceptable at the moment, and there’s not a whole lot of thought put into the inconsistency of a reform bill which funnels customers to the very companies they’ve been denouncing for so long.

  • I don’t think they’ve pushed that hard for the public option. Certainly, the White House isn’t trying to push it now, even though there’s no real disadvantage at this point to including it. People like Yglesias have been fairly indifferent to the public option for months now.

    I’ve thought the idea Darwin outlines above was basically the official plan. First, mandate insurance. Then, when people complain about the costs, introduce regulations to reduce costs. As time goes on and regulations increase, this would result in de facto public control over health insurance. Certainly, health insurance companies have spent a fair amount lobbying against the proposal for precisely this reason. And I think the outlined scenario explains rather well why the wonks were so strongly in favor of the plan, even without the public option. I can’t imagine it was because of a newly found affection for insurance companies.

  • In terms of the effect of the bill, my understanding is that the plan no longer includes community rating, so insurance companies will be able to charge people more based on risk factors like age or medical history. True, they won’t be able to deny coverage based on pre-existing conditions, but the insurance mandate limits the cost increase that this would normally involve. Bringing lots of young healthy previously uninsured people into the pool will also put a downward pressure on premiums for people who already have insurance, which will help offset some of the new inefficiencies in the system, at least temporarily. Overall I’m not sure that passing the bill would result in huge premium increases for most people, at least in the short term.

  • Money, Money, and more Money. Why isn’t anyone looking at 2 of the biggest problems? 1. Doctors are specialized because the cost of medical school is on the rise and they have to pay it back eventually so no one goes into family or internal/ preventive care ( there is no money in it)
    2. adding more patients to a system that most doctors are specialized or even leaving the profession would make the price go up more.

    My solution would be to address the doctor crisis first then worry about who is not getting care…. Maybe we should work on Medical Education 1st then the patient problem … but what do I know…

  • BA,

    Well, my understanding was that the individual mandate enforcement mechanism is rather weak in the bill – which makes the skyrocketing premiums scenario much more likely. Also, even without higher profits, continued cost growth (which seems to be unavoidable as new and more expensive treatments are developed) would make additional regulation more likely (and popular).

  • My understanding was that the House bill required no more than the 2x difference between highest and lowest rates (due to age and health condition) and the Senate bill required no more than a 3x — thus a modified community rating of sorts.

    In this regard, I’d be taking MA and NY as pretty good proxies for how the bill would work out.

    If I’m wrong on this (and given the massive size and constantly shifting nature of the bills, I may be) I’d be less sure on the bills themselves driving up insurance costs. Though at John points out the guaranteed issue and very low fines for non participation might lead to a nasty case of selection bias costs.

  • DC, JH , and BA :
    You may speak about the insurance problem, but you are only modeling the cost factors based on the model of patient-insurance(risk). Yet you are not looking at a bigger problem:
    1. HITECH law will make more doctors retire earlier as they did when HIPAA was adopted. Less doctors more patients ( supply decrease and demand increases ) it will cost more.
    2. More people are going to have problems since less doctors are in preventative care fields so more people will get sick later since they will not see a GP or cannot since they will be packed with 40 million more people able to book an appointment.
    3. Doctors are not given any incentives to get into these fields since the average doctor leaves med school with 150k in debt… plus 100,000-500,000 premium for the docs own insurance ( yet no talk of a national physician cap on how much you can sue a doctor for)
    4. We are addressing the patient problem but how about law suits against complications (not accidents )

    5. there is more yet this blog nor the US is looking at these problems … the AMA and the insurance companies are not talking about it either since it is the biggest problem!!! Supply and demand folks !!!

  • I truly do not understand the wide spread opposition to health reform, especially from Catholics. The truth is we in this country have the most expensive and lowest quality (in terms of errors) healthcare system among the wealthy countries and a large number of our citizens are not covered. I know this is what you have heard over and over from progressives, but this makes it no less true. Real healthcare reform that covers our citizens regardless of their means has been supported by the USCCB and Pope Benedict, how can supporting it not be the Catholic approach?

    I hear about arguments over these bills and wonder what is going on. The goal here is to provide health care to our citizens. We can not do that unless we also find a way to reduce the costs we currently have. The only models anywhere in the world that do this have a significant government run component (call it socialized medicine, I’m ok with that). There is no example of the medical system we have in this country that reduces cost, covers more people and improves quality. To continue to do the same thing and expect different results has been described as the definition of insanity.

    As I’ve tried to express on other blogs, being Catholic does not involve bending the teachings of the Church to the conservative or liberal point of view. Rather it requires bending the conservative and liberal points of view to the ways of Christ.

  • Paul,

    These are all valid points, and thank you for expressing them in such a charitable and articulate manner. My opinion is that the health care reform bills in question are fiscally irresponsible and would on balance reduce the quality of health care received (as opposed to promised) in the U.S. I certainly agree with you that health care reform needs to happen, and I favor increasing access to health care – particularly for the chronically uninsured. I simply think the current bill is harmful to the common good, for a variety of reasons that would take a while to spell out in this comment thread.

  • Paul DuBois,
    I agree with you, but how can we fulfill a goal without looking at every angle. I want a first payer system, but that is not what will happen. I am afraid what will happen is that we will have a bigger mess if we do not take our time. I am glad we are talking about it but we need to face the facts we need too look at the whole system not just parts of the system. By concentrating only on the insurance problem we are not looking at the patient and doctor problems to the model. The how can you cover someone that will not be able to be seen likewise how can a doctor do his job if he is seeing a patient for less than 5 mins. we need to address the whole problem. The mistake is that we are hoping to throw money at the issue without address the problem. Much as with the bank bailouts… we throw money and it got fixed a little yet we still see bonuses for those who ran the system to the ground we needed to make conditions to the banks on how they could use the money we didn’t because we were not addressing the WHOLE problem. we need to do it right this time we need to address the whole problem not just insurance…. If not you will get a national policy at the sacrifice of even worse care we have now as we are ranked 37 of 40 industrialized countries for health care (http://www.photius.com/rankings/healthranks.html)

  • I find it remarkable that I know brilliant people who both claim it is likely to pass or that it is dead…at the same time.

    My understanding is that Pelosi won’t have the votes without the Stupak Amendment, that even with the S.A. she doesn’t have Cao, Wexler (FL), and Murtha, and that moderate Dems are scared about poll numbers and possible Scott Brown reduces.

    Perhaps I’m grasping at straws here because if this bill passes it will destroy a lot of progress in the pro-life movement the last five years.

  • Steve, I doubt if Pelosi has the votes in the House with or without the Stupak amendment. I also doubt if Reid can muster 50 votes in the Senate, with Biden as tie-breaker, to proceed with this via Reconciliation. I think Obamacare is dead and we are merely observing now the final twitching of the corpse.

  • I have to say, this is the one of the most paranoid takes on HCR I have read.

    First off, you claim without substantiation that the cost of health insurance would go up for most people. Where do you get this? And why do you ignore the CBO, which said otherwise, and has always been accepted as the honest broker here? You focus only on community rating – and yes, community rating alone would cause costs to skyrocket, and the risk pool to deteriorate. But this is not the proposal. The proposal is to twin some form of community rating with the individual mandate plus a number of promising delivery system reforms. Again, I defer to the costing of the CBO on this.

    As for why we support reform, it’s simple – this is the best we can get. Reform MUST be underpinned by community rating and the individual mandate. If that is a given, then insurance can be delivered pretty efficiently by the private sector -as in Germany, Switzerland, Netherlands. Single payer gets you geater efficiency savings by economies of scale, and by eliminating the profit motive. But let me nuance that last point – inusrance company profits are actually not the leading cause of healthcare cost increases. The focus on profits is a moral point – these people are out to maxizmize shareholder value even if this means denying or dropping coverage from people who could conceivably die or go bankrupt.

  • MM,

    As I said, I’m partly basing my expectation that rates would go up on the experience of MA and NY, which have in fact seen pretty lousy results from similar measures. (Admittedly, MA has, if you look at things funny, some help from a mandate, but only because they took the idiotic step of passing community rating without a mandate earlier. Their rates remain some of the highest n the country.)

    Also, the CBO _did_ estimate that rates would increase — certainly for the House bill. I’d have to double check on the Senate one at this point, but the provisions aren’t that different.

  • [Y]ou claim without substantiation that the cost of health insurance would go up for most people. Where do you get this? And why do you ignore the CBO, which said otherwise

    Actually, I believe the CBO said that the average person’s premiums would go up, but that this would be offset by a greater amount of coverage.

  • I’m partly basing my expectation that rates would go up on the experience of MA and NY, which have in fact seen pretty lousy results from similar measures.

    I think the experience of NY and MA shows that passing community rating and guaranteed issue without a mandate is a bad idea (I’d note, btw, that if the Democrats really were interested in having insurers jack up rates to create popular sentiment for more regulation they probably wouldn’t be insisting on a mandate at all). On the other hand, there are places (e.g. Switzerland) that have community rating plus a mandate and haven’t seen health insurance costs spiral out of control.

  • Well, let me be clear, I don’t think that the Democrats want to come up with the scenario guaranteed to jack up rates as much as possible, I just think that price controls will be called for as the logical next step when insurance companies “abuse the chance they were given” by posting record profits after seeing an infusion of new enrollees.

    I’d be curious to read more about Switzerland’s experience. For the record, though, I don’t think that community rating, mandate and guaranteed issue will cause rates to spiral out of control indefinitely — I just think they’re likely to go up strongly for 2-5 years as the system adjusts to the new equalibrium. Then, all things being equal, rates would go back to increasing at something like their present rate.

    The issue is, insurance costs are already very high, and I strongly suspect that that average voter who basically supports the idea of HCR (admittedly, a rather diminished group by this point) imagines that this will cause an end to rate increases. So just a solid 10-20% rate increase over a year or two would be enough to cause another political “crisis”, which would be the one in which the obvious progressive move is to demand price controls and regulation of what insurance does and does not pay for (cost controls).

  • There’s a difference between “most people’s premiums will go up” and “the average premium will go up.” But in this case, both are true according to the CBO, though for very different reasons.

    Most people’s premiums will go up because there are a lot more healthy people than sick people under 65. If you cap premiums at three times the cheapest plan, the healthy masses will see premiums go up and the sick minority will see premiums go down. A mandate alone would actually reduce the average premium since (1) more healthy people will enter the system than sick people, and (2) economies of scale will drive down costs.

    But the government subsidies will drive up the average premium because people will be able to afford more expensive plans. The CBO says the net effect will be an increase in premiums.

    IMO, neither of those facts are reasons to oppose ObamaCare. If the relatively well off should pay higher premiums so that the less fortunate can be covered, I’m all for it. The question should be “Is there a better politically feasible alternative?” If Obama’s bill contained the Stupak Amendment and taxed employer-sponsored plans, I don’t think you can get a better bill. Sure, there are better theoretical plans (e.g., replacing insurance with HSA’s) but they’d require political will that doesn’t exist.

    Fear of government encroachment is legitimate. For the last 30 years or so, the government has shied away from price controls, opting instead to subsidize. I think larger subsidies and a public option are inevitable. But again, “Is there a better politically feasible alternative?”

  • Catholic Chump,

    Increased demand for medical services means more people will go into the medical profession. In the long run, it’ll even out.

    I agree that we need more doctors but the cost of med school isn’t the problem, at least not one of the major problems. Even med school students who don’t have to worry about debt want to go into the more lucrative areas. Who wouldn’t? I think the AMA’s artificial restrictions on supply is the bigger problem. Some are proud that Canadians come to the US for medical care. Meanwhile, Americans go to Jamaica for med school.

  • MM,

    On premiums:

    http://www.cbo.gov/ftpdocs/107xx/doc10781/11-30-Premiums.pdf

    CBO and JCT estimate that the average premium per person covered (including dependents) for new nongroup policies would be about 10 percent to 13 percent higher in 2016 than the average premium for nongroup coverage in that same year under current law. About half of those enrollees would receive government subsidies that would reduce their costs well below the premiums that would be charged for such policies under current law.

    CBO estimates were the small group and large group business coverage would be flat to very, very slightly down, but since those people are covered already they’re going to notice little difference.

    The people who will actually being mandated to go buy themselves coverage, meanwhile, will see a noticable rate increase.

    Thanks for giving me the motivation to go look up the details, as obviously it’s been a few months.

  • Given all the moving parts in this legislation, I have to wonder if any of the projections are worth a pitcher of warm spit.

  • @ Art Deco

    Indeed, the CBO report basically does the waving-hands motions saying that the projections are simply estimates. But the disclaimer basically is CYA.

    Also despite the claims to the contrary the CBO reports states that premiums go up for non-group plans, about 17% of the plans out there. Group plans stay the same or fluctuate very little.

    Given that virtually every projection for government spending has been wrong on the “too little” side, I’m skeptical.

  • This WSJ op-ed would seem to bolster Darwin’s point:

    Last month, Democratic Governor Deval Patrick landed a neutron bomb, proposing hard price controls across almost all Massachusetts health care… [A]verage Massachusetts insurance premiums are now the highest in the nation. Since 2006, they’ve climbed at an annual rate of 30% in the individual market. Small business costs have increased by 5.8%. Per capita health spending in Massachusetts is now 27% higher than the national average, and 15% higher even after adjusting for local wages and academic research grants. The growth rate is faster too.

  • Darwin,

    Why are individual group premiums rising? As the CBO takes great pains to show, this increase is completely explained by the fact that the quality of the package will get better, in terms of more comprehensive benefits. In fact, this improvement leads prices to rise by 30 percent. The fact that they only rise by 10-12 percent suggests some countervailing cost savings, coming from the insurance reforms and the individual mandate. And when we add in the subsidies, it looks better still. Almost 60 percent of people on the exchange will get subsidies, and these subsidies will reduce premiums by 56-59 percent. Bottom line: 30 percent better, 10-13 percent more expensive, and lowering premiums by 60 percent with subsidies. That’s not bad…

    And yes, it’s been months since I’ve looked into this too!

  • The fact that they only rise by 10-12 percent suggests some countervailing cost savings, coming from the insurance reforms and the individual mandate. And when we add in the subsidies, it looks better still. Almost 60 percent of people on the exchange will get subsidies, and these subsidies will reduce premiums by 56-59 percent. Bottom line: 30 percent better, 10-13 percent more expensive, and lowering premiums by 60 percent with subsidies. That’s not bad…

    If you start @ 7:26 and watch through the end, Curly provides a demonstration of the history of public policy on this issue since 1965.

  • MM,

    Well, if you assume that the people who currently have private insurance have been dying to get better coverage if only they can spend just 13% more instead of 30% more — and that those without coverage will be very excited to get coverage so long as it is 30% better than today and only costs 13% more — then clearly everyone will be very happy.

    Personally, I think people will see that as costs going up.

    Though it’s true that the subsidies are so generous that people may actually be thrilled until congress fails to actually make the Medicare cuts to pay for it all and the budget melts down.

    Also, I would tend to expect that things will not be as rosy as currently projected by the CBO, though perhaps your expectations deviate in the opposite direction. At this point, though, I suspect it’s a rather theoretical exercise, as I don’t think either of the bills will pass at this point. The window passed.

  • MI’s comments aren’t argumentative yet lacking any argument. No there not.

  • Q. I truly do not understand the wide spread opposition to health reform, especially from Catholics.-Paul DuBois

    A. The opposition comes from two sources; conscience and a clear understanding that “health reform,” whatever it is, is not the same as medical treatment.

  • Paul Dubois:

    Mark Steyn expresses it much better than I can:

    “President Ford liked to say: “A government big enough to give you everything you want is big enough to take away everything you have.” Which is true enough. But there’s an intermediate stage: A government big enough to give you everything you want isn’t big enough to get you to give any of it back. That’s the point Greece is at. Its socialist government has been forced into supporting a package of austerity measures. The Greek people’s response is: Nuts to that. Public sector workers have succeeded in redefining time itself: Every year, they receive 14 monthly payments. You do the math. And for about seven months’ work: for many of them the work day ends at 2:30 p.m. And, when they retire, they get 14 monthly pension payments. In other words: Economic reality is not my problem. I want my benefits. And, if it bankrupts the entire state a generation from now, who cares as long as they keep the checks coming until I croak?

    We hard-hearted small-government guys are often damned as selfish types who care nothing for the general welfare. But, as the Greek protests make plain, nothing makes an individual more selfish than the socially equitable communitarianism of big government: Once a chap’s enjoying the fruits of government health care, government-paid vacation, government-funded early retirement, and all the rest, he couldn’t give a hoot about the general societal interest; he’s got his, and to hell with everyone else. People’s sense of entitlement endures long after the entitlement has ceased to make sense.”

    Steyn notes that the European-style welfare state is careening off the cliff – and our leaders, instead of taking note and hitting the brakes, are running as fast as they can to follow the Euros into the abyss.

    Why is being opposed to burdening future generations with an incredible amount of debt un-Catholic? If the GOP had the sense God gave a goose, they would steal the Dems mantra and proclaim that they are opposed to nationalized healthcare “for the sake of the children.” And they would actually be right.

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