Health Insurance “Reform”: Is a Bad Bill Better than Nothing?

Many who supported health care reform are celebrating passage of the Health Insurers Bail Out Bill (HIBOB) and the argument that something–no matter how fundamentally flawed–is better than nothing. Fine. That is a point that Michael Moore as well as Dennis Kucinich make–and they are far more politically astute than I am. How can I criticize them?

A lot of my friends do not want to hear any criticism about the flaws. They ask for a few days to bask in the glorious victory. They think my critiques of the HIBOB are “annoying”. I take that as my job description.

Oh, alright, celebrate. But don’t you think that someone ought to point out what the flaws are, so that we might move forward? Even if the bill were a marginal improvement over what we have, and even if it allows the Dems to claim a victory, no one should be fooled into thinking this was healthcare reform. Health insurance reform? OK, maybe a bit-—but more on that below.

I think that any legislation that forces people against their will to turn over their paychecks to the FIRE (finance, insurance and real estate) sector is a mistake–it does not take too much thought to foresee the kinds of problems this will generate down the road. Also note that the government is going to start taxing and reducing Medicare funding BEFORE anyone gets the “benefits” of the legislation. What a great policy to introduce in the midst of this great depression! (Sound like 1937 deja vu all over again—when government started collecting payroll taxes before Social Security payments started, throwing the economy back into the Great Depression? You betcha.)

There is very little in the bill that requires health insurers to actually pay for the provision of any additional services–and most of the small improvements in that area do not kick in until 2014 or 2018. Read the fine print. Existing insurers are not subject to new requirements–only new insurance providers. The “legacy” firms get grandfathered–business as usual for them, and time to fight the provisions to ensure they never take effect.

Yes more people will get INSURANCE. Will they actually get more CARE PAID FOR? Not necessarily. They will get hit with deductions, co-pays, annual limits (for several more years), exclusions, out of pocket expenses. This will ensure that health CARE remains too expensive to actually take advantage of their new INSURANCE. And many currently insured people are going to get higher taxes. Premiums will rise. Government is going to shovel more of the costs to you. Wall Street needs your money.

There will be revolts of uninsured who do not like the mandates. We might need more riot police and prisons. More costs to bear to keep Wall Street insurers flush.

Exactly how it all turns out will take years to determine. I expect that insurer abuses will increase significantly; there will then be a regulatory reaction–as in Massachusetts. We will try to impose regulations, restrictions, fees, fines, taxes, and what-have-you on the insurers to force them to do what they do not want to do. Indeed, we will try to force them to do what no insurance company ought to do. That is because health insurance is fundamentally at odds with healthcare. Always has been, always will be. It is a crazy way to pay for healthcare.

So ultimately, that is what the problem with the HIBOB really comes down to: the insanity of running healthcare through the for-profit private health insurance industry, and thus an attempt to increase the insanity by running more healthcare through the insurers. This is a pro-Wall Street bill, by design. That is why the focus of the HIBOB was mostly on finance/insurance and not really on any (mostly minor and unintended) healthcare benefits that come out of the bill. And if we had actually had a HEALTHCARE bill, it would have been mathematically impossible to have one with fewer benefits than the HIBOB that passed—which by design was just a bail-out for Wall Street.

Many supporters say that this bill was the best we could do under the circumstances, and that in coming years we will make improvements to it. So, we will take the small benefits now and work for bigger ones incrementally. I am sorry but I do not buy the “incrementalist” defense of the HIBOB.

This is not incrementalism. It is a huge and unprecedented mandate to benefit private insurers. Fifty million people are being told they must turn over their paychecks to private companies. Protests and lawsuits have already begun. States are trying to change their constitutions. (here) If we had wanted incremental improvements to HEALTHCARE there are infinite combinations of small policy changes we could have pursued—without involving insurers at all. And celebrations by Dems of this great victory by Wall Street are laughable. I think Robert Prasch is right—it is the biggest giveaway to the GOP the Dems could have managed. (here) (But hold on, they are now preparing to turn Social Security over to Wall Street—the debates are just now getting underway.)

Here is what the whole HIBOB “reform” was all about (and Prasch suggests this was candidate Obama’s plan from the beginning; I have no strong reason to doubt him): health insurers were losing premiums because employers were dropping coverage (in part because they could not compete since no comparable country uses private insurance to provide health care); healthy individuals were dropping because no reasonable calculation could show insurance to be good value for the money. And it is not just the healthy young people who were dropping coverage. If you are single and have no chronic conditions, you are far better to pay out-of-pocket (UNLESS your employer pays most of the premiums and will not give you wages instead). 80% of healthcare costs are due to the 20% of the population that is unhealthy and perhaps unlucky. If you can make it to age 65 without chronic conditions (you don’t smoke, are not obese, were not born with too many preexisting conditions, and so on) it is quite rational to avoid health insurance. And if you get extremely unlucky, you do not have to have health insurance to get some kind of health care. Sure it is probably going to be inferior—but it could well be adequate. And in any case, you might not have that much faith in traditional medical approaches, anyway.

But the insurers were terrified. They could see the writing on the wall–they were losing the healthiest members from their pool, forced to raise rates, and that pushed more healthy people out in a vicious cycle. Hence, they went after Hillary Clinton and later Obama to get a HIBOB to force healthy people back into the pools so they would pay premiums. Yes, insurers knew there would be a trade-off because they’d have to take some unhealthy people. But giving them insurance IS NOT THE SAME THING AS paying for their care. So insurers agreed to accept some pre-existing conditions but never agreed to actually pay for treatments for those conditions. And they won’t.

I hope that those who are interested in this topic will actually read the Policy Brief I wrote with Marshall Auerback. (here) The point is that healthcare is not insurable. There is a fundamental conflict between provision of healthcare and insurance.

Compare it to auto insurance. When I was young and poor and perhaps somewhat foolish and irresponsible I drove without car insurance (it was not mandated at the time). I managed to drive for about two decades with only 2 accidents—both caused by drunk drivers who ran over me. Their insurers were more than happy to pay me to avoid a law suit. Actually these were not accidents (random Acts of God)—they were criminal infractions. The perps lost their insurance and licenses (and I believe one went to jail because he had already lost his license—he was driving his firm’s car, and it was his firm’s insurer that paid me). Later I started buying insurance. Last fall while driving home from OK at a rather high rate of speed (but within the limit, I hasten to add!), I was struck by an Act of God. She had a large buck leap in front of my car. $10k and 4 months later my car was almost repaired. I paid $1k deductible and my fellow insurance premium payers paid the other $9k (thanks guys!).

Now, we do not know why God did it. Maybe the deer blasphemied, or God hated my car, or she wanted me to stop begrudging the thousands I have paid over the years to car insurers; or she wanted a bit of stimulus for the local body shop. In any case, we do not know her Plan and for all intents and purposes it appears random to us. So we insure against Acts of God. On average of course, car insurance is a very bad deal. But for those of us targeted by God it is a good deal; and none of us really knows who will be chosen next. Further, by basing premiums on individual behavior and by charging large deductibles, we induce safer driving. I avoid speeding—mostly not due to fear of the fine but rather to the higher premiums to be paid for years. Ditto safer driving in parking lots (given that I made the decision—actually now mandated—to purchase insurance). And speaking of mandates, of course you can always avoid paying premiums by not driving. No one is mandated to hand over a paycheck to auto insurers.

Ok, turn to health “insurance”. For reasons discussed in detail in our Brief, health is not insurable. Every infant is a bundle of pre-existing conditions. You cannot provide insurance against a house already afire. After you hit a deer, you cannot go buy insurance. NOR WOULD YOU WANT TO BUY IT! Because the actuarially sound premium would exceed the cost of repairing your car. You cannot insure a pre-existing condition—and would only insure it if you could hide it from the insurer (that is of course called fraud). God already acted. She chose you, and nobody would even think about insurance: you don’t want to pay for it, the insurer doesn’t want to provide it, and your potential pool of fellow premium payers do not want you to be added to their pool.

An insurer cannot sell insurance against diabetes to a person who has diabetes; nor would that person want to buy the insurance; nor does any pool want that person included.

So what we do is pool the people with diabetes with people who do not have it and who are extremely unlikely to get it, then we have the healthy people subsidize the diabetes care. That is not insurance—it is an expensive way to take money away from the healthy and give it to the sick. You could make the argument that from the vantage point of society as a whole, these Acts of God are sort of random (not really, since obesity results from individual behavior as well as public policy) so if we get everyone into the pool we have got insurable risks. OK, sort of. But for the aggregate, it is always a bad deal—we have to pay the costs of running the insurer, plus profits. But there is no way you can run this through competing private insurers because each one has strong incentives to exclude the expensive cases—and so do all of their relatively healthy premium payers. So the only way to do this is to have mandatory insurance, everything covered, and either only one insurer or multiple insurers operating with identical pools and coverage. That ain’t going to happen. And it ain’t incrementalism.

And, of course, most of the healthcare that most of us receive has nothing to do with Acts of God. We need well-child care. We get pregnant. We get old. We need our teeth cleaned. We want Botox and Tummy Tucks. Nothing random about it. Not insurable risks.

We don’t need more health insurance. We need less. We need health provision; and we need to get it out of the hands of Wall Street.