Tag Archives: regulation

General Insurance Dysfunction

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I’ve written about the failure and the dishonesty of Obamacare on a number of occasions.  However, the failures of insurance coverage aren’t limited to Obamacare.  Here’s an example from my wife’s insurance coverage, an old-style policy that hasn’t (yet) been canceled by Obamacare.

At my wife’s annual physical, last month, she spent over an hour talking with our doctor about mutual concerns, where they agree, where they disagree. (How many doctors will do that, in the first place?  This is one of the reasons I like her for my doctor, too.)

We got the billing statement a couple days ago:

Billed to Insurance = $20.00
Network Discount = $17.00
Applied to Deductible = $0.00
Paid by Plan = $2.70
Paid at Visit = $0.00
Amount you may Owe = $0.30

First, the insurance networks to which she belongs beat her up to a $20/hr rate that she’s allowed to charge (actually, it’s a per visit rate, but this is what this doctor’s integrity works that out to), then forced an 85% discount on top of that onto her.

Where’s insurance industry competition?  Obamacare ain’t it, and yet it’s worse than the insurance régime before.

Health Law’s Uneasy Launch

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In a Wall Street Journal article from which I copied the title, Christopher Weaver opened with some misapprehensions that are interesting for a WSJ article [emphasis added].

Can [the Health Law’s] mix of government subsidies and market-based competition extend health insurance to millions of people…?

Umm, what market-based competition, exactly?  The Health Law begins with a mandate that creates artificial demand.  The underpinning and beginning of this particular market is decidedly anti-competitive.  The Health Law continues and ends with mandated coverages—innovation not allowed except by government permission—and with government-permitted premiums.  There’s no competition present in the product mix, either.

Oh, and those premiums are not at all based on the risk being assumed; indeed, health histories of the enrollees are explicitly excluded from the premiums charged them.

There’s nothing at all competition-based in this privately funded, government mandated welfare entitlement program.

Health Insurance Risk…Corridors

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These are insurance company premium income/payout cost bands written into Obamacare that are intended to smooth out the transition from a quasi-free market in health insurance to the government run health welfare program that is Obamacare.  Under this program, insurance companies that are too successful are punished for that success by being forced to disgorge some of their income in the form of a tax on the premiums they collect, which the Feds then transfer to insurance companies that couldn’t hack the new program, so they get government support.

Only some companies that are having trouble need not apply for the bailout support—they just get to pay the vig without the payoff.

The IRS collects an annual flat amount specified by the Affordable Care Act to be allocated among the insurers according to market share.

But….  IRS regulations published in November excluded “any entity that is a self-insured employer to the extent that such employer self-insures its employees’ health risks.”  Since about four of five employers with more than 500 workers and most union-negotiated health plans are self-insured, they are spared from the tax.  So is insurance on behalf of “government entities,” such as original Medicare (but not privately run Medicare Advantage).

[Thus]…the tax burden falls on the saps who work for small businesses, the self-employed and individuals—i.e., the people who can least afford it.

Worse,

this [tax] is not deductible for corporate income tax purposes.  In other words, health plans pay the tax and then federal and state taxes on the taxed amount.  [Ex-CBO director Doug] Holtz-Eakin estimates this unusual taxes-on-taxes rule means that the effect on premiums is 54% larger than the dollar amount of the tax itself.

Hmm….

Minimum Wage as Politics

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Democrats looking to make gains in the 2014 gubernatorial elections are using a possible minimum wage increase as a way to win support among voters….

Democrats across the political spectrum have lobbied for a higher minimum wage this year, after Obama got the ball rolling on the issue by calling for an increase in his February budget speech. Since then, union-organized demonstrations in front of profitable mega-chains such as Wal-Mart and McDonald’s have kept it in the public eye.

Senate Democrats have also pushed for a minimum wage increase going into 2014.  Their proposal would raise the minimum wage by 40%.

Of course there’s union involvement.  Aside from the Democrats being union meal tickets, increasing minimum wages protects union jobs—and so union leaders’ jobs—at the expense of the unemployed, those looking for a first job or for high school or college money, those looking for a second income, and the poor, who would gladly take the lower pay but who are priced out of the labor market by increased minimum wage.

We’ve already seen how that works.

Never mind the racist origin of minimum wage laws, instigated by FDR specifically to stem the tide of southern blacks moving north to take jobs at lower pay than white unions (blacks weren’t allowed in those unions, remember) wanted, and so taking jobs at the expense of those white union members.

Never mind that most of those unemployed and underemployed who will be priced out of the next round of hiring by these elevated minimum wages are the already vastly underemployed and underemployed black and Hispanic teenagers, black and Hispanic moms trying to work a family’s second job.  Regardless of current intent, the disparate impact of minimum wage laws is clear.  Where’s Eric Holder when we need him?

Nevertheless, Danny Kanner, Democratic Governors Association Communications Director had this to say:

The defining issue in every single one of these races is who is fighting for the middle class.

Yeah.  Never mind any of those poor, who’d like to get a job and work their way into the middle class.  Typical Progressive, playing politics, and with that play, ignoring the least among us.

Toward An Affordable Health Insurance Industry

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John Cochran, University of Chicago Booth School of Business Professor of Finance, among other positions, is on the right track, but he’s wide of the mark in some critical respects.

The unraveling of the Affordable Care Act presents a historic opportunity for change.  Its proponents call it “settled law,” but as Prohibition taught us, not even a constitutional amendment is settled law—if it is dysfunctional enough, and if Americans can see a clear alternative.

And

Only deregulation can unleash competition.  And only disruptive competition, where new businesses drive out old ones, will bring efficiency, lower costs, and innovation.

That’s plainly true, and he goes on to tout further—correctly IMNSHO—the advantages of a free market in the delivery of health insurance and the delivery of health care services.  However, he has some misconceptions in the extent to which those two industries should be allowed to go in a free market.

Health insurance should be…lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick.

This isn’t insurance: it eliminates the concept of premiums being based on the risk being transferred.  Or, it is insurance, and the risk being transferred and the fee charged for accepting that transfer (the premium) will be elevated to account for the higher risk involved in that mandated longer-term risk acceptance as well as the changed risk factor represented by having gotten sick.  And sick again with the same thing.  And again.

Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.

This is blatantly normative and not at all related to the competition of free markets.  There will, indeed, be customers who want policies that cover “routine expenses;” it’s not Cochran’s—or government’s—place to proscribe these because they disagree that such policies have utility.

Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance.

Again, no.  This is another interference with a competitive free market.  It’s certainly true that the (tax-policy encouraged) “mandate” for employer-based groups is a distortion of the market.  However, rather than simply distorting the market in a different direction, let that market—the individuals who aggregate into that market—decide whether group plans are viable.

Aside from that, there is the matter of preexisting conditions.  The only risk that can be transferred here is the timing of the next flare up of the condition.  Forcing folks with these conditions onto the individual market will simply artificially elevate the premiums they’ll have to pay for the transfer of that risk.  Group plans would allow the risk acceptors, those insurance companies, to spread the timing across a risk pool larger than one, which would allow them to charge a lower premium—with a truly free, competitive market forcing them to compete for the business, and so exerting further downward pressure on the premiums charged.

Current group plans can convert to individual plans, at once or as people leave.  Since all members in a group convert, there is no adverse selection of sicker people.

This isn’t a free market—it’s a mandate to move away from a policy structure that many will want to retain, even if the coverages available within a particular group might change under free market imperative.  The free market also will handle the question of adverse selection just fine—that pricing matter.