Tag Archives: insurance mandates

The Competition Conundrum


The meme of competition underlies every conservative healthcare reform proposal, so much so that it has taken on a sacred nature. I notice that many progressives tend to side-step this one—yes, they argue outcomes, but not necessarily the fundamental concept that competition is the root of all good, in every transactional system. Maybe that’s because it’s just hard to fight a meme like this. When it comes to varieties of flat-earthers, facts can be beside the point.

I had a comment on my last post that I was ignoring basic economics by not understanding that the laws of supply and demand, with enough competition, would by necessity result in lower prices and higher quality. So I thought it would be worth a try to look at a few factors in health insurance that are different from the basic market principles for things like pizza or haircuts. Remember I’m not an economist, so I’m going to stick to the easy stuff—the basics.

First of all, when someone is trying to sell us pizzas, the goal is to balance the price and quality to maximize the chance most of us will come back. If organic tomatoes, at a higher price, don’t affect our desire for more, they won’t be in the sauce. The sellers also need us to eat as much pizza as possible. In contrast, a smart health insurance company wants us to buy their product but not to actually use it. That is the only way they can make the increasing profits shareholders demand. Remember we aren’t their only customers—shareholders count too. This is really an unusual economic setup, when you think about it, so it would be simplistic to think “basic” economics would work.

So how can they entice us to buy a product but not use it? You might think they would try to keep us healthy, but other tactics are far quicker and more lucrative. First, they use tricky wording to hide the fact that they don’t cover certain services we might assume would be covered. Some diagnoses, unless we are medically trained, would be completely unfamiliar to us. So we might see an illness in the contract under excluded conditions and have no idea this mattered. Then they throw multiple layers of roadblocks in our way. Provider networks and formularies keep their costs low partly because some customers will decide to pay a higher price out of pocket for a better doctor or medicine. Denying claims or authorizations initially and then “realizing” there was an error if challenged lets insurers cheat customers who never catch the error. Even those long, convoluted phone trees to get prior authorization or protest a claim denial (“press one if you want to bite someone”) make some patients give up in frustration. I could go on and on about these tactics but have discussed many in previous posts.

Now let’s look at haircuts. Same thing as pizzas, in that my barber (yes, I have a barber and think she is awesome) is motivated to give me a haircut that makes me want to come back, and also hopes I’ll tell my friends about her. But the price of a haircut, if you ask any woman, does not depend only or maybe even primarily on quality. It depends instead on the cache of the salon—the area of town, the type of clientele (helps if some big-wigs go there, pun intended), the décor. I’ve seen plenty of women walk out of trendy salons with very ordinary hair. If they were bad cuts, of course people wouldn’t go back—but ordinary turns into glamorous if you get to share hairdressers with the women who buy $500 shoes. Or maybe with John Edwards. This same principle holds true with pricey wines. Tasters who drink wine poured from a fancy bottle give much higher ratings than they do to the same wine poured from a bottle labeled Mad Dog.

So competition does not always result in the best quality, even in non-insurance products—there are too many factors other than quality that play into demand. Insurers borrow this principle in their Medicare Advantage plans, marketing products that have great names or have cool perks like health club membership discounts but fail to offer quality coverage for serious illnesses. I’ve seen a recent insurance commercial talking up the friendly nurse a new cancer patient can call to get treatment options (I guess instead of talking to the oncologist). Never mind that this nurse has an interest in keeping your care cheaper for his company. The company doesn’t care if the sickies leave and don’t come back—it works just fine to keep only the customers who don’t have to use their product. Apparently negative feedback does not lower insurance market value much. Maybe the dissatisfied customers are too sick or too dead to make noise.

Risk pool size also makes competition an ineffective way to lower prices. If we had a very competitive market with lots of insurers, and no large companies dominated, each risk pool would be smaller and more vulnerable to effects of a few unlucky customers with expensive illnesses. Premiums would have to increase to compensate in those pools, and healthy customers without pre-existing conditions would migrate to another pool at lower cost. Using the pizza analogy again, customers who didn’t eat the pizza would try to find pizza places where no one else ate it either. If someone did eat it, the others would be better off if that person got food poisoning and never came back. Eventually we’d wind up with sick people in plans they couldn’t afford anymore. Of course, free market proponents would remove all the new health insurance reform features, including protection for pre-existing conditions and price controls, in the service of the god Competition.

Do folks really want the natural outcome of competition in health insurance—products the sellers don’t want them to be able to use? Do they value a principle like competition, whether it works or not, more than coverage when they are sick? Are they ready to constantly scramble from risk pool to risk pool when prices rise? And to pay through the nose when they get sick and the well folks run away, along with their premiums?

All this reasoning has limitations. I know from experience in medicine that things don’t always work the way it seems they should. We used to think babies were safer sleeping on their stomachs, until we looked at the data and found out they were 10 times more likely to die. So if you want to ignore everything I just said, fine—look at what happens in the real world. We have plenty of examples of states with multiple competing products and states like Alabama with one heavily dominating company. And insurance is expensive everywhere.

We might not be able to overcome the religion of competition. Maybe we’ll just have to borrow it for our own purposes. If we had a national health insurance, an improved Medicare for all of us, we could access it for preventive medical care or early treatment. Paying well for this type of care, and maybe even treatment for obesity and nicotine addiction, would become the best way to lower overall costs. We wouldn’t have to pay part of our premiums for advertising brochures and commercials, customer service people who get paid to confuse us, high-salary executives or shareholder profits. We could have the largest risk pool possible, making our individual payments the cheapest. Because of this, our pizza businesses, hair salons and automobile makers could save money, by not having to fund private insurance and by having healthy, productive employees. They could—guess what? Compete!

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Filed under Bad solutions for the uninsured

Patient Protection and Affordable Care Act, Part 3


I’ve only got 50 pages covered this time, because it was slow-going (300-350 if you are reading along, in what was HR 3590—I’m working the reconciliation part in as I go.  Would have been nice if they had just put it all together for us).  Have changed the title of the series to reflect that it is actually an Act and not a bill.

The first several pages covered some complicated calculations about the small business tax credits for those who provide health insurance contributions to their employees.  Unfortunately there is again extensive cross-referencing to the IRS Code of 1986, which I have not read and am hesitant to get into.  I do still have patients to see!  Maybe one of you is an accountant and can cover these sections.

What I could get out of it is that there will be an upper limit on the average amount of wages an employer gives and still be eligible as a small business.  For some reason, in one section it says the wages have to be less than or equal to twice the amount in another section.  Then when I finally got to that other section, it said 20K.  Which I guess means that average wages can’t exceed 40K.  Why would that not be just stated in the first section?  Maybe more congressional wordiness, but there could be some reason I’m not getting.  Seasonal worker wages are NOT counted into that average or toward the number of employees.  That’s interesting to me—could that make it where agricultural businesses that employ large numbers of migrant farm workers could be considered small businesses?

An employee would not include a 2% or more shareholder, a 5% or more owner, or a relative/dependent of people in those categories.  So these people could be making very large salaries, employ lots of seasonal workers, not pay their FT workers very much, and qualify as small businesses for the tax credit.

I’ve got to quote this paragraph as written – read it once and see if you understand it right away.

“No deduction shall be allowed for that portion of the premiums for qualified health plans (as defined in section 1301(a) of the Patient Protection and Affordable Care Act), or for health insurance coverage in the case of taxable years beginning in 2011, 2012, or 2013, paid by an employer which is equal to the amount of the credit determined under section 45R(a) with respect to the premiums.”

If you knew what this meant right away, I will pay you to do my taxes next year!  I finally realized all it says is that you can’t count the same money twice in your taxes—either it is a credit or a deduction.  Which I thought was already true.

Next is the section on “Individual Responsibility” (i.e., mandates).  In the intro to this section, a positive comparison to Massachusetts is made, saying that after mandates were introduced, more workers were offered coverage through employers.   However, Massachusetts is a more an example of failed reform than a successful program!  Despite surveys showing a drop in the uninsured from around 10% to 2.7%, those surveys were able to include very few non-English speaking families (whom, I promise you, are not all “undocumented”), and very few families without land-lines.  These families are much more likely to be uninsured.  When you look at tax filings, 5% of filers are uninsured—and we know that many low income families are not included in the tax filers.  So the numbers are likely underestimated.  The point is made that uninsurance fell during a time of job loss and economic downturn—wouldn’t this be more likely to place more families in the situation where they can’t afford a land-line or file taxes and thus aren’t included in the surveys?  But whether the percentage of insured has fallen or not, one thing is certain—the state is suffering severe financial repercussions from the plan.  It has turned out to be far more expensive than anticipated, including high administrative costs, and it has NOT reduced overall health care costs in the state.  It has, unfortunately, diverted sorely needed resources from prior sources of free care to the very poor, such as community free clinics.  Premiums, deductibles and copays have increased substantially.  And as many as 13% of the insured said in 2008 that they were unable to afford the care they were offered, including medications.  Check out this link http://www.pnhp.org/mass_report/mass_report_Final.pdf for the full details.

So in the same introduction, the Act says that mandatory coverage will reduce administrative costs and premiums.  As I’ve said, the exact opposite has happened in Massachusetts.

By 2013, we will all have to have “minimum essential coverage” or pay a penalty through our taxes, phasing in gradually until it gets up to $750.  We must also pay penalties if we have uninsured dependents—this one worries me, because it doesn’t just include minor children.  You can claim even an adult relative as your tax dependent, if you are paying for their expenses.  The amount you can deduct of course doesn’t cover the actual expenses—and now you are going to have to buy that person health insurance too!  This may be impossible for many families who out of kindness have housed and fed relatives who couldn’t care for themselves.  So will we now have these relatives in homeless shelters or dependent on the state for all their needs?

You can be exempt from the mandate for several reasons:  religious (yes, I see it now); being part of a health care sharing ministry (members have agreed to share in each others’ health costs) which has existed since before 1999; an unlawful resident; incarcerated unless pending charges; below 100% poverty; Native American; or “hardship” which has yet to be defined.  You can also be exempt if you would have to pay more than 8% of your income (amount to be reduced by the credit you would get on taxes).  So if you have to pay, say, 12% on insurance but with the credit it will be reduced to 8%, no exemption.  The problem would be that not everybody can pay up front knowing that in a year they will be paid back.  Will they have to put this on high interest credit cards?  AND I like this part—that 8% can be adjusted if the increase in premium growth is greater than the increase in average income!  So if you are not getting decent raises but the premiums are going up, you might have to pay a higher percent of your shrinking income for health insurance.  And how is this different from what we have now?

One good thing is that there will be no property liens for these penalties and no criminal penalties.  Too bad, because maybe we should just all go to jail and get health care there.

Under Employer Responsibilities, an employer with more than 200 workers (again, not counting seasonal employees) has to automatically enroll new hires in health insurance, although employees can opt out if they choose.  I’m interested by this part—if such an employer doesn’t offer health insurance and even one employee winds up getting tax credit or cost-sharing help because of getting another policy, the employer has to pay for that credit amount multiplied by all the employees.  But if the employer does offer insurance and the same thing happens (I guess someone opted out because the employer policy wasn’t good enough or too expensive), there are the same fines.  At least I think so—it was very wordy and I read it several times but perhaps someone wants to double check.  It is section 4980 H.  If I’ve got this right, is there going to be some kind of pressure on employees not to opt out?  Like firing them?  And then we’ll have lawsuits where nobody can prove that was the reason they were fired? 

There is a fine for employers if the waiting period to get on the insurance plan exceeds 30 days.  As I’ve said before, 30 days is a long time to be uninsured.

Ok, that’s it for this installment.  More to come!

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Filed under Healthcare reform