INCENTIVES

If you visit this site regularly, you know that I try to keep you up to date on the latest in pant-shitting. And sweet Jesus, are we going to see some pant-shitting if Congress goes ahead with its current plan to mandate the purchase of health insurance – although said plan has been changing by the minute for weeks, dependent entirely on barometric pressure, the alignment of the Galilean moons, and what Harry Reid, Max Baucus, and Olympia Snowe have for lunch. My sensitive instruments may be destroyed while attempting to capture the deafening, simultaneous, and nationwide pant-shitting that will ensue. All responsible people should be stocking up on underwear to weather the coming shortages safely.

Admitting my amateur status as a game theoretician, there are three basic problems with insurance. First, people are always looking for ways to shirk. They want a best-of-all-worlds scenario in which they don't pay for it until they need it, and then they want to pay in and reap the benefits once they get sick or injured. Of course this defeats the entire purpose of insurance – paying x every month to eliminate the risk of having to pay 500x if something terrible happens. If legislation mandates that affordable coverage must be made available regardless of preexisting conditions, what stops an individual from gaming the system like this? So that's one argument for mandatory coverage.

Second, insurance is only affordable because it pools risk. If a few thousand people pay x every month, only a few hundred will incur medical expenses equal to or greater than x during that time, and only a few dozen (if that) will incur really outrageous medical expenses. Why do the healthy people pay in, then? Well, nobody knows when they'll be hit by a drunk driver or wake up with a cancerous growth on their stomach. So they pay some reasonable amount x because they are risk averse. But let's say all of the healthy people say "Eh, screw this. I'm just paying for hypochondriacs and old people" and opt out. Purging the lowest-risk individuals – "creaming" the population – means that only people with medium or larger medical expenses are left. Therefore the price quickly escalates from the somewhat reasonable x to a much more onerous figure. The price of insurance, in short, is very sensitive to sampling. If a truly random mix of healthy and sick people is taken, the costs can be bearable. If the sample is biased toward people who run up huge medical bills, it becomes unaffordable for everyone.

Third – and this is the part that will baffle the mouthbreathers – it is both justifiable and "fair" to force people to buy insurance because if they don't, the rest of us have to pay their tab anyway. FJM victim Terry Jeffery tries to be cute in this piece on Intellectual Chernobyl entitled "Can Obama and Congress Order You to Buy Broccoli?" It is the typical slippery slope combined with retarded that we have come to expect from the right. Here's the difference. If you don't buy broccoli, nobody cares. If you don't buy health insurance and get into a car accident, you run up a $300,000 ER tab that the hospital has to write off – i.e., they pass it on to the people who do pay. Oddly enough the "personal responsibility" and "freedom of choice" crowd ends up in the same ER as the rest of us when some major crisis befalls them. And lo and behold their hoards of Ron Paul silver dollars and night shift at the screen door factory aren't quite enough to cover the costs. If the hospital attempted to collect it would be a heartless evil corporation – or Jews, blaming things on Jews is still popular – trying to trample on the rights of freedom-loving individuals. But who are we kidding, they have no assets worth pursuing anyway. Personal responsibility ends when their ability to pay does.

Do I think there are constitutional questions about Congress's ability to mandate the purchase of health insurance? Yes, although the state-level precedent of mandatory auto insurance offers at least some precedent. Legal questions aside, though, from a rational perspective mandatory coverage is the only logical choice. If people are allowed to shirk, they will shirk. Many of us don't have much money to work with and many of us who do are cheap sons of bitches. Mandating one half of the equation – that coverage be made available to anyone regardless of preexisting conditions – without also mandating coverage is setting the system up for a disaster so obviously inevitable that we'd literally be better off with no reform at all.

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12 Responses to “INCENTIVES”

  1. J. A. Baker Says:

    this piece on Intellectual Chernobyl

    HA! "Intellectual Chernobyl!" I love it! It's such an appropriate name for ClownHall, is it not?

  2. jon Says:

    I have two big problems with the idea that people being forced to buy insurance will solve the problems. First, making people buy something won't make a private company lower its prices. And second, those private companies said right there in Congress that they'll still drop people who are too expensive. It's not a solution so much as a band-aid, and this band-aid is going to cost much more than a real public option available to all the public (even those with private insurance right now, even those who can afford private insurance right now, even those who like their private insurance right now, etc.) Until then, it's just subsidizing the money pit that's been chewing at American wages since 1990 (or earlier, your experiences may vary.)

    The problem right now for government insurance is that it only covers the most expensive patients: the old and the really, really sick and poor. The good news is that it does so pretty well. The bad news is that it could easily cover the rest of us for only a bit more than the pittance it costs to cover grandma, grandpa, and the guy down the block who has been in a wheelchair since birth because he was born with his legs backwards and his head too tight. If the government system covered everyone, as it does in most places where people with brains and hearts rather than wallets and avarice determined major public policy decisions, the cost isn't guaranteed to be much cheaper and the new innovations wouldn't come any cheaper either. But they'd benefit everyone, and that's enough of a reason to want a public option that is an option for all of the public.

    And if the private insurers can't fit in, then they deserve to fail.

  3. Kulkuri Says:

    The problem is the insurance companies, how is requiring everyone to buy insurance going to solve the problem. I say get all for-profit insurance companies, HMO's and others out of healthcare. Insurance companies created this mess, they sure as hell aren't going to fix it and kill the golden goose.

  4. ladiesbane Says:

    First, the price of insurance is not based on selective sampling. It is based on the experience of all enrollees in that plan during the previous year. (Initial rates are based on age, sex, height, weight, tobacco use, zip code, and medical history. Renewal rates are based on the prior year’s usage, anticipated usage based on age/sex distribution, and plan-specific benefits.)

    All rates are reviewed and approved annually by the state Department of Insurance, not to exceed a few percentage points in profit (premium vs. projected claims.) If actual claims cost less than planned, rates will hold steady or decrease the following year. Yes, that happens.

    Also, under most circumstances, people are not allowed to play the system. If you buy individual insurance after having gone 63 or more days without prior coverage (due to saying “screw this” and opting out, as you say) you are subject to a six month pre-existing condition waiting period exclusion — that is, your plan will cover emergencies, new conditions, and routine care, but not conditions that are chronic or which would have been treated already by a reasonable person. So you will pay six months of premium before you are allowed to profit in your attempt to beat the shared-risk system by not buying insurance until you are already in need of serious care. (Different rules apply to group health, in which eligibility is based on employment, and rates are based on experience rather than underwriting.)

    Medical underwriting, and all actuarial activity, involves cold equations. Liberals should look into it. Conservatives say there is no proving that residence by a toxic dump lowers life expectancy, but life underwriters know better.

    I will gladly pay higher taxes so that no one goes without care, but I want single-payer, with no insurance of any kind. Even the smart fraction of the public doesn’t understand how insurance works, and the system is too complicated to be run by people who don’t understand it.

  5. doug Says:

    ed, I now find the text hard to read on your site. The background is distracting. OK, I am 60. Maybe a plan?

  6. waldo Says:

    I now find the text hard to read on your site. The background is distracting. It's probably your computer.

    If a way can be found to implement a public health plan, it will revolutionise American society. It's worth a try.

  7. SeaTea Says:

    I'm guessing the person who said "the background is distracting" is having some kind of CSS issue where the text is not in a nice white box OVER the background.

  8. Parrotlover77 Says:

    If actual claims cost less than planned, rates will hold steady or decrease the following year. Yes, that happens.

    No, it does not. Once a risk, always a risk. Next you will tell me insurance companies just can't wait to get back into Florida and Lousiana!

    But yea, single payer makes more sense. However, that not happening now, nor is there a snowball's chance in hell of it happening in the next twenty years. So, we do what we can and hope Reid's opt-out public option puts enough pressure on insurers (and their co-conspirators, the state depts of insurance).

  9. ladiesbane Says:

    @Parrotlover77: I have renewed groups whose premium dropped, from one year to the next, due to less treatment by their workers, less treatment by other groups who had the same plan, and no leaps into higher age brackets or increased risk from other areas. When I was new to group medical, it floored me when this happened, but it did.

    I'm also used to carriers viewing state DoIs mostly as antagonists, with their finicky demands regarding compliance, documentation, and audits. I can't say there aren't states where the regulators and the regulated are in cahoots, but it's far from my experience here in the West.

  10. Loneoak Says:

    Mandated insurance makes a lot of sense at the level of a wonkish analysis that presumes the good intention of all the actors. But the real world has Joe Liebermans and Max Baucuses who would happily mandate insurance while giving insurers free rein as long as Politico gave them a reach around for being 'reasonable.' The reasoning for the mandated coverage is that individuals will game the system if given the chance. The problem with the mandated coverage is that insurance companies will game all of us, all the time, if given the chance. I don't think I'm a pant-shitter, but the notion that the federal government will mandate that I give up to 30% of my income to a private corporation for a crappy health insurance plan regulated by some wingnut Congress is disconcerting.

    If we're going to have private insurance, the Swiss model makes the most sense: in exchange for offering a non-profit basic plan to everyone for the same price, insurance companies are sanctioned to sell bells and whistles for a profit. There's subsidies, employer mandates, and whatnot, but it's a reasonable market-based approach.

  11. Chris Says:

    The only way I would be alright with being forced to buy health insurance is if it was a non-profit entity (the government) where I was certain that my money was going to pay for the health of people and my own health. This is kind of like social security. I really don't care if some of the money I earn goes to the elderly and less fortunate, and it will eventually benefit me. If I was forced to buy health insurance from a for profit insurance, I wouldn't pay and would rather rot in jail.

    I believe for-profit health insurance is a big part of the problem. Health insurance companies are out to make a profit, and they will only cover you so long as they can profit from it. Thus, health is not the issue, profit is. Who benefits from this: companies, not people. The other problem is, why do we need a middleman anyways? Because health care and liability costs are so expensive that most people can't afford them: this is pure insanity and the other major problem. Can I really afford a 50K surgery? Fuck no! Insurance preys upon the fact people can't afford health care, and you have no guarantees it will help you. Let's call a spade a spade: insurance is a scam.

    I think auto insurance and health insurance is a false analogy for the most part. You can't compare a hunk of steel to health and someone's life. This argument also depends on the assumption that auto insurance is necessary and beneficial, which I don't think it is. Auto insurance is also fucked up. I also think that forcing people to pay for a major part of the problem isn't the solution and ignores the problems of our current health care system. This piece of legislation is horseshit, in my honest opinion. We need legislation that will focus on HEALTH (government health care) and drive down health care costs.

  12. Mario Greymist Says:

    Ed, as someone who writes about fallacies, you should know better. All of the defenses you have given for the purchase mandate are based on at least one classic fallacy. This is a false dichotomy. Any defense of a public-private hybrid system which incorporates for-profit insurers is based on the assumption that such a system is the only possible outcome aside from nothing at all.

    I will freely admit that such is indeed the case, given the corruption in Congress. I contend that a corporate owned legislative class is not inevitable, and given the tone of your writings (I've been reading them for all of two hours, so forgive me if I am wrong) you share by belief that citizens can and will eventually toss these fuckers out with the trash. I understand that people who owe their professional security to the insurance lobby (read: congressional incumbents) will not bite the hand that feeds them. But acceptance of sub-par legislation for modest material gains (fewer uninsured a plus) amidst constitutionally questionable mandates (I will be glad to explain why the car insurance analogy is full of shit, should anyone wish to know), is not good citizenship in a participatory democracy.

    So by drawing the debate away from the central question of cultural importance (is healthcare a right?) you are aiding the current order of things which includes a totally superfluous and wholly inefficient institution. I am speaking of the insurance industry in whole. It serves no purpose in a world where we accept as axiomatic that everyone deserves healthcare. There is no longer a need to determine whether or how a person will pay. Legions of people will lose their jobs, but those weren't really productive jobs anyway. Whether the system is unapologetically socialist or simply singe payer is of no real importance.

    Think of all the hospitals and clinics which could be built by the laid off insurance workers and hospital billing professionals, should we convince them to do something productive with their lives.