As issues go, healthcare in the United States is one of the hottest issues. What seems to have made it even hotter was a sort of straw that broke the camel’s back event out here in Los Angeles – a ruling that forced an insurer out here, Health Net, an HMO, to pay a woman nine million dollars. Her treatment got too expensive and the Health Maintenance Organization found a way to claim she made a mistake in her application, or the salesman did, and voided her contract – a simple rescission that left her unable to pay for her chemotherapy and left her responsible for the treatments to date, to the tune of a hundred thirty thousand dollars in previous medical bills they would now not cover. That struck a nerve with a lot of people, and the judge was not kind to Health Net. They will now change their practices – no more investigators getting a bonus based on how much money they save the HMO by retroactively finding mistakes in the applications of those whose treatment gets expensive – no more quotas for the investigators to meet. That could moot another law suit – and another HMO out here that had been sending letters to its doctors, requiring them to identify potentially high-cost patients so those patients could be dumped from the system, backed off of that. Even the doctors were unhappy – they thought they were in the profession of making the sick well again, not in the business of making sure the very sick lost their coverage and could not obtain treatment anywhere.
But of course the two words say it all – profession and business. Insurers are in a business, the core objective of which is to make money. Doctors, as well paid as they are, generally, think of themselves as being in a profession, the core objective of which is to cure sickness. As you know, the prime directive, as you do that, is do no harm. It is not contain costs and assure a profit. The conflict is obvious, and with forty-seven million Americans without health insurance, and millions more underinsured as they work part-time jobs or work for low-margin companies that cannot offer much in the way of benefits, stories like those coming out of Los Angeles get people thinking.
And they’re not just thinking about Clinton’s big plans for universal coverage, or Obama’s, or John McCain’s plan to remove the healthcare deduction from the tax code (see this) and deprive millions of Americans of their health insurance in the name of free market economics. They’re thinking about the big concept. Is the whole idea of for-profit insurance companies making matters worse?
Sunday, February 24, in the Los Angeles Times, Ezra Klein tried to explain all this in Not-Their-Fault Insurers – “Giving you a raw deal on healthcare is what those firms are supposed to do.”
It’s just the basics on how things work:
It’s a common complaint that health insurers don’t actually offer “insurance.” As generally defined, insurance is a form of risk management that individuals use to protect themselves against unpredictable loss – a car accident, say, or a house fire. Health insurance, by contrast, is a form of risk pooling that individuals use to smooth out lifetime healthcare costs. Heath insurance does not insure us against risks so much as it insulates us against costs. We pay regular premiums so we don’t have to directly pay for irregular care.
Not all of us, however, make this deal with insurers. About 50 million Americans are uninsured, and tens of millions more are underinsured. There’s no law that says we all must have insurance or that insurance companies must agree to cover us. Given that, it’s natural that insurers – which are, after all, for-profit companies, not government agencies or public trusts – turn their attention to making deals with the most profitable among us and avoiding deals (or finding ways to break contracts) with the least profitable.
That’s exactly what we would expect them to do. We are using them to minimize our risk, and they are selective about us to minimize theirs. So is it any surprise that they compete over which of them can be the most sophisticated about cherry-picking the healthy from the unhealthy (stories abound of insurers in offices with a “broken elevator,” so only those who can walk 10 flights of stairs can apply) and which is the most adept at canceling policies once they become unprofitable?
What did you expect? Klein offers great detail, but his main point is that these insurers are not very good for us. It’s just the free-market model we fell into.
It seemed like a good idea at the time. But now it may not be. This was explored elsewhere in American Marxism in these pages. To review, we came to have a system where employers offer health benefits to workers, knowing healthy workers will increase profits, insurers like HMO’s sell plans to employers that keep costs to the buyer low and profits to the insurer high enough, and the insurer provides care at a rate that doesn’t break the bank. It’s efficient, everyone wins, and the government has nothing to do with it.
But this clearly isn’t working, and probably cannot work. So people are beginning to ask why one of the parties can’t just be the government, and we remove the profit motive, the factor that seems to be gumming up the works. As before, the concept is the same – with insurance for everyone, everyone will be more productive and not scared silly all the time, and the costs can be distributed far more widely. Add to that the obvious point that if American corporations didn’t have to pay for their employees healthcare they could become far more competitive, And it is obvious that it is in the interest of the government to keep the population healthy – if it’s good for a business, specifically, it is surely good for the country, generally.
But it smacks of socialism, and we hate that. We’re the rugged individualists and so on. But free-market capitalism – making sure there’s a profit for everyone concerned – that the employer gets productive workers and makes more money (increasing capital) at a predictable and relatively low cost, if the employer strikes a good deal with the HMO broker, and the insurer of the medical services, the HMO, makes a tidy profit, with careful management, and everyone is happy – has created quite a mess. The idea that the government has to do nothing – the welfare of its citizens, or a good chunk of them, is assured by what Adam Smith called the Invisible Hand – everyone competing in autonomous self-interest to grab what they can – has not taken care of everything with optimal efficiency.
Can we change things? That might be tricky. A good friend whose title is Assistant Executive Director for Government and Industry Affairs for the Professional Insurance Agents, in an unnamed state back east (unnamed to protect her anonymity) thinks subterfuge might be necessary:
I keep waiting for employers (business) to say, take this monkey off our backs, PLEASE! That might change the political dynamic – couch it as a must-do for global competitiveness.
That might work, but out here the cost of getting the for-profit folks out of the picture has its costs. Consider an organization like this, one of many servicing the system. Here you have a whole building and a hundred or more people working there. Would there be no more jobs here? What would the whole crew of people who are experts in negotiating capitation rates for their provider groups with this HMO and that do if this were to end? Flip burgers? What about the IT staff, the experts in the custom software that tracks eligibility and plan detail and shifts funds here and there? Do they now design video games? And what about the law firm the organaztion retains in the event someone sues them for denial of coverage? That happens regularly. We don’t need more unemployed lawyers – out here those bastards write screenplays no one buys and wait tables.
You don’t simply shut down an industry. Think of what Newton worked out about mass and inertia. As in physics, so in the economy. Large mass, in motion…
As for the likelihood of GM and other big businesses in trouble forcing the government to assume the responsibility for providing health insurance, Rick, the News Guy in Atlanta, comments:
Much of business’ ability to do that, I think, would depend on whether they could overwhelm our massive insurance industry, an industry which (if socialized medicine were to succeed) would necessarily disappear. I keep thinking that this problem is similar to abolishing slavery in the late 1700s and very early 1800s; oddly enough, there were plenty of people, even in the south, who thought it was something we should do, but refused to move on it until we could figure out the problem of how to compensate slave owners.
Another friend, a professor of marketing at a top graduate business school back east, reacts:
I must’ve missed something in my history classes – I admit to being an average student at times but I never remember covering that economic compensation program. I do remember something about a war. Did Johnson or Grant actually sign economic reparation legislation – to losers go spoils?
But I actually think your general analogy – at first blush – is a bit scary in its possibility as a real parallel.
Yes, it is true we didn’t work out the economic issues with slavery. We had a bit of a war. Lincoln got shot. You remember.
But this will not lead to civil war – perhaps. If there were one, though, this one would be between the free-market no-rules capitalists, and the remove-some-things-from-the-market-for-the-common-good semi-socialists. Lukily all we have so far is talk, and looking for models we can emulate.
You can see the lines being drawn already, of course. Over at the libertarian Cato Institute Daniel Mitchell is saying this:
Iceland is known as the Nordic Tiger because of rapid economic growth. Much of the nation’s prosperity is the result of free-market policies.
Matthew Yglesias at the Atlantic is saying no, no, no:
When I visited Iceland it struck me as more a Scandinavian social democracy than a free market paradise. And indeed the OECD stats back me up. …
Iceland features somewhat lower levels of social spending than do the other Scandinavian countries, but it’s still a really high level especially when you consider that pretty much none of that tax revenue is going to the country’s non-existent military. I would love to see the US become more like Iceland – flexible labor market, high taxes, and generous public services sounds good to me. But I’m pretty sure Cato would freak out if I proposed a 50 percent increase in the tax share of the American economy.
And here he argues with Will Wilkinson and all the the others who think that the economic success of countries like Iceland and Denmark should be attributed to ” the relatively light hand of the regulatory state.” That just isn’t so:
In many respects, generous spending on public services and deregulation go together like a horse and carriage – a lightly-regulated market economy generates the wealth that facilitates the social spending, and the availability of public services makes the vicissitudes of the marketplace much more tolerable.
When people are counting on their job to provide them with such a high proportion of what they need to get by in life (not in an objective subsistence sense, but in an intersubjective social sense) the risk of losing that becomes intolerable, and rises the demand to treat one’s relationship to other market actors as an entitlement. Thus, labor market rigidities, price controls, subsidies, etc. Alternatively, one could simply be entitled to a basket of publicly provided stuff (education for oneself and one’s kids, safe and well-maintained streets, adequate health care and transit, continuing education and job placement, etc., etc., etc.) but then let the ups-and-downs of economic life operate as they will.
Of course he thinks deregulation is okay, under certain conditions:
The movement – started under Jimmy Carter then of course continued by Ronald Reagan and Bill Clinton – to deregulate important aspects of the American economy was basically a good thing in my view. Indeed, as I’ve blogged before there are a lot of areas – especially at this point those under the purview of state and local governments – where we would do well to deregulate substantially further in terms of occupational licensing, land use, what’s involved in starting a new business, etc.
Unfortunately, what we haven’t done is built the strong welfare state and generous public services to go along with it. Here I part ways with a lot of people (Will, for example) who appear to believe that it’s impossible to do in a large, diverse country what’s been done in several small, homogenous countries. More challenging politically? Of course. And that’s why we don’t have it today. But doable? Hopefully some day in my lifetime? I think so.
Mark Kleiman, of the UCLA School of Public Policy, chimes in:
I like Matt Ygelsias’ model of places such as Finland, Iceland, and Denmark as having in effect substituted public provision of essential services and social insurance for economic regulation. If losing your job doesn’t mean losing first your health insurance and then your house, then it becomes morally tolerable and politically feasible to accept policies that put some jobs at risk.
And he extends the idea further:
The same is true, in part, of the tort system. If the only way to pay for the treatment an accident victim needs and to replace the income he or she loses is to find a responsible party and make that party pay, then “tort reform” means throwing accident victims on the scrap-heap. But if those problems are covered by social insurance, then the remaining function of the tort system – deterring risky behavior – can be handled by regulation instead. American “tort reform” advocates who point to Europe as an example are dishonest insofar as they omit the fact that Europe has a better social safety net and tighter safety regulations to go along with its weak tort system.
And he has his model:
So the right formula is a little bit more complicated than “strong safety net, good public services, and loose regulation.” It’s more like “strong safety net, good public services, tight safety regulation, loose economic regulation, and less money moving through the tort system.”
Matt is right to wonder whether the US could ever get there. But it would be a nice place to live.
Some wouldn’t think it so nice, those who hate FDR because he started it all – he made people think the government we pay our taxes to should take care of things with that money, for the general good, and intervene when things got out of hand. You know the argument – that man, FDR, made us a nation of free-loaders who expect those who do things and make money to support them, as they sit at home, drink beer and watch Judge Judy. FDR destroyed America’s initiative and all that. It is a tiresome argument. But that’s one side of things.
The other side of things is those who think it would be nice if we all chipped in for universal health coverage – no one turned away for preexisting conditions or bad spelling or whatever, no one dumped when they cost the system more than average. Then you could change jobs and not worry, and we could get some good things done – no cloud of worry distorting everything. It’d be good for everyone.
This will never come to a civil war, of course. But the issues have been joined. The two sides could not be further apart than they are. If we’re all in this together, what does that mean?
The healthcare issue cuts to the core of everything. People are questioning capitalism itself. Does it work?
The Fort Sumpter of this vague war, curiously, seems to have been a Los Angeles courtroom.