Friday, February 19, 2010

There's More Than One Health Insurance Death Spiral


Paul Krugman's column today explores the "California Death Spiral", more specifically how health insurance rates spiral upwards when healthy people start dropping out of the market.
Why the huge increase? It’s not profiteering, says WellPoint, which claims instead (without using the term) that it’s facing a classic insurance death spiral.

Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on.
It's worth noting that factions of the political right, led by people like Newt Gingrich, are intent upon bringing a similar death spiral to the cost of comprehensive health insurance, not just in the individual market (where it's already extraordinarily expensive) but also in relation to group insurance available through employment. The preference is that people purchase catastrophic health insurance, while paying substantial deducibles and co-pays and the cost of routine medical care through a "health savings account" - that is, you pay out of pocket, but with a possible tax break. These plans are profitable for insurance companies, significantly cheaper for employers, and... significantly raise health care costs for individuals, but what does that matter, right?

When you see Democratic Senators talking about "Cadillac health insurance plans", or proposing ways to surcharge or tax comprehensive health insurance plans, the reforms they propose aren't really much different from Gingrich's. That shouldn't be surprising, given that Senators from both parties are effectively owned by business and insurance lobbies - the groups that want this "reform". If you limit an employer's tax deduction for health insurance and fail to raise the limit each year in an amount consistent with healthcare inflation, run-of-the-mill comprehensive health insurance plans fall under the "Cadillac" provision. It becomes more and more expensive to offer comprehensive care, so employers will switch to plans that offer less coverage. They're already doing that, so it should go without saying that increasing their costs will accelerate the process.

You will note, of course, that few are being honest about the true nature of the debate. You don't see people like Gingrich explaining why you, as an individual, will benefit from having the insurance you like "taken away". You're more likely to see the opposite - that, even as they advocate for reforms likely to take away "the insurance you like", those same people are berating the Democratic proposals under the guise that they'll remove your choice of insurer and have a "government bureaucrat" decide what coverage you get - "pay no attention to the man behind the curtain".

You will not hear any of these people address how most nations of the industrialized world manage to provide universal, comprehensive health care at a lower cost than the U.S. pays for its current system - they prefer that the public not be aware of that fact. You'll certainly not hear them admit that their proposal is a giant social experiment that could leave many people technically insured but unable to afford the copays and deductibles requisite to actually obtaining health care services.

The same people who advance this experimentation - catastrophic coverage combined with HSA's - for the nation are contemptuous of a "public option". I have yet to hear a cogent explanation of why from a single one of them, beyond the fabrication that a "public option" substitutes "government bureaucrats" for "insurance industry bureaucrats" when it comes to the administration of the policy. I suspect that their objections come principally from concern that a public option will deliver a lot more at a similar cost to the "catastrophic policy plus HSA" plans they (and their industry backers) prefer. Even if you implement a hamstrung, watered-down public option, available to relatively few people (see, e.g., the current House Bill), you will create a paradigm where people on the outside are likely to look at its costs and benefits and decide that they want in. The obstacles the House Bill imposes on a public option had the CBO projecting that it would be slightly more expensive than private insurance, but I suspect many people would choose it anyway - for the relative comfort that the government is far less likely than a private insurer to try to find a way to avoid paying for medical services they obtain, let alone trying to retroactively revoke the policy, and on the assumption that the government is much less likely to raise rates by 30+% in a single year.

If you pick around in their leavings, you can find the skeleton case that the Gingrich-types would present for their preferred approach to health insurance. It does appear that profits to insurers would go up, and that employers would generate significant cost savings. Although to date, as previously noted, the effect has been to increase the financial burden on employees, advocates argue that as more and more services are excluded from health insurance, market forces will result in their being offered at lower prices.

I am not at all convinced that their belief would hold true - there's a huge market of uninsured and underinsured individuals, right now, and doctors and hospitals aren't exactly rushing to serve that market. But here's the thing: if they believe what they claim, they should be prepared to make an honest case for it. Instead, they serve up hysterical falsehoods about the Democratic proposals, lie about what the public option is and how it would work, and otherwise attempt to distort the debate.

Is that what you would expect from somebody who believes his own argument, or is it what you would expect from somebody who's afraid his ideas will collapse if subjected to even light public scrutiny?

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