Why Insurance Competition Will Not Lower the Price of Health Insurance

Real Conservatives, as opposed to "Trumpian's" believe in every part of their rational self that the consumer cost of Health Insurance will go down if you simply free up the market from government regulation of the product.  They absolutely believe that if went down this path, health insurance would be affordable for every working person.

But insurance provided by the private sector insurance market only works if the insurance companies make a profit after they cover their costs.  Life Insurance is the easiest for the industry to make a profit because the statistics, required overhead and investment returns work in a synergy that produces a product that can be constructed in a variety of ways to satisfy consumer demand and be affordable.  It is a very useful product but one that many lower wage people do not buy because they don't have the money for it.  And non-working people do not have any either.  But both of those classes of people need and demand medical care from hospitals if their is no other place for them to go.

The unfortunate truth about insurance is there are systemic issues that effect the relationship between  affordability and profitability.  Car insurance illustrates this.  Inflation drives the cost of car insurance.  RSL has unfortunately over the last 10 years had 3 incidents with her car.  She damaged the under section when she hit some black ice in Vermont and went into the ditch.  Repair bill as I recall was $3,000.  She damaged the bumper when she misjudged an icy pile of snow pulling out of street parking.  Repair bill $1,500 as I recall.  And last year, she lightly rear ended a van coming off the Saw Mill Parkway onto the Cross County. The van had little damage because it was moving forward.  Our car had $6,000 of damage to the hood, grill and bumper.   As a result of this her car insurance now costs $1,900 a year.  I have no accidents, but my car insurance costs $1,100 a year.  A few years ago we were both paying about $800 a year.

I know that if we had lower cost cars we would pay less in car insurance.  And if we lived somewhere else we might have lower cost car insurance.  But the fact remains that the damage in the 1st incident  cost $3000 less to fix than the last incident because of inflation in the car repair business.  Inflation can not be competed away and it drives up the cost of insurance because investment returns cover inflation everywhere in the process except in the actuarial necessity that premiums from the consumer cover the 95% to 100% of the expected losses.  Shareholders would actually prefer that be 100% or 102%, and anything below 100% has to be covered by investment returns.

How is health insurance going to be affordable when almost any little illness causes $200 to $300 in Dr' bills plus another $100 in lab fees?  Easy repairs to limbs cost $5,000 to $10,000 and sometimes more.  Cancer, if treatment is successful, runs $50,000 to $100,000.  And then there are the chronic illnesses like Diabetes, Lubus, MS, etc that cost at a minimum a few thousand $ a year.

We live in a society that had decided patients and Dr's get to decide on treatment.  Even the current Head of HHS believes that.  What that means is sick people get treated and the health insurance has to pay for it.  And as I will lay out below, that is why competition will not lower the price of Health Insurance and if people cannot afford Health Insurance, they will end up in hospitals for treatment as uninsured people, and then we all pay for that somehow because hospitals need to be breakeven at worst.

My only insight into how the law of large numbers works on this dynamic is the state of the individual market in NYS before ObamaCare.  No exclusion for pre-exsisting conditions and zero deductibles with the usual co-pays generated a $1,500 a month cost per person, which allowed the insurance company a profit.  $3,000 a month for a couple equals $36,000 a year.

Now under ObamaCare, that cost is now roughly $5,800 a year with a $7,000 deductible/max-out-of-pocket per person with an insurance company profit.  I expect to pay about $1,000 of that deductible so my total cost for one is $6,800 a year or $13,600 for a couple.

NYS has a fairly vibrant market for health insurance but that is the base line cost. How is competition going to reduce that when the insurance companies that are here are already working with the Dr's, Lab's, and hospitals to reduce the cost of visits for those with insurance.  I know from speaking with Dr's that they are being squeezed and working to make up income on volume.  The only way insurance competition can reduce costs is by reducing coverage or making some users pay more for what they want in their policies.  And inflation in medical services can only be covered by increases in premiums.  That is the way the private sector insurance market works.

And if the insurance companies want to manage that inflation they have to limit what they cover and that in particular puts a focus on new treatments that are very expensive, so the insurance companies essentially create death panels to limit their exposure to new treatments.

There is delicate balance that any insurer must manage when it comes to new treatments.  But the reality is cancer is far more treatable today than it was 20 years ago.  Who knows what improvements will come with other illnesses?  Someone has to pay for new treatments or they will not develop to the point where they are useful to more people and covered.

That of course leads us to the issue of how can we as a society cover new treatments but keep the overall cost of health care within some budget.  Conservatives like to focus on the growth in Medicaid rolls and tend to focus on the needs/cost of the poor.  But the fact is that much of the growth in Medicaid costs comes from long term care for elderly dementia patients who spend down their resources and then go on Medicaid.  I hate to be harsh, but as long as our society does not view euthanasia for dementia patients as acceptable, this will be an expense for Medicaid.  So, either we pay this cost or we have to have a process for killing dementia patients.  And dementia patients end up in hospitals costing money to be fixed up and sent back to the Long Term Care facility.  There is circle of expense here that looks to me like a legal Ponzi Scheme for the Medical Treatment Business.

So,without euthanasia and death panels, private sector companies cannot control their costs and that is why competition will not make health insurance affordable for all levels of income.

Any Health Insurance Plan that wants to provide health insurance for everyone has to be Universal and if it is not, you either pass the cost of the uninsured receiving care onto the insured market or you have to deny such people any treatment that they cannot afford to pay for and you will have the poor dying in the streets as they did 200 years ago.

So, what do I support.  Leave those with employer paid health insurance in the private insurance market.  Leave Medicaid expanded for people who make 138% of the poverty level.  And let anyone over the age of 26 who is in the individual market have access to a Medicare policy.  If you are under 65, pay a premium equal to the full cost of the Medicaid policy for a basic level policy and if you want something better pay the full cost of the Medicare policy.

Thank you for reading this if you get this far.

Sunday Musings 5/15/16

Three topics today:  The Kardashian Culture, Transgender People, and Cancer.

(i)  Reading about Dangerous Donald's life time of crude sexist behavior and his manipulation of power to get people to admire him and enrich his life in some manner, I was reminded that is what the Kardashian's are all about.

I know that RedStateVT dislikes the Kardashian culture.  So do I.  Yet, a Donald Trump victory and presence in the White House for 4 years would place the Kardashian culture as an every day existence in each of our lives.

So, Democrat's, let us not focus on the racist positions that Dangerous Donald projects as core positions of his.  You need to focus on the issues that underlie those racist positions.  The issues have validity even if the answers Trump presents do not.  Public Safety, respect of individuality, and fairness in economic opportunity are valid issues.

(ii)  My own thoughts on sexuality and gender identification have been evolving for over 40 years, slowly.  These are not things that can evolve quickly.  So I am left with the feeling once again of questioning why the Obama Administration is pushing an issue that is really not much of an issue in practicality for most people, and trying to protect, a few people with a national policy as opposed to simply letting people on the local scene work things out.

I am referring of course to the bathroom availability for transgender people.  My son, in his class of 88, had two transgender people.  His was a private school where people had to pay tuition so these young people came from family's of means.  This brought home to me that transgender people are just people.  They are not weirdo's, they are not predestined to be prostitutes, cross dressers, pill poppers and night lift hangers on.  They just want be themselves, as they believe they should be, and carry on their lives with dignity and respect.  But these people are not numerous, incidents of discrimination are scattered through out the nation, and I am left wondering why the Administration had to issue a policy.  Somewhere in this administration, and I do believe it is somewhere below the President, there exists a strata of power that is determined to root out discrimination everywhere and that cannot be done from a centralized place.  It can only happen on a local level.  Even when laws are passed, they require enforcement and that can be important.  But guidelines and executive decisions just rile up the opposition who want local customs to left alone.  That may result in discrimination against some people, but a national directive is not going to change that.

(iii) Cancer is complicated and the Human Genome Project has given cancer research great insights into how complicated a disease it really is.  And an extensive article in the NYT Magazine prompted a thought.  Cancer is expensive to treat.  A lot of high priced medical talent is focused on giving care to people with cancer.  The Drugs take a lot of people who need to be paid good wages to develop and test.  And the cost of all that has to end up in society either through higher health insurance premiums or higher taxes.  Someone has to pay for all this; there is no free lunch, someone always has to pay for it.

So I was left to ponder the economic role of cancer in society.  It is not a productive use of resources in every instance.  It is easy to see the productive use in a young person who hopefully will recover and have a productive economic life in our society.  There is also value in keeping parents alive who will offer guidance and love with a rich family life for children and grandchildren.  But at some point, the expense and the pain of treatments becomes futile.  That is where palliative care is so important.

From there I started to ponder just how much wealth is enough.  I know many GOP supporters don't think there is such a thing as enough wealth, and they want lower taxes so they can have more wealth.  But once you have given your kids a debt free education, and maybe set aside some money for your grandchildren's education, how much do you need to pass on.  What about each individuals need to contribute to society through church, charity, and being part of the insurance pools?  That has benefit to everyone by lowering the cost of insurance and spreading the enormous costs over a larger pool.

I like Hillary's idea of opening up Medicare to people over 50 or 55.  I would be there in a nano second.

Sunday Musings 1/17/16

It was 20 years ago that I realized my time as an employee of a sell side firm was coming to an end because I had an a**hole of a boss who believed that no one older than him should work for him.  He actually had the nerve to say that to me.  So I started to network around and see what I could find with another firm.  That led to my going over to the buy side where I would last for 5+ years until I caught up in one of those inevitable corporate downsizings.  Which led to a period of unemployment but eventually I found a job in Vermont and became friends with RedStateVT as we shared observations of dysfunctional clients, while not being able to see the dysfunction in our own firm, which ultimately led to both of us being retired too young (for our ideal long term financial health).

I muse on that because we saw a play last night about the stresses globalization and Moore's Law (technology advances at an ever increasing rate) put on a work force and the different ways people react to that and how their humanity may come through.  And the play left me pondering this morning the state of our politics, the anger people feel at things they do not control, and how that can come to manifest itself with varying degrees of humanity toward our fellow man.

As I have said before, there is only so much politicians can do for people whose skill sets get left behind by globalization and technology. Society by virtue of its need to compete much always focus on the young (educate and keep them healthy) and encourage those older workers to achieve the best they can and live an honorable life within their means recognizing that they must bear responsibility for decisions they made earlier that have ramifications later on.  That was the moral of the play last night while it also explored why even these unfortunate souls deserve some support from society if they are working to be deserving of that support.

And it is that latter point that is so underdeveloped in our political discourse.  Neither party is really addressing what can society afford and how should we spend it and how do you make people happy when they have to downsize their economic needs and objectives.  If you can't get a $25 an hour job, you take a $15 an hour job, downsize your lifestyle, and find ways to be joyous.  But at the same time, the minimum wage cannot be so low that hard working people without an education cannot afford the basic necessities of life including health insurance.  That is why the Heritage Foundation, when they had a soul, designed Obamacare the way they did.

In a similar manner we are not having an honest discussion of the real problem with guns because the two sides speak past each other and do not give.  The ease of access for the criminally minded and the mentally deficient is the real problem, not 7 vs 10 bullets in a gun magazine, and as one liberal columnist pointed out this morning, not concealed weapons with a carry permit.  And how do the criminally minded get so many guns, straw man purchases in places where there are no background checks.  And how do the mentally deficient get guns, well that is a huge problem as no one has a sanity problem until they have exhibited the sanity problem and that is frequently after they already have their semi-automatic weapon.  Maybe there should be an age restriction on use of semi-automatic weapons, along with background checks on obtaining them.  It seems to be angry frustrated older teens and early 20's who shoot up movie theaters and commit acts of terrorism.  Technology with thumb print recognition systems would seem to be a place where some effective gun control policy could be created in the middle if the NRA were isolated politically.

In conclusion, once again as I write on a Sunday, I am left feeling very discouraged about our political discourse and see little hope of it improving after November.  The anger on the right is encouraging anger on the left with the result that we will not have Clinton vs. Bush III in November, we may well have Sanders vs. Cruz or Rubi and then one can only hope that Michael Bloomberg decides to run (I think he needs to make that decision very soon).  And without Bloomberg in the middle, calm rational people will have a very hard choice to make and while I would vote for Bernie in that case for the 1st time (having never voted for him while I lived in Vermont),  I am not at all sure Bernie can win Florida, Ohio or Virginia with his European Socialism.

The New York Times some years ago had a game like graphic where you could pick and choose policies to balance the budget over 5 years.  If you value the need for infrastructure, defense, providing some level of humanitarian support for all ages, controlling the percentage of GDP the government takes, you had to control the growth in Social Security and Senior Health Care (Medicaid 's worst growth is in paying for Long Term Care of people with dementia who spend down what they have saved and they have no more) and no politician wants to talk about this.  They are just going to let us spin into a crisis.

While I promised myself I wouldn't go there, the problem is not Heritage Foundation/RomneyCare/ObamaCare. That is trying to keep the cost of health insurance and the health of people under 65 affordable and effective.  The problem is dementia and the use of Medicaid to pay for it.  My mother had dementia for over 20 years and my father paid for her care until he hit the minimum wealth allowed and my mother went on Medicaid.  Her final Medicare bill was $400,000 for care that should have never occurred because of her DNR, but it did.  And I don't know exactly what Medicaid actually paid because I never saw those bills, but at $150 a day for the 10 years of her institutionalization that was another $550,000.  And now those dementia care costs are somewhere between $200 and $500 a day.  So a dementia patient can cost society close to $1 million each and if over time (the favorite government accounting technique) 30 million people end up with dementia (10%) and they end up on Medicaid, that is a potential cost of $3 trillion.

That is not trivial, and I wish our political discourse would allow a coherent holistic discussion of the demands on our budget and a balanced approach to giving ourselves a budget surplus when we have full employment and an affordable deficit when we are in a recession.  Right now we are nearing full employment, have a budget deficit of 2.5% or so, and political Armageddon between liberals and tax cutting conservatives.

Oh, and what happened to that a**hole younger boss who made me leave the sell side, he returned to N.C. ran for Congress as a Conservative GOP and lost.  So now he is on some Board of Directors enjoying the income of being a pal of rich people who appoint him to their Board's.