Insurance 101: Obamacare Edition

Later this week I’ll be doing a post on the PPACA, or as it’s more commonly known, Obamacare.  The arguments I will be laying out in that post will be simple, if somewhat depressing:

  1. Despite what you may have heard from the left, the health-insurance crisis that led to the passage of Obamacare was not the nation’s poor being uninsured.  Despite what you may have heard from the right, the nation’s healthcare system was not sustainable, because the way that system is primarily funded had been in the process of radically changing to something different than what it had been for decades.
  2. Despite its good intentions, Obamacare will not  solve the actual crisis it was originally meant to solve.  This is because it was largely diverted to tackle the problems that were easy to sell politically, rather than the larger problems that were more difficult to discuss.
  3. Our healthcare system is going to change radically over the next 10-20 years — and it will change regardless of whether Obamacare stands or is overturned.  Despite what politicians of all stripes may say, there are only a limited number of directions we can go — and though each direction has benefits, each will also require sacrifices of some sort that we, collectively, would prefer not to make.
  4. We would be better off acknowledging the change that’s coming now, and begin to have a discussion about which sacrifices we as a nation wish to make.  Otherwise, those changes will happen without our having input, and we may very much dislike what we end up with.

That’s going to make for a long enough post as it is.  However, it won’t really be possible to discuss what needs to be discussed in that post without referencing some universal insurance and risk management concepts.  As it is my experience that most people don’t understand the mechanisms by which insurance works, I am making this preliminary post to explain some of the major concepts I will be referring to later this week.

Feel free to read the explanations below now, or wait until they pop up in the upcoming Obamacare discussion.  (Or, simply memorize these concepts and talk about them at parties!  It’s a great way to get people to leave you alone.)

Insurance Scheme

This term makes it sound like something nefarious is afoot.  But in fact, an insurance scheme is simply the model you use for any particular insurance product that makes it (hopefully) work.

Law of Indemnity

The law of indemnity states that insurance can only be used to put you in a similar financial position as you were prior to suffering a financial loss.  You cannot gain, profit, or collect other possibly deserved payments (e.g.: pain and suffering compensation) from an insurance policy.

How important is the Law of Indemnity?  Pretty damn important: More than any other factor, the global economic meltdown of 2008 was due to laws allowing AIG and large, blue chip companies to legally create an insurance scheme that subverted this law.

Law of Large Numbers

Simply put, the Law of Large Numbers states that the accuracy of loss predictions increases as your pool of risk increases.

For example: If you have a dry-walling company with five employees, an insurance actuary will have absolutely no idea if any of those employees will have a work related injury in the coming year, let alone what type of injury they might suffer.  If, on the other hand, you have 100,000 dry-walling companies with over a million collective employees, that same actuary can make a startlingly accurate prediction of how many employees will be injured, the number of different types of injuries that will occur, and the total cost to treat all of these injuries.

Because of this, as a pool of risk becomes larger, the amount of premium an insurer can charge and still remain solvent decreases, because there is less need to fund for uncertainty.

Law of Adverse Selection:

The Law of Adverse Selection states that those individuals more likely to sustain a financial loss are the ones more likely to purchase insurance for that loss.  For example, an 80 year-old man suffering from leukemia will always be more likely to want to purchase a $1,000,000 life insurance policy than a perfectly healthy 20 year-old man, regardless of premium cost.

Because of this, over time an insurance scheme will always attract those people with greater risk, which will drive up per-capita losses, which will drive up premium, which will make those less likely to have a loss even less likely to voluntarily pay premium, etc., etc.  Eventually, the insurance scheme will collapse – either because the insurer will not have been able to collect sufficient premiums to pay for losses, or because no one will be willing to pay the premiums required to fund losses.

There are two ways that an insurance scheme can get around the Law of Adverse Selection:

The first is to create a scheme that is largely designed to not have to pay claims.  The best example of this is non-group term life insurance.  That 80-year old man in the example above?  He simply isn’t allowed to buy life insurance. (Or if he is, it will be at a premium that will be as large or larger than the death benefit).  The same applies to a person with an overly dangerous occupation, or who participates in overly dangerous hobbies or lifestyles.  Please do not misunderstand — life insurers do pay valid claims.  (They pay them faster and with less hassle than every other kind of insurance, in fact.)  It’s just that they go out of their way to make sure that they almost never have to pay anybody anything by not accepting anyone that might actually require to be a paid benefit into their pools.  This is why up to 70 cents of every premium dollar you just spent on your new life insurance policy goes to the salesman that got you to sign on the dotted line, and not into the pool.

The second way around the Law of Adverse Selection is forced participation, which takes away the option for those with fewer losses to refrain from purchasing insurance.  Traditionally there are three methods of forcing participation into a risk pool.  The first method is by governmental decree.  Examples of this type of forced participation include workers compensation, auto liability, commercial construction liability, and medical malpractice.  The second method is forced participation through private third-party contract.  The most obvious example of this is home insurance, which your mortgage company forces you to purchase as a condition of loaning you money.  The third method is forced participation due to a third party unitarily purchasing the insurance on your behalf.  Think: employer paid health, dental and disability insurance.

Pre-Existing Condition Exclusion

Up until recently with health insurance, this was a universal clause with any insurance contract.  Without some type of forced membership, an insurance scheme cannot survive without this exclusion.  After all, why pay premiums for a loss that might happen if you can simply wait until a loss does occur, and pay the premium then?  Eventually, this leads to schemes where only people who have had losses wish to participate in the scheme, and premiums become larger than the cost of loss.  (See Law of Adverse Selection, above)

Bi-Lateral Benefit Scheme

This is simply an insurance contract that is specifically designed to provide equal benefit to two adversarial positions.  The most common bi-lateral benefit scheme is workers compensation.

People tend to think of workers comp as something your employer buys so you will be taken care of if you get hurt on the job.  In fact, workers comp is a legal compromise between labor and management: Workers are assured payment of medical bills and a percentage of lost wages should they be injured on the job, even if that injury is directly and solely the injured worker’s fault.  In exchange, that worker is not allowed to sue their employer if they are injured, even if the injury was the employer’s fault – and even if the workers comp benefit does not make the injured employee whole financially.

Subrogation Clause

A subrogation clause is part of almost every kind of insurance contract.  It allows the insurer to sue a third party that may have been responsible for your loss in order to recoup some or all of the claim payments.

Health insurance policies do not have a standard subrogation clause, as health insurers do not typically sue third parties to pay for your medical costs — even if those third parties are directly responsible for your illness or injuries.

Pass-Through Systems

Many insurance schemes collect premiums and hold on to those monies for extended periods of time, until such time as a claim is made.  Life insurance is a good example of this, as is reinsurance.  (My experience is that this is the way most people think all insurance is handled.)

Health insurance and workers compensation, however, are pass-through systems.  In a pass-through system, the insurer has a fairly accurate idea what amount of cash will be needed to pay claims over the course of a year, will add 2-4% on top of that for their own expenses/profit, and will pay out dollars just as soon as they collect them.  If their predictions are off, they make immediate adjustments upon contract renewal to compensate.  The purpose of a pass-through system is not to amass premium dollars and then keep as much as possible; the purpose is to fund a fully functioning healthcare system on an on-going basis and make a couple of points off the top.

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61 thoughts on “Insurance 101: Obamacare Edition

  1. Regarding PEC, it should be noted that they are sometimes dealt with by way of enrollment periods. On group plans, I mean. Our current insurance has complete PEC coverage, but only allows you to enroll under specific circumstances (when you’re hired, a situation-changing event, or during an open enrollment period).

    This isn’t a blanket solution, but could be part of a solution as an alternative to the mandate. (I actually think that the way we handle group insurance provides a decent blueprint in its handling of PEC’s.)

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    • A couple of things on this point:

      1. This is still unlike other insurance policies. (If you’re house burns down when you were uninsured, you can’t enroll 9 months later during an open period and have the new insurer assume the rebuilding costs that have not yet been spent.

      2. It also still encourages healthy people to wait until they have been diagnosed with a long-term, expensive ailment before they start kicking money into the system.

      3. The kind of group health plans that offer that type of offer are generally forced enrollment, in that your employer puts you in and pays for it. (This is of course changing, and will be a rather large part of the upcoming post.)

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      • 1. Health insurance is different in a number of ways. The important thing is that when you have restricted enrollment, people aren’t going to forego insurance on the basis that they might be able to sign up for it nine months after being diagnosed with cancer and receive treatment then. Which may do more to alleviate the problem than the Mandate.

        2. I think that there is still some hazard, but not nearly as much. I might take my chances if I can sign up for an insurance plan tomorrow, but I’d be much hard-pressed to rely on that if enrollment was limited.

        3. I wonder if we’re thinking about the same thing, because what I am talking about applies to virtually every insurance plan I have ever been on. They have an open enrollment period so that you can sign up or change your plan, but limit it to that (and specific circumstances like having a child or getting married/divorced) to avoid people waiting until they get sick.

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  2. First, it’s worth noting that the laws Tod describes above are akin to the laws of physics rather than the laws of Congress. Nothing a legislature or a court does is going to change them.

    Second, re: “life insurers do pay valid claims [] faster and with less hassle than every other kind of insurance … .” That’s not to say that there aren’t exceptions to life insurance coverage that are contested. I’ve got a contested coverage case my firm is handling right now; that the insured died is obviously not in dispute but the cause of death, and therefore coverage, is. It’s also interesting to note that in the realm of the universal or permanent species of life insurance, a loss is, eventually, a certainty, because human mortality is a pre-existing condition. It is fair and appropriate, therefore, that premiums for such coverage be priced accordingly. That’s important when considering the pre-existing condition exclusion: if we are moving to a model where people are always going to have health insurance of one kind or another, then rare indeed will be the insured who never actually needs to make a claim and therefore we may expect that what is effectively market-wide permanent health insurance will look from an underwriting perspective as different from what we’re used to seeing now as the difference between term and permanent life insurance.

    Third, regarding pass-through systems, it’s been my education that most insurance companies, and in particular the personal lines like life, health, and auto, use premium payments for investment purposes. A sufficiently well-capitalized insurance company uses collected premiums to purchase financial products. Reinsurance is one of those products, but so are investments in the same sorts of things that retirement investment funds or liquid investment funds buy: stocks, bonds, real estate, and commercial paper. Those are not pass-through systems, and while they generally yield higher profits for the insurer (and potentially the flexibility to offer lower premiums should the insurer wish), they also render the insurer vulnerable to variances in the larger economy. I’m told that underwriters in properly-structured pass-through systems (like workers’ compensation) can use the law of large numbers to startlingly accurate effect and therefore there is really very little flexibility beyond profit margin in what premium must be quoted for any particular risk. Meaning for our purposes in discussing health care that we can know in advance how much money we’re going to spend, system-wide, to an effective certainty, and that’s how much money has to go in to the system — and that we can allocate that cost to individual insureds with a very high degree of accuracy.

    Finally, are we going to delve into the concept of reinsurance? Is there a need to? From the standpoint of assessing, mitigating, and pricing risk, the reinsurer ultimately stands in the shoes of the primary insurer, no? I suppose it’s only interesting from the point of view that a reinsurer is also looking for a profit, so that adds additional cost at the underwriting level.

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    • A most excellent comment top to bottom, Burt.

      We may or may not get to reinsurance, and if so probably not in depth. One area where it might be an issue: Were we to ever look at a single payer system, it is possible (though by no means absolute) that one of the side benefits could be saving on reinsurance costs. This is because unlike insurance companies, the US government can simply mandate a tax to compensate for a sufficient shortfall.

      I’m not convinced of the wisdom of doing so, especially since that would make any shortfall a political football. Plus, reinsurance has the advantage of having an outside body saying, “Dude, you’re not collecting nearly enough money. Go collect more, or we’ll cancel you.”

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    • It’s hard to intelligently discuss risk without a grounding in statistics and probability. For every silver lining in insurance, there’s always a little dark cloud. I’m not sure the authors of Obamacare understood the problems they were creating: if they had, they would have attacked the problem statistically, demonstrating the obvious to the Tea Partiers, that simply everyone wants health insurance and nobody wants to pay for any of it.

      But everyone has to file a tax return. Nobody’s screaming about that.

      The larger question is this: why was Obamacare so stupidly presented? All it seems to have done, in its current incarnation, is annoy everyone. Those of us who understand its benefits and limitations are reduced to saying “Well, it’s just the first draft, it’s a very good start, you know. Markets will appear, prices will come round — ”

      Meanwhile, the Tea Party shouts back “And you’re forcing everyone to participate or pay a fine!” They don’t understand the basis of everyone participating: it lowers overall costs.

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      • why was Obamacare so stupidly presented?

        As best I can tell, it was the result of Obama trying desperately to get some GOP votes for the bill, which meant the most liberal version was gonna basically be Romneycare or the 1994 plan — and then compromising from there.

        Mostly to suit Joe Lieberman.

        Frankly, in terms of sheer actual power over the shape of the bill, it probably should be called Liebermancare.

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      • why was Obamacare so stupidly presented?

        Because it was the only bill that could get through the House and Senate without a single Republican vote. And as a result no-one really likes it — most Democrats think it didn’t go far enough and most Republicans think it’s a really bad idea.

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      • I think a large part of the problem was that, in order to make any health care plan politically feasible, it had to not change health care for people who currently had it, who still make up a majority of the population and a much larger majority of those who vote (not to mention donate, volunteer, or what-have-you). The changes that Tod is talking about? People fear them with a deep, passionate intensity, and no matter how much you talk about how the health care system needs to change, they won’t believe it. What ordinary non-political people want from the health care system isn’t individual freedom or catastrophic plans or universal coverage or any other ideological goal–it’s for their own insurance to never change, with the sole exception of getting cheaper. And the political necessity of coddling this desire really does hurt Obamacare, although it would hurt any other effort to change the health care system in any direction.

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      • There are some critiques of the ACA i have little patience for i have to admit. As noted above, the D’s bent over backward to get R votes by pushing an essentially R plan. The R intransigence made the most conservative D’s the deciders. To keep political support the plan had to leave most of our health care system untouched yet still change enough to expand care and try to curb costs.

        There are plenty of faults to the ACA but most peoples complaints either lead to a bill that couldn’t get passed then complain about the D’s just trying to get anything passed or giving in to much. The task of fixing a problem means doing as much as you can. The D’s did as much as they could. If only so many other would be reformers who want big changes ( libertarians i’m looking you guys in particular) want to deal with getting changes in a real world democracy then you better be prepared for compromises, deals and taking the sticks and stones of everybody who never tried to make any changes.

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      • A bill passed in the House by Democrats and in the Senate by Democrats and signed by a Democratic President and upheld by the Supreme Court by the “left” wing of the court plus Roberts which leads us to the following conclusion:

        If it’s not good enough, it’s the fault of the Republicans.

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      • You forgot the part about Obama shoving Ocare down R’s throats while bending them over, there was never any debate about the bill, they didn’t allow R’s to put in any changes or amendments, the final bill has never ever been seen by human eyes and its 320000 pages long. Might as well throw all the complaints in there if you are going that way.

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      • Jaybird’s observation is pretty on-point and snark doesn’t really change that. The Democrats had the numbers to pass anything they wanted. This is what they passed. Republicans have little room to complain, but at this point Democrats have little room to complain about Republican influence on the legislation.

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      • The Democrats had the numbers to pass anything they wanted

        Not quite true, particularly in the Senate.

        I think it’s safe to say that the majority of the Democratic Party, at least, didn’t get the health care bill they wanted. The blue dogs did, maybe.

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      • Chris is right. The Democrats were not speaking with one voice, despite the appearance of control. The Blue Dogs were as big a pain to the Democrats in their day as the Tea Parties are to the Republicans today.

        Big Health and Big Insurance are major donors to the political process. They leaned on everyone to ensure nothing like Single Payer emerged.

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      • “The Democrats had the numbers to pass anything they wanted. This is what they passed.”

        This is what they were able to pass, which meant it had to satisfy the 60th-most-liberal member of the Senate. Can we acknowledge that liberals made significant compromises from their dream bill in order to get this thing to final passage?

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      • Blue Dogs and lacking a single voice-yup. But the D’s did actually try to garner R votes. They courted Snowe and Collins for months. They offered various amendments and things R’s had asked for. They had that Gang of Six or Eight or whatever of senators trying to hammer out a compromise. The D’s tried and tried to get R’s on board with something. Some R’s even admitted they were just stalling for time as a strategy to kill the entire thing. The R’s admitted strategy was to derail and prevent any D plan and then they complain about the ACA being passed without any of their votes. That is sort of rich.

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      • Looking at it as conservatives/ liberal is much more informative than Republican/ Democrat.
        There never were 218 liberal votes in the House, or 51 liberal votes in the Senate, ever.

        Since the conservative position was “Do Nothing”, then as Dan notes, the final bill was determinedby the 60th most conservative Senator and 218th most conservative Congressman.

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      • I think the vote was more largely determined by, “51 Senators and 218 Congresscritters who could compromise between their ideals and how much money they were going to get (and/or keep away from their electoral competitors) from insurance companies.

        Because really, this is an insurance company bill more than anything else.

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      • Far be it for me to claim that I speak for the Tea Party but I believe the main problem they have isn’t understanding that including everyone helps to lower costs, it is the fact that never before has the fed gov’t claimed the power to force every citizen to purchase something.

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      • The Tea Partiers couldn’t count past 20 without running out of fingers and toes. Maybe they could get to 21 with the aid of their male appendages.

        Everyone wants health care. Nobody wants to pay for it. Logically — and here we are obliged to make these Tea Party types consider the problem on a statistical basis — the lowest possible rate to charge anyone is the one where everyone’s insured. Thus we can insure everyone.

        These people are too stupid to stand upright and carry a plate of biscuits at the same time.

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      • I am sick of this discussion being reduced to Childish Terms. Either statistics and probability are to be believed, or the Tea Parties. I will go with the numbers and the science. I have a low tolerance for innumerate discussions of this sort. Anyone who believes the Law of Large Numbers does not produce lower insurance prices is an innumerate idiot.

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      • Notme- There are a bunch of ways the ACA aims to control costs. The idea is in no way just to include everyone and then costs go down. Among the ideas to control costs are limiting the growth of Meidcare, using lump sum payments for services instead of fee for service in Medicare, believing that competition for customers in the exchanges will drive costs down ( this is called the free market and it often works), they had hoped to have board to eliminate ineffective treatment ( which all insurance companies have) and also more money for research on the effectiveness of various treatments along with a center to disseminate the information. I think there are few other cost control measures but they aren’t coming to mind. Simply there is a lot more to the cost controls then just giving everybody insurance.

        It is one of the most common complaints of liberals that there are being forced to buy a product from a company. That is also why plenty of liberals wanted an option for Medicaid for all or single payer. R’s wouldn’t go for everybody being able to choose Medicare.

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      • I believe that if there was no individual mandate, the Tea Partiers would have found some other feature of the bill to complain about. They don’t like the idea of spending taxpayer dollars to help cover the uninsured, full stop. As far as I can tell, there’s no way to make that palatable to them, so I don’t accept your claim that they’re merely concerned with the individual mandate.

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      • The Medicaid expansion and the subsidies for the working poor are, to quote somebody, a big f’n deal, and are not just insurance company regulations.

        Subsidies for the working poor are indeed a great way to provide health insurance to the working poor.

        Through for-profit insurance companies. I don’t think this takes much away from my point, does it?

        Look, I grant that this might be the only thing they could get through, but it’s still in many ways a pro-insurance company bill, plain and simple. Tracking the donations from insurance companies in 2009 and 2010 doesn’t exactly take away from the hypothesis, it rather reinforces that strongly. In 2009 and 2010, Pharmaceutical and Insurance companies combined for $830 million dollars in lobbying.

        Tracking lobbying efforts post-PPACA passage, predictably you see an awful lot of hard lobbying to make PPACA less onerous on private insurance carriers. Care to make any predictions regarding the next few weeks?

        Like, say, GOP congress critters (who personally now get much more in donations from, say, Blue Shield, than Democrats) manage to come out in the next three weeks with pro-insurance company rollbacks to bits of PPACA in the combined debt-ceiling/budget wrangle?

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      • The big question right now about Obamacare is whether the influx of new mandate-fueled business via the exchanges will be big enough to offset the regulations that have forced insurance companies to take on thousands of customers (which will become millions over time) whom they know they will have to make large payments to (for?), whom they didn’t have to take on before, and at rates that don’t allow them to reliably offset those payments. The offset is to come in the form of this influx of new business from low-risk customers whose size, as of this moment, is entirely uncertain.

        It’s not ridiculous to see this as a pro-insurance company health care reform (compared to single-payer it obviously is…), but it’s not obviously the case either. There’s a reason that, in addition to lobbying to shape various provisions in the law, insurance companies also lobbied to defeat it. There are potential benefits to them over the medium term, but they come at considerable risk to short-term profitability and public image. It makes sense for them to have lobbied at great expense to shape the law given the political outlook in 2009; it also apparently made an additional $102 million worth of sense to lobby to defeat the law in the broad form that it was clearly going to take throughout the process of enactment.

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      • At least the Blue Dogs knew when to bark, and when to heel.
        The Tea Party is a mite bit crazier.
        (also, it says something that the “moderates” of the Democrats were the pains, whereas the rightest-ofthe-bunch are the pains on the Republican side)

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      • And an even more sensible bill could have been passed if movement conservatives hadn’t freaked out about the idea of allowing their senators to try to work out a bill with liberal senators that would have been 85% of what conservatives had demanded as late as 2007, a bill that would have done a far better job serving liberal ends than Obamacare while using almost entirely conservative and libertarian means. Instead, Bob Bennett got primaried for consorting with the enemy.

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    • First, it’s worth noting that the laws Tod describes above are akin to the laws of physics rather than the laws of Congress. Nothing a legislature or a court does is going to change them.

      If that’s true, then would the “law of indemnity” never be transgressed? Is that “law” just a way to define what is and is not insurance, and once an arrangement exceeds repaying for a loss, then that arrangement is no longer insurance?

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  3. Jaybird’s observation is pretty on-point and snark doesn’t really change that. The Democrats had the numbers to pass anything they wanted. This is what they passed

    They did indeed — well, they had the numbers to pass what Lieberman would vote for, and that guy really demanded a few pounds of flesh. (They needed 60 votes).

    However, let us ALSO acknowledge ANOTHER truth — Obama worked very, very, very hard (as did Reid) to try to entice Republicans on board. Any Republicans. Which led to a small handful of Republican Senators getting Lieberman-sized sway on the bill (as they bargained with Reid, and actually got stuff IN the bill) but ultimately not voting for the bill.

    Yes, it passed solely on Democratic votes in the end. And I think compromising with the GOP was, frankly, a mistake. (One I saw coming). Obama, on the other hand, had run on hope and change and so started with the 1994 GOP plan and it got more conservative from there as he chased Snowe, Collins, and I forget the third Stooge. Grassly maybe?

    Which is why, on any poll on the ACA, a good chunk of those who “disapprove” of the bill are irritated liberals who wanted a public option or single payer, Democratic ideas that got killed in committee because Snowe and Collins could never vote for it.

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  4. In the post, I’ll be most interested in absorbing Tod’s substantive recommendations for health coverage reform. But I’ll also be looking to check the box on documentation of the bolded part of this claim: “Despite its good intentions, Obamacare will not solve the actual crisis it was originally meant to solve.” I’m not clear to this day what exactly that was myself, and I’m interested to know Tod’s source for clarity on the question. I’d also note that to “solve” a problem or crisis is a fairly high bar to set for any given policy or set of policies. Given the scale of this reform, it’s probably a fair bar, but it’s still a high bar. There are obviously others: amelioration, improvement, etc.

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    • Well, the ACA won’t really solve the rapidly increasing cost of healthcare (there are a number of ‘bending the cost curve’ measures in there, but who knows how they’d work?). OTOH, the US system (as compared to the rest of the first world) is ridiculously inefficient at delivering care.

      So in essence, the US is in an enviable position regarding soaring healthcare costs. If we were to be as efficient as the second least efficient system (Britain, I believe), we’d have cut our costs in half.

      We’ve got all this low-hanging fruit, you know? Per-capita health care costs might still keep growing more than inflation, but if we just ratchet to the next-worst efficiency system, we’ve bought ourselves a decade or two before we’re back up to the status quo. (And even then, we’d actually cover everyone directly instead of through the ER, so it’d be status quo with bonus).

      On the third hand, there’s some indications health care costs are leveling off –it’s not surprising we’d have a health boom. Been a lot of advances in technology, data collection, analysis and biology over the last two decades.

      To be honest, health care costs SHOULD be a sizable fraction of our country’s budget. Health is…kinda important, you know? People might put off a vacation for another year, but it’s much harder to put off that surgery that would restore your mobility…or keep you alive.

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      • I wish that we had a system where we could say “the law will take this measurable number and turn it into this lower/higher measurable number and will cost this other measurable number.”

        So we could look at something like the ACA and see what numbers we ought to be looking at and can say “we’re doing swell” or “it’s the Republicans’ fault!”

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      • But , that requires research, data collection, and statistical analysis. Scientific stuff; like the stuff behind climate change.

        And this was a plan to tempt Republican support, based on Republican-proffered policies.

        So what I’m sayin’ is that yeah, that would be fnckin’ awesome. But I don’t plan on holding my breath; some folk out there don’t want us using government resources to do that kind of statistical analysis.

        Even though it’s one of the services that government does best.

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      • Pardon me: I wish such things were baked into the law itself.

        That way, if we said “In April 2007, X people had health insurance and in April 2014, X+Y people had health insurance (and both X and Y are positive numbers) and it will cost *THIS* much.”

        Then we can ask whether Y people getting health insurance ought to cost *THIS* and go on to boggle at how it not only costs *THIS*, it costs *THAT*, and still, only Y people were covered additionally. Or, I suppose, brag to the UK that we’ve finally caught up. Whatever.

        That strikes me as preferable to a system where we’re stuck wondering what in the hell problem it was that we were trying to solve in the first place and arguing that we weren’t trying to solve Problem P (and it’s DISHONEST! to suggest that we were!) but Problem Q.

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      • The Congressional Budget Office is actually producing what you’re looking for, at least if I understand you right. Check out, for instance, this report from May, which includes estimates of how many people the bill will cover, the costs of the subsidies and other spending provisions, and the revenue raised through other methods (e.g. tax increases, lower Medicare payments, etc). Is this what you’re looking for?

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      • , has provided you with good answers (as opposed to my snarky one, you should be proud that you provoke my inner trickster).

        I think what you’re asking for was in the law the way it was originally structured, and that went by the wayside to some degree with the Supreme Court decision allowing states to adopt out of the Medicaid provisions.

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      • Eh, the CBO report is kinda good and I would very much like to compare 2020 numbers to CBO predictions but (or is it “and”?), if my suspicions are correct, the numbers won’t match up that much… this will have explanations galore, of course (many of which are perfectly reasonable).

        I mean, if the 2020 numbers don’t line up with the CBO report, will you really be surprised? Let’s say, oh, specifically Medicaid. Let’s say that it turns out that the increase of demand for doctors creates a brain-drain from doctors/hospitals that primarily deal with Medicaid patients to doctors/hospitals that primarily deal with non-Medicaid patients.

        If we see little movement there in 2020… will anybody really be shocked? Wouldn’t only the worst pedants be the folks waving the discrepancy around as if they’ve proven something?

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      • @jaybird: The CBO has apparently underestimated both the deficit savings as well as the premium rates. I don’t see any reason to think that 2020 is likely to break this trend unless it’s based on an a priori assumption that CBO will be more wrong than it’s right. If indeed the 2020 numbers are much *worse* than the CBO confidence intervals, then I think it’s reasonable – in fact necessary – of critics to point out that the CBO can’t do 10-year projections and that we should stop doing them and/or trusting them heavily. I would be entirely behind that charge. But to push back a bit, many conservatives said the CBO was impossibly optimistic even in the short term and that Obamacare would destroy the healthcare industry even before it’s fully implemented. They were certainly not treated as pedants (even rational liberals like Jon Chait and Kevin Drum admitted that the law may make things worse in the short term), but their predictions haven’t panned out. And yet, the people who made those gloomy predictions have not been forced to go back and explain why they were wrong. If anything, it seems like pessimism is expected and even unrealistic pessimism is tolerated.

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      • Punditry is an unfortunate profession. It consists of moderately to slightly more than moderately intelligent people, with little more knowledge of the issues on which they speak than their average consumer, producing opinions on the topics of the day ex anus, as often based on a hue within the political spectrum as on genuinely held beliefs. If they are ever right, it is by pure chance, and likely has nothing to do with the arguments they used to get there. And because they’re all wrong almost all of the time, it behooves them not to point this fact out about each other, much less to demand evaluations of their wrongness. They’d all be out of a job quickly if they were to do such things.

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      • Not to be dickish, but it seems like you’re moving the goalposts here. You’re right in that the CBO numbers for 2020 are likely to be off in one direction or another (although Trizzlor’s point is a fair one). But these are still the best estimates we have. As long as we’re passing bills that will affect spending and taxation in the future, we’ll need to have some guess as to the likely impact of whatever changes we make, and until we make serious strides in clairvoyance, the CBO will be the best way to do this. I’d be more concerned if there were signs of systematic error–if they always erred on the side of a new program being cheaper than it turns out to be in reality, for instance–but that doesn’t seem to have been the case in my admittedly limited experience. Moreover, I’d ask what the alternative is. Literally any action we take–going to HSAs, eliminating all government health care programs, going to a single-payer system, whatever–will have an impact on future spending levels and taxation. The CBO gives us a better-than-chance idea of what those impacts will be, even if it’s not 100% accurate.

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      • Moving them where? Surely we can look at the CBO right now, and the other numbers right now, and say “look, we’re doing better than what was predicted”, “worse than what was predicted”, or “about what was predicted”.

        And, hey, it turns out that we’re doing better than what was predicted it seems.

        Huh. I guess Obamacare was a success!

        What were those Republicans so afraid of? Heck, what was *I* so afraid of? As it turns out, the PPACA has cost less than what we thought it would.

        Seriously, the Democrats should be discussing how little it has cost so far in talks about funding it.

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    • MD,

      “Despite its good intentions, Obamacare will not solve the actual crisis it was originally meant to solve.”

      Yeah, I’m curious about that too. Frankly, I don’t think the ACA was intended to solve a crisis. There were a bunch: universal coverage, bending the cost curve, guarantee issue, eliminating free riders, maintaining the solvency of Medicare. The list probably goes on from there.

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      • Right. I guess I’m interested in whether Tod (and others) thinks/is saying that the crisis he thinks needs to be solved is one that the ACA was aimed at “solving” (or otherwise addressing), but that it’s just going to fail at that, or whether he thinks that it wasn’t, so it obviously won’t, but that (obviously) it should have been. And if it’s the latter, whether he (or others) thinks that the reform (the ACA) should be condemned/abandoned simply for failing to focus on the right problem (a legitimate position), or whether it should potentially be judged in reference to its own aims and either preserved, amended, or abandoned on those terms, while at the same time the crisis he thinks needs to be addressed should be addressed independently (including any changes to ACA that might entail).

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  5. Great start to the conversation, Tod.

    A couple of add ons…

    1) on the issue of adverse selection, the most common solution in normal markets is a combination of underwriting and risk adjusted pricing. With a sufficiently robust rating plan, insurers create a system where no two risks have the same premium (if they do it is more likely a coincident than that their risk factors are identical). In other words, there are no two individuals with an ’87 DL model six cylinder accord driven 11,400 miles per year by a 37 year old married guy with two at fault accidents and a glass claim and a credit score of 643 in zip 92128 with a particular mix of coverages and deductibles.

    2). Medical insurance is weird in the way it often pays for maintenance. In P&C insurance we not only didn’t usually pay for this, we required the customer to pay for this as a condition to get or maintain insurance. In Home insurance, for example, we would routinely inspect property. If we saw a worn roof or liability hazard we would send a letter requiring the customer to fix the problem on their own dime. Failure to do so would lead to cancellation. In health insurance, the maintenance costs are routinely covered, and failure to maintain reasonable condition rarely excludes coverage (insurers still pay for overweight, smoking alcoholics who refuse to exercise.)

    3. Health insurance also is distinct in having a huge service/ quality aspect. In auto insurance, we would require customers to use an approved vendor (to eliminate the incentive of the vendor to charge outrageous prices because the customer choosing the shop is not paying with their own dollars). We then evaluated quality of the vendor based upon customer surveys on things such as cleanliness, whether they kept the customer updated and turn around times. In health insurance, the quality of the doctor, the hospital and the service level is a significant part of the cost. In other words, it is a lot cheaper to have one bed for two days in a room with thirty other patients, than a single room for two weeks. A prescription which causes diarrhea might be one hundredth the cost of a similar one which does not. This complicates things.

    4) Another important distinction is that in health insurance the cash or consumer driven aspect of the market has been greatly lost for a variety of reasons. I think Vikram’s recent post hit upon this. Virtually nothing is paid by consumers who shop (cosmetic and laser surgery are exceptions). It is almost all paid by a third party. Hence the price discovery process of normal markets is pretty much missing. Prices are a fiction — the output of bureaucratic planners not supply and demand.

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    • Excellent points, Roger.

      I’ll only add this bit to your point #2:

      This is true, but it is a byproduct of a more material difference between HI and P&C which is this: P&C does not by definition insure against a property’s natural decay and breaking down. You insure against your house burning down, or your car getting in a collision; you don’t insure against, say, your gaskets wearing out over time.

      Health insurance does insure against your body’s gaskets wearing out over time, and it doesn’t cover you once you reach a certain age when Medicare takes over, so it’s in the insurer’s financial interest to encourage you to regularly get your oil changed and schedule regular tune ups.

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