[NOTE: Because this post is stirring such a vibrant discussion, I’m bumping it up a bit (update: re-bumped!) so it won’t scroll off the page yet. -ed.]
I have a modest proposal for Pajamas Media’s Roger L. Simon, who writes that “ACORN is a poster boy for the welfare state in all its manifestations. This is no sideshow. It’s the heart of the matter.” (Hat tip: InstaPundit.)
Roger, I will agree that ACORN’s abuses are at the “heart” of the debate over the proper role and scope of government, and may be cited as incontrovertible evidence of what would happen if government got bigger, if you will agree that I can choose the most loathsome, repugnant private-sector abuses by, oh, let’s say a private health insurance company, and use them as incontrovertible evidence of what will happen if government doesn’t intervene to prevent such abuses. I don’t get to challenge your chosen example, and you don’t get to challenge mine.
So: you get ACORN and pimps and prostitutes, and I’m not allowed to argue that those are isolated incidents which don’t reflect the true nature of most publicly funded social programs and community outreach efforts. Meanwhile, I get the most egregious examples I can find of unbridled, unregulated capitalist greed and disregard for human welfare, and you’re not allowed to argue that my examples are isolated incidents which don’t reflect the true nature of market-based systems. Fair? Because I know I’d take that deal. But I somehow doubt Mr. Simon would.
Brendan,
The difference is, that private insurance company is not being supported by taxpayer money.
And abuses by private sector companies are rarely covered up and excused by the MSM.
that private insurance company is not being supported by taxpayer money
Oh isn’t it, now? Ever heard of Medicare? Medicaid? Corporate welfare? But that’s not even really the point. The point is precisely that conservatives view public sector outrages as inherently more outrageous than private sector ones, for the very reason you say, but they then turn around and condemn the public sector as compared to the private sector because, having ignored the private-sector abuses on the theory that they don’t matter because taxpayer money isn’t involved, they come think that there are more abuses on the public side, simply because those are the only ones they pay attention to. This is a perverse way of looking at the world.
(Liberals, of course, routinely downplay public sector abuses on the basis that the government is at least trying to do good, while magnifying private sector abuses because they believe corporations are inherently evil and motivated purely by greed. So neither side is looking at this question objectively.)
We have a choice to support private sector companies with our money or not, even our medicare and medicaid monies. The choice is taken from us when it comes to the public sector.
What private sector abuses have been ignored by conservatives?
It isn’t that specific abuses are ignored on an individual, case-by-case basis. It’s that, when conservatives assess the general merits of private vs. public sector, they routinely cite what they see as the real-world realities of how the public sector “really works” — lazy – ppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppppp0 ++++++/////////////////-=9
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[The above was typed by Loyette via my wireless bluetooth keyboard, which is downstairs. I’m impressed by its range! Anyway, it’s sufficiently amusing that I don’t have the heart to delete it. Anyway, as I was saying…]
…they routinely cite what they see as the real-world realities of how the public sector “really works” — lazy government employees, corrupt bureaucrats on power trips, inefficiency as far as the eye can see — while painting the private sector in idealistic terms about the glory of the market, ignoring the countervailing real-world realities of how unregulated or insufficiently regulated capitalism “really works.”
Even assuming there are meaningful private sector abuses ignored by conservatives (which I seriously doubt…it’s not as if their was a collective yawn from the Right in response to Enron, WorldCom, Global Crossing, etc), the fact remains that there is a fundamental difference between public sector abuse and private sector abuse (at least in principle, if not in practice, given the blurred lines between public and private in the “too big to fail” era), and that is, as gahrie correctly points out, the exercise of choice in response to said abuse. If a private company were engaged or complicit in the kind of repugnant behavior that is reflected in the numerous ACORN videos that have come out thus far, then people can choose not to patronize that company — which they almost certainly would, and that company would go out of business, as it certainly would deserve to. But in the case of a public sector organization engaged in abuse, people’s only recourse is to pressure politicians to do something about it. In other words, the public has to persuade their elected leaders to make the choice that they would make themselves if the abuse were committed by a private company. The fundamental difference, therefore, is between making a choice yourself and persuading someone else to agree with your choice. Big difference there.
That said, it’s at least a little comforting to know that when the behavior is particularly egregious, as is the case with ACORN, public pressure may be adequate, given that Congress voted to defund the organization. Of course, that assumes that the public will become aware of such abuse when committed by a quasi-public organization, which is hardly a given considering who broke the ACORN story. That is by far the most fascinating aspect of the story, rather than the abuse itself, which should come as no surprise to anyone familiar with ACORN.
Okay, so let’s say you have a choice between putting money towards a private sector entity for health insurance or you can pay for public sector insurance through taxes. There is a third option, you can “self insure” but let’s assume we are going to allow health care for those that are paying only so we limit that as a legitimate choice to only the very rich. (By the way, if you have the cash to back it up, self insuring isn’t so bad except that the hospitals over charge you compared to what they charge insurance companies.)
Currently private sector insurance is paid for by employers (most of the time). So this is a benefit offered that goes un taxed. It comes from the WWII era when companies were trying to hold onto talented employees at a time when wages were frozen. The government tacitly approved this practice by making this benefit tax free. So health insurance, the way it is done in the US, has it’s roots in keeping people at their present job. Something that it does quite well, people fear giving up their health care. This model has a lot of problems.
Buying health care on your own or as a small group is wicked expensive in the US. And the price is constantly going up because individuals and small groups have absolutely no leverage in the well if you screw me I’ll just go else where category–the insurance companies couldn’t care less about their business. They care if Time Warner takes their money and goes home, but not of Joe’s Fishin’ Tackle. They are stuck, and all the health insurers will basically stick it to them equally. That is, they lack the power to make capitalism work for them. They, functionally speaking, have NO CHOICE. Other than to just not offer insurance. So they don’t. Or they are forced to offer insurance which makes them less competitive with large companies in the same market… Say Orvis… Or it means if I have a really fantastic idea I can’t really go out on my own and execute it without taking a risk vis-a-vi my health care. So companies paying for employee health care isn’t the best of models. And me paying all by my self is a really bad model.
What about group insurance? That would be a good option for consumers, but bad for insurance companies so they won’t let people do that and the individual consumers don’t have any place else to turn.
So when it comes down to it, we don’t have a choice now. You can’t really pick your insurance coverage. Your company picks it, or a group of options for you to pick from if you happen to work for the government or a really big employer. And you pay for it by being paid less and with less mobility–if your boss is abusing you you can’t just quit your job even if you could take the financial hit because the medical risk is too great. The other option is to pay for it through your taxes. But we aren’t talking about a legitimate choice in the capitalistic sense here.
Now if we could build a hybrid system where there is private insurance that you can pay for as a group or individually and you get a tax credit for the money you put towards that equal to whatever it is the government taxes you to provide the automatic government health care option that could be a thing. But the government would probably get screwed in that situation by the insurance companies that would basically just cut people loose as soon as the started having to actually pay for them. Dropping them in the lap of the government when they become unprofitable and making the government plan more expensive than it should be.
The reality is there are two systematic problems in health care. The way we provide the care itself. And the way we pay for it.
If we are honest about the situation we would say, the way we do both sides now is badly broken. None of the options presented are particularly good. And most of the options do nothing about trying to fix both the problems.
dcl makes some good points, and it seems like a post like that should be followed by some more convergent-type thinking, but I can’t help myself: here’s some more divergent thought:
This debate about public-private always seems to come down to choice, but to my mind there’s a bigger flaw in the public option: the lack of flexibility that comes from profit variances.
Here’s what I mean: suppose Humana develops their budget for the year, and they assume that X people will be involved in their various insurance plans nationwide, each paying an average of Y dollars for their insurance, for a total revenue of Z, = X*Y.
Humana knows it will also have a certain pool of costs, including the net of their claims (call them C) as well as overhead costs (call them O). Operating profits (P) are then Z-(C+O), which number Humana will budget at the beginning of the year.
Of course, the actual profits will never equal expected profits. Sometimes they will be greater, sometimes less. What does Humana do in a year when actual profits are greater than expected, particularly when actual profits look like they will represent strong comps vs. year-ago?
They invest in stuff. Personnel, new technologies, new research, new health delivery methods that put them ahead of their competition (and ultimately benefit the consumer).
What does goverment do when their profits are greater than expected?
That’s obviously a trick question – there’s no such situation.
There’s no doubt that much about our health delivery system has to be improved upon, much of which is noted by dcl above. However, the “baby” thrown out with the bathwater of public healthcare isn’t solely choice, its the fact that for-profit insitutions, when they’re swimming in profits, tend to invest in things that are ultimately good for consumers.
Governments, not so much.
One other thought: this meme that corporate greed lies behind what ails the private health insurance market is flawed, and it concerns me that it might drive suboptimal public policy. Not that corportate titans aren’t greedy, mind you, they’re just as greedy as you and me. Rather this view of corporate greed misunderstands how companies work.
dcl rightly makes the point that private individuals and small pools have a difficult time getting quality, low-cost insurance, and he further argues that this deters entrepreneurship in the US – also true. Is this a function of corporate greed, thus needing a complete disintegration of the market, or rather is it a function of a flaw in the market’s operation, requiring something more like tinkering?
For example, suppose you were the CEO of Humana, and last year (sake of argument, I don’t know any of the actual numbers) your company delivered $1 share of profits. This year you probably want to deliver $1.10 per share. Suppose it looks like you are going to achieve the $1.10 per share.
If you are on pace to deliver your profits, is it your responsibility that a large chunk of the population, outside the giant pools of group insurance where you make your profits, doesn’t have access to your product? Well, yeah, in the whole Christian I-am-my-brother’s-keeper way. Does any other CEO adhere to such noble ideals?
Does anyone?
Seriously, if Starbucks meets its profit goals by charging exorbitant prices for fancy coffees and serving a limited segment of the market, does anyone blame Starbucks if poor people are forced to get their coffee at McDonalds or brew at home? Health is different, you say, health is important, okay, suppose coffee were important too – would we put the onus on Starbucks to figure out a way to get good coffee to the masses? Of course not. Would we nuke Starbucks? More ridiculous still.
The distorted structure of the US health market, where giant insurers favor giant pools, is not the fault of the insurance company. The market isn’t working right. It needs to be fixed, not destroyed.
And one other thing – lest anyone think the hypothetical Humana executive, looking like he’ll get to $1.10 in profits, is willing to simply kill several thousand policyholders, in dispute over technicalities, to make it to, say, $1.13 – trust me, that’s risibly untrue, and even a little reflection should reveal the obvious reasons why this is so.
What does government do when their profits are greater than expected?
That’s obviously a trick question – there’s no such situation.
LOL…exactly right. Moreover, while Humana has to operate at a profit to survive (at least in principle), the gov’t can provide health care at a loss essentially forever. If the gov’t needs money, then it can just take more from the public in taxes. And of course, the gov’t sets the rules about how Humana can operate, and those rules will not necessarily apply to the gov’t. Those are the biggest reasons why so many people doubt the notion that the “public option” is just giving the private sector some competition so that it will improve its products/services.
What does Humana do in a year when actual profits are greater than expected, particularly when actual profits look like they will represent strong comps vs. year-ago?
They return most of the windfall to share holders.
And what health delivery methods would you be talking about? This debate focuses on one thing, paying for healthcare. So besides improving payment systems and perhaps tweaking things that are encouraged to get better long-term outcomes (all things that private insurance companies have had plenty of profitable years to do and have never done) there isn’t much room for private sector innovation.
That’s the thing nobody is talking about here. By default, there is not a situation where the private sector *should* perform better, because competition can’t really drive innovation in this sector. In fact, the thing that drives down costs is a larger pool, and that is anti-competitive from its very nature. You touch on that, but what you seem to fail to understand is that there will never be a situation where it is profitable for insurance companies to take on sick people. Thus they will always attempt to exclude them.
its the fact that for-profit insitutions, when they’re swimming in profits, tend to invest in things that are ultimately good for consumers.
Except that’s not a fact, that’s your opinion. And to be honest I don’t think it’s backed up by very much other than your predisposition to that sort of thinking. That isn’t meant to offend, just to perhaps cause you to pause and consider that you did right there exactly what Brendan was talking about in his post.
And one other thing – lest anyone think the hypothetical Humana executive, looking like he’ll get to $1.10 in profits, is willing to simply kill several thousand policyholders, in dispute over technicalities, to make it to, say, $1.13 – trust me, that’s risibly untrue, and even a little reflection should reveal the obvious reasons why this is so.
You should read Potter’s congressional testimony. Here’s an excerpt that seems to contradict what you posit above:
“To help meet Wall Street’s relentless profit expectations, insurers routinely dump policyholders who are less profitable or who get sick.”
http://commerce.senate.gov/public/_files/PotterTestimonyConsumerHealthInsurance.pdf
pthread – to reiterate from the last post, I fully agree that there are inefficiencies in the way private health insurance markets function, particularly inefficiencies causing insurance to be pricey for small individuals/groups. These are issues that government regulation can, and should, address without overturning the health insurance market.
Interesting you linked Potter’s whistleblowing. You got the Michael Moore money quote: “insurers routinely dump policyholders…” – its the kind of verbiage that causes the masses to bray in fear of the Greedy Man. Did you read the rest of Potter’s testimony?
Let’s assume, non-controversially, that Mr. Potter, as a whistle-blower, is motivated to paint the worst picture he can. Fair? So when Potter quotes an Energy and Commerce Committee investigation, he is probably firing the most vicious round of ammunition he has in his arsenal.
What did the Energy and Commerce committee discover? That three insurers, as evidence of their epic heartlessness,
“canceled the coverage of roughly 20,000 people in a five-year period, allowing the companies to avoid paying $300 million in claims.”
That’s 4,000 people a year for a savings of $60 million. Since 3 companies were being investigated, that’s roughly 1,333 people per company at a savings of around $20 million a company.
pthread, this link takes you to the 2008 Annual Report for Humana, which is no doubt a likely candidate to be one of the three evildoers investigated by the Energy and Commerce committee. Scroll down to page 33 of the 10-K for Humana’s recent financial results.
In 2008 Humana spent $23.708 billion paying out benefits, which was about 82% of their revenues of $28.946 billion. Mr. Potter (and, I guess, you) would have us believe that Humana was in the business of systematically denying coverage to individuals that, according to the Energy and Commerce committee, saved the company something around $20 million in 2008.
Or about 0.1% of their total benefit cost.
Or, if you prefer, about 8 basis points on sales. 8.
It simply beggars belief to think that a company like Humana, given the size of the PR risk, would engage in a systematic practice that has absolutely no material impact on their profitability.
This is not to say that what happened to those 20,000 people wasn’t a problem. I’m simply arguing that it is wrong to place the blame on institutional evil from entities such as Humana.
Private insurance works perfect, there are no problems at all!
Take for example a friend of our family who recently had to sell their house to pay for the costs of the aftermath of the husband/father of the family having a heart attack and slipping into a coma because too much time elapsed between the onset of the attack and resuscitation. He recently passed away. So not only has this family lost their husband/father, they also lost their house. But hey, private insurance works the best! No need to try and improve it or offer people options.
David K,
I am sorry to hear about what happened to your friend’s family, and I have no doubt that such situations occur more often than any of us would like. There absolutely are problems in the American health insurance delivery model, but the problem is not capitalism itself, rather issues with how the market meets consumers’ needs. Society can address such issues without destroying the market.
We just need to be smart. All due respect to pthread, but guys like Potter testifying in front of Congress aren’t that smart. Potter breathlessly states that “Big health insurance only cares about comps, which causes them to killl people!” and then cites a statistic that showed that the rate at which big health insurance (allegedly) killed people would have, at best, a negligible impact on their comps.
We all – including your friend and his family – deserve a better discussion than that.
The problem isn’t capitalism itself, its that capitalism is being applied to the wrong thing. Health care shouldn’t be treated as an optional commodity like a TV or a cup of coffee.
I’m fine with allowing private companies to offer health insurance so long as:
1) There are good regulations on what they can and can’t do
2) There are other options that give consumers choice
Consumers have about as much choice in health care right now as they do in who their local cable company is.
A government run, payer funded health care OPTION would help give them that chocie.
Health care co-ops (like I have actually) are another great option.
Yet the conservatives are almost pathologically afraid of anything thats not private insurance because, as Brendan poitns out, they are opperating under the false assumption that the private insurance companies are perfect and the goverment is always flawed. No, its even worse than that, they seem to think the only options are private insurance or completely 100% government only health care.
Jazz: I’ll allow that it was a moment of bad judgment that led you to try and use statistics used to cover a set of three companies in absolute numbers to a fourth company.
Even if we supposed that your comparison was valid (it’s not, in case what I said above was not an indication of that) cutting costs by 1/10th of a percent is actually pretty good.
Jazz, I hate to be argumentative, but are you trying to say that insurance companies don’t employ a large number of people who’s sole job is not to find actual fraud in clams but to find any possible reason to reject a clam? Including suing people for fraud regarding pre-existing conditions that they didn’t even know about? Insurance companies work very very hard not to pay. That is a fact and it is systematic and systemic.
That’s not to say that private sector insurance is necessarily evil. But it goes without saying that the motives of an insurance company are at odds with providing the best quality of care possible. It’s like auto insurance, they are going to find the cheapest way to fix your car they can. They aren’t going to make sure it is absolutely positively done right.
Barack Obama needs to hire Steve Sarkisian and Nick Holt to whip the health care plan into shape and watch it shock number 3 ranked Rush Limbaugh.
pthread – it is a tautology to claim that $300 million, spread out over 5 years and among 3 companies, equals on average $20 million/year per company. There are a few finance-y complications here, but none are material enough for a conversation such as this one.
You’re right, of course, that a $28 Billion company wouldn’t sniff at saving $20 Million per year. Some bloke at a regional office could probably make a career coming up with a savings project like that. Something like…billing efficiencies. Staffing reductions. Etc.
Not – killing people. Surely, a $28 billion company that undertook a savings project to discriminatorily kill people would require an operating margin improvement of more than 10 basis points. Which brings us to dcl’s point.
Yes, they have fraud detectors. Yes, people are burned by fine print. As I have said repeatedly, this is an indication of a problem in the market. This doesn’t happen because the insurance companies are trying to be assholes (see above – they would surely demand a better return on such scandal). Rather, it happens because the insurance companies sell policies, usually individual policies, to private individuals that have onerous restrictions. Those restrictions are part of the contract – I am not an actuary, but I understand they are built in the model of offering such insurance, as opposed to some bastard CEO who only wants to make more money (see above – the upside is surely not big enough to justify the scandal).
The problem is the business model. Believing, unreflectively, that the problem is “assholes” leads one to the erroneous conclusion that the kindly government will solve the problem. To co-opt a phrase from Messer Loy, this is co-opting poor logic to justify something of a witch hunt.
Here’s a slightly different way to think about it: we can infer, from the Congressional Committee’s report, that a company like Humana rejects in the neighborhood of $20 million worth of claims per year. For the sake of argument, let’s suppose that substantially all of those are either private insurance or small business/small group insurance; Humana almost never puts the gears to a GE employee.
What percent of all private/small business claims gets rejected for technicalities by big insurers? If you hate the big insurers, you might believe that a dollar of claims is rejected for every dollar spent. In Humana’s case, this would mean they paid out around $20 million in total benefits in 2008 on private/small business claims – or 1/1,200th of their total benefit cost.
On the other hand, maybe you like insurance companies, and you believe they only reject $1 for every $100 of claims they pay out. It then follows that Humana would have paid out $2 billion on these private/small business claims in 2008, or about 1/12th of their total benefit spend.
The answer almost surely lies somewhere between 1/12th and 1/1,200th. Wherever it lies….its a pretty small number.
What is true when a company largely avoids doing business with a particular market segment?
a) The company is evil
b) The company is stupid
c) That segment is generally less profitable than other segments.
If we accept c), then this would suggest that the private insurance/small business segment is generally less profitable for Humana than the large group plans (e.g. GE). Less profitable…even though the premia are exorbitant, and Humana rejects some significant percent of benefit claims.
Bring in ObamaCare. Obama asserts that he will insure something like the last 45 million Americans at an incremental cost in the ballpark of $100 billion/year over 10 years, paid for out of tax hikes on the rich. $100 billion/45 million is just over $2,000/person/year.
Tell me, anyone who is reading this who buys their insurance privately or through a small group plan, do you or you+your employer pay $2,000/person/year for your small group insurance? Or is it more getting toward $2,000/person/month?
Of course, Humana is making a (small) profit on your $2,000/month for your private plan. Surely not much profit though, because they’d be way deeper into that business if it was reasonably profitable, wouldn’t they?
How is Obama going to provide coverage to these people at up to 10 times the efficiency – without the exclusions?
I personally like Obama as much as the next guy. But this is not about liking. The story doesn’t add up.
This is an amazingly complex debate. I suppose people would call me a conservative, and I certainly am fiscally conservative. By nature I would prefer to see the free market be allowed to work with no more regulation than absolutely necessary. A recent career change has put this issue at the heart of my current profession. Our firm is a practice management firm for healthcare providers. I can tell you first hand, they are terrified of “healthcare reform”. Mainly because of the unclear definition of that very broad term. I can also assure you that the possibility of massive exodus of experienced healthcare providers truly exists. I have had an excellent family practice doctor and a cardiologist, both of whom have 20+ experience, say that if “this bill” passes they will wind down their practices and retire within a year.
The need for health insurance and tort reform is critical and urgent. I think a big fear is that government regulations will intrude into the treatment rooms and influence care. In my mind the root of the problem is whether healthcare is a right or a commodity. If you view h/c as a right, then of course finding a way to fund it equally for everyone would be a logical goal. If you view h/c as a commodity, then you may want to go so far as to defend our current failing system. Related to this is the fact that every other insurance we purchase is designed to not have to pay out. We as consumers actually never want our auto, home owners, life, disability, or flood insurance to have to pay a claim. On the flip side, we rely on health insurance as supplement to help us pay our h/c bills.
In a simplistic example, if you have damage to your car, you will probably seek out a reputable repair facility. Then you will ask for a quote, and actually make a decision about whether you wish to pay out of pocket for the repair or file an insurance claim and pay your deductible. On the other hand, you can’t really navigate the process that way related to h/c. If you are ill, even not urgently ill, you go to “your” doctor to get repaired, pay your copay, then wait to see what the insurance company will pay. If we employed this delivery model for auto repairs, nobody would be able to afford comprehensive auto coverage. Everyone would be driving around with the minimum required insurance because the system couldn’t support it and rates would be astronomical.
We also have a major flaw in the system in that the consumer of the goods and services pays so little portion of the cost that they are not good active consumers. So many Americans don’t think far past their copays and deductibles because that is the only money that effects their pocket book. So many of us can’t even audit our own Explanations of Benefits that we can’t begin to detect fraud if it exists. So until either the consumer is responsible for a greater portion of the cost of their care, or another entity assumes that responsibility the reforms can’t work.
Bottom line there must be insurance and tort reform. I wish I was intelligent enough to define what that hybrid model should look like, but that will be resolved in Washington.
One more for dcl@17, the meme that Insurance companies work very very hard not to pay:
First, go back to Potter’s testimony: if Humana is avoiding in the ballpark of $20 million in benefit costs per year, then unless their private/small group busines is vanishingly small, the insurance companies aren’t particularly good at their efforts not to pay, as they, net, avoid around $1 of benefit obligation for each $1,000+ they pay out.
But a bigger issue: suppose you put up a shingle and opened “dcl’s private health insurance company”. One day I walked in and said I wanted some health insurance. So you made me fill out an application, took a physical, etc. Then we got down to brass tacks: how much would it cost?
At that point, what you wouldn’t know would be my status on any of a myriad of diseases that are costly, often fatal – and not revealed by a quick physical. How will you price my policy given the possibility – nay, the disprortionate likelihood – that one of those diseases is hiding in the weeds, the reason I came to your store?
You price the policy by restricting care for those diseases in a way that controls the obvious risk of me showing up at your store because I secretly have one of those diseases and simply don’t want to pay for it. How could you stay in business if you didn’t have fraud detectors to enforce these terms?
This is not to say that the fraud detection doesn’t go too far, or that the fine print is at times too fine – surely that happens. Rather it argues that the existence of this function within private insurance is rather obviously a necessity, and not, contra Michael Moore, a sign of assholishness.
Its a sign that the last folks to be insured are often hiding something expensive.
It is true that ObamaCare, by getting them under a group umbrella, can manage some of the cost of uncertainty that makes private insurance onerous. But those folks are still going to be pretty expensive.
Much more than $2,000/year.
Jesus. It wasn’t a fluke. Have you ever taken a statistics course?
Stop. Using. Humana.
They weren’t there. If you feel the need to pursue this line of argumentation, use the companies that were, at least your attempt to apply an arbitrary break up of the numbers would have some modicum of relevance to this discussion. It’s not like it’s a mystery who was there.
That said, I’m surprised you are arguing what it appears you are arguing. This isn’t up for debate, “post-claims underwriting” as they are referring to it in the testimony exists. Hell, they admit it. There are plenty of examples of people who have died because of this practice.
So exactly what are you trying to argue here?
dcl, you also argued that the “motives of an insurance company are at odds with providing the best quality of care possible”. I suppose this is an inference from the fact that they sometimes reject claims from private insurance contracts, sprinkled over perhaps with a dose of Michael Moore populist outrage at The Man.
As an aside, one wonders how you ever buy a computer, since the motives of Dell/Apple are clearly to provide you the crappiest computer possible. Or a car: the motive of Toyota is surely to sell you the crappiest car they can. Even a house, which home builder do you trust? They’re all trying to contain cost, all trying to build you the crappiest house they can get away with.
Seems to me that one can listen to the frothy outrage of the Michael Moores of the world, or they can simply look at the data. At #12 I linked to the Humana 10-K for 2008, and here’s one more thing to notice:
Humana’s before-tax profit in 2008 was just under $1 billion dollars. Further down the income statement you can see that they served around 18.3 million customers in 2008.
If 1,000 individuals, having no health insurance but suspicious coughs that their GPs suggested should be checked out, walked into local Humana offices saying “No, no, no pre-existings”, and got private Humana insurance until surprise! That suspicious cough was really a million dollar serious health condition…
…Humana’s profits would be reduced to zero.
Would a company serving 18.3 million customers be beset by 1,000 such individuals if they didn’t have internal controls in place to prevent it? Of course they would. Everyone knows this is so.
Finally, if one is going to take their anti-The Man outrage from Michael Moore, they owe it to themselves to see this movie.
I’m not saying The Man is perfect, mind you. One just may wish to think twice about concluding The Man is nefarious based on the coercion of a guy whose signature career moment is a blatant lie about the (alleged) bad behavior of corporate titans.
As an aside, one wonders how you ever buy a computer, since the motives of Dell/Apple are clearly to provide you the crappiest computer possible.
Wrong. These aren’t proper comparisons. Computer sales operate in an arena where there is a semi-effective market. There is plenty of competition for computer sales and consumers are at least semi-informed (having sold computers I can say that while people overuse and don’t truly undestand computer stats, at the end of the day more RAM is good and a faster CPU is good, consumers can make a comparison between two computers).
On the other side you have health insurance. There is not proper competition (in most states there are few choices, and even then you are taking whatever your employer offers) and how many people do you know who can adequately describe what their health plan covers and doesn’t? You don’t have an informed consumer.
Finally, if one is going to take their anti-The Man outrage from Michael Moore, they owe it to themselves to see this movie.
I’m honestly more than a little insulted that you keep bringing up that crap. If that’s led me to be a little harsh in belittling your poorly executed use of numbers, I apologize. But the fact of the matter is insurance companies dropping customers for costing too much is not up for debate (and not simply because I say so, the insurance companies themselves reluctantly admit to this). It’s real, it happens, it isn’t an isolated incident.
And
Oh, heh, not sure what that trailing “And” was for. Perhaps I was going to say, “And another thing! If you are going to take your anti-anti The Man outrage from Rush Limbaugh, you owe it to yourself to, I dunno, stop butchering statistics!”
pthread – needless to say, it doesn’t really matter which particular company is being referred to in the subcommittee report Potter cites. Humana is a good example, since they are a prominent member of the alleged “cartel”, and of a size that easily illustrates that the scale of the numbers Potter talks about is not very large.
Statistically: $300 million, divided across 3 companies, and spread over 5 years, is definitionally $20 million/company/year. That’s because $300 million divided by 3 companies leaves you with $100 million per company, then you have to divide by 5 to get the (apparent) savings per year, or $20 million. Humana’s might have been a little more, it might have been a little less, it certainly wasn’t, you know, $2 billion per year or something like that.
You are right that post-claims underwriting does happen. The important question from the standpoint of public policy is How often does it happen? and Why?
pthread – you keep accusing me of butchering statistics – but seriously dude, I’m proposing that Big Insurance gets out of around $20 million/year of claims and you’re saying that this is wrong, because….I’m dumb? That’s it? Really?
But the fact of the matter is insurance companies dropping customers for costing too much is not up for debate
Again, you walk into a local office selling Humana insurance, suppressing the cough that your GP told you to get checked out, and you say no no everything is fine until, er, no its not, and then you find out that Humana “rejected you for costing too much”.
You seem to have a surprising faith in anecdote for a fellow who throws around accusations of butchering statistics.
“needless to say, it doesn’t really matter which particular company is being referred to in the subcommittee report Potter cites.”
Except it does. Humana had 28.9 billion in revenues in 2008 according to wikipedia. Assurant, one of the companies which had a CEO testifying, had revenues of 8.54 billion. Obviously the absolute numbers you have used that came in part from Assurant do not translate at all to Humana. Similarly, for all we know one or both of the other companies interviewed is of Humana’s size. Which leads me to my next point.
Statistically: $300 million, divided across 3 companies, and spread over 5 years, is definitionally $20 million/company/year.
You have no idea what the break up of that number amongst those three companies is. The only thing that would be relevant at all is what the percentage saved for each of the companies is- which is what you are attempting to derive through countless assumptions.
As I said before, at least if you arbitrarily cut it into thirds and then compared it to the three that were there you’d eliminate one point of error propogation- namely the fact that Humana’s operations are not the same as these other three.
You are right that post-claims underwriting does happen. The important question from the standpoint of public policy is How often does it happen? and Why?
It happens due to a profit motive. What other reason does a company have to retroactively cancel a policy based on a claim?
Again, you walk into a local office selling Humana insurance, suppressing the cough that your GP told you to get checked out, and you say no no everything is fine until, er, no its not, and then you find out that Humana “rejected you for costing too much”.
Uh, right. Nice try, you know that’s not at all how it works. We’re talking about serious illness that people die from that costs hundreds of thousands of dollars to treat.
You seem to have a surprising faith in anecdote for a fellow who throws around accusations of butchering statistics.
These aren’t arbitrary anecdotes coming from some Michael Moore movie. This is information coming from the industry itself.
And I needed produce a statistic in regards to the volume, for me acknowledgment that this is an industry practice and not some fluke from some monster at one company means it is happening too much.
This isn’t a joke, this isn’t about colds, this is about people dying or at best going bankrupt because of these unfair insurance practices.
pthread – go to page 4 of Potter’s testimony, the one you linked in post #11. Potter is clearly referring to an Energy and Commerce Committee investigation into three large, unnamed insurers, certainly not (necessarily) Assurant or any other one represented at those hearings.
And you are right that my assumption of $20 million/year has error in it. Of course it does! Its a swag. But for a company whose total benefit cost is $24 billion – see the 10-K in post #12 – how far off would it have to be to become material? Suppose we gave all of the annual “chicanery” to Humana – its still immaterial. $60 million, out of $24 billion, is just not very much. You can nitpick my assumptions all day, but by the study Potter cites, it is simply preposterous to assume that large insurers make substantial profits from denying claims.
Nice try, you know that’s not at all how it works
pthread, that’s exactly how it works, way too often. Admittedly, this is a problem that Obama Care potentially solves, though at what cost remains to be seen. It is beyond naive to assume that individuals who are not covered by a large group plan generally seek out private health insurance when they are healthy. Of course they disproportionately seek health insurance when they need it, when they might be sick, when they might be facing a giant cost.
To go back to dcl’s hypothetical private health insurance business mentioned in post 22, the fact that a disproportionate number of his customers show up because they need serious care, and serious financial help, is a huge problem in providing his service at a reasonable price. Again, ObamaCare may largely solve this problem. But the problem does not arise because dcl, or anyone else, are assholes.
BTW – using Rush Limbaugh as a standard-bearer for being anti anti-The Man is perhaps as offensive as Michael Moore as the standard-bearer for being anti-The Man.
After all, Rush Limbaugh kowtows to the Sarah Palins of the world, and from what I understand The Man strongly dislikes people like Palin.
(Though ‘the men’ seem to like her, ifyouknowwhatImean:)
Potter is clearly referring to an Energy and Commerce Committee investigation into three large, unnamed insurers, certainly not (necessarily) Assurant or any other one represented at those hearings.
I am pretty sure that he was referring to this testimony:
http://preview.tinyurl.com/lxgypx
You can nitpick my assumptions all day, but by the study Potter cites, it is simply preposterous to assume that large insurers make substantial profits from denying claims.
And yet they still do it, with the only logical motive being the profit motive. That’s why, as I said above, all the questioning in the world of how logical it is for them to do it doesn’t amount to a hill of beans when we know it’s happening, and we know why. They have admitted to it. It’s in the testimony I link to above.
And even assuming your numbers were right, as I said, perhaps 1/10th of a percent cost savings isn’t big to you, but from my experience in corporate America, plenty of people will aggressively go after something like that.
that’s exactly how it works, way too often. Admittedly, this is a problem that Obama Care potentially solves, though at what cost remains to be seen. It is beyond naive to assume that individuals who are not covered by a large group plan generally seek out private health insurance when they are healthy. Of course they disproportionately seek health insurance when they need it, when they might be sick, when they might be facing a giant cost.
Perhaps I poorly phrased my opposition to your example. I was objecting to the fact that you were simplifying this issue to people with colds trying to come in and get insurance. Certainly that does happen, and certainly there are people who game the system and try and come in when they have more serious issues, but there are also plenty of people being canceled for technicalities that aren’t their fault.
the fact that a disproportionate number of his customers show up because they need serious care, and serious financial help, is a huge problem in providing his service at a reasonable price. Again, ObamaCare may largely solve this problem.
Sure. And that’s why having a single payer is really the answer. Spread the risk out far and wide. I actually don’t have much faith that the current proposals will do this, but what I’m hoping is it will make the real solution more palatable. In that sense, some of the right-wing nut jobs are right. For me at least, this is a Trojan horse. Not towards socialized medicine, but towards a single-payer system.
BTW – using Rush Limbaugh as a standard-bearer for being anti anti-The Man is perhaps as offensive as Michael Moore as the standard-bearer for being anti-The Man.
I know, that was the point. 😛
I was trying to point out that you saying believing this kind of stuff is Michael Moore-esque is a little insulting to those of us who actually believe it’s a real issue. And I don’t think my concerns are based on anything less than sound facts and arguments.
So again, if I reacted overly-harshly, I apologize.
Another thought about why its so difficult to price, and serve, the private/small group health insurance market:
You go down to the Beer Cave at a local variety store to pick up a six-pack of Bud Light. Suppose that you had relevant, private information bearing on your being of legal age that the teenager behind the counter could only detect intermittently (this might be information outside your McLovin-esque ID).
Finally, suppose the cost to the variety store of each incident of selling to minors ran into the hundreds of thousands of dollars.
What do you think would happen to the price of beer?
(This, by the way, is one of the best arguments for ObamaCare – if it can control costs).
But But…it’s not FAIR that some people get sick and can’t pay for their medical expenses. Health care is a RIGHT!
It’s not fair that big bad corporations make profits.
Everyone should get as much cheap, high quality health care as they want. (and free ponies too….I like ponies)
Everyone knows that the only reason that not everyone has health insurance is because it costs so much, and that the reason it costs so much is that greedy corporations are making outrageous profits.
If only all those neo-nazi rubes would get out of the way and allow the government to force the corporations to give everyone cheap high quality health care the world would be a better place. (and then we could get started on the cable companies…cable television and high speed internet is a RIGHT)
pthread – two small points:
1) You assert that the only logical motive for going after these small claims is the profit motive. I don’t agree that this is the “only” logical motive. In numerous posts in this interesting discussion, I have pointed to the conflict of interest inherent in consumers of one-off, private insurance plans, and how important it is for companies to have internal controls to prevent those conflicts of interests from toppling them. See, for example, my post #24 – it would only take 1,000 sick people showing up, looking for help, to slip past the controls of Humana to wipe out the entire profits of a company serving 18 million others. That’s a pretty serious threat.
Of course, one person’s internal controls is another person’s heartless corporation. Depends on what you look at.
2) While I agree in the abstract that corporate America would go after $20 million savings projects, in my experience corporate America would only do so if the installed base is protected – savings projects of less than 10 basis points, when they involve killing people, are usually regarded with some suspicion by senior management. Usually, for killing people, you have to get to 100 basis points at least :).
I also apologize if I have been harsh, as I have also thoroughly enjoyed this conversation. This is one great thing about this blog, its the perfect size for some serious give-and-take. It seems like you and I are essentially on the same page, in terms of seeing the benefit of a large group umbrella for the uninsured, though we may disagree on the cost – or whether the insurance companies are essentially malevolent.
But be that as it may, I do highly value the conversation. We think things after we discuss them, so the back and forth is in fact quite valuable – thanks!
Stop bringing up the stupid Michael Moore Film. It’s like most of his films, willfully inflammatory swamped in over the top rambling that over washes the few good points he happens to make along the way.
Nobody here is saying insurance people are assholes. What we are saying is they are business people and no business is in business to go out of business. The profits for health insurance don’t come from the “core” of the business. Health care is just too damn expensive and your users have no idea what they are buying. Profits in business like that come at the margins.
But I’ll take a step back and ask Jeff, to then explain the recent poll numbers that show large support from doctors on Obama’s efforts to reform health care? Nobody wants the man invading the exam room. That’s what the insurance companies are doing right now though, so the point there represents a bit of a false choice. Perhaps its just the young wide eyed doctors that support reform, and the crotchety old dinosaurs don’t want anything to change?
Health Insurance makes money at the margins. They don’t look for actual fraud they look for any remotely defensible reason to deny a clam. Because there is money to be made simply for delaying payment. There is money to be made loosing clams and money to be made taking a lot of time to process them. There are a lot of margins to shake money out of. And when you are talking about big pots of money in the billions of dollars, you make a whole lot of money just holding onto it for an extra day or three.
Health insurance is like no other business on earth. And it is a disaster.
Now, to be slightly more serious….
When did health care become a right? What made it a right? Seriously.
Yes, it would be nice if everyone could be healthy, and get health care when they are sick. But since when did things that are nice become rights?
Much of what the Left now demands that government provide used to be the function of family and charity in this country. people used to take care of each other in this country instead of waiting for the government to fix things. I posit that family and charity are at LEAST as good as government in providing things to the poor and disadvantaged as the government is. One simple reason being that people are usually less likely to abuse and defraud their families and charities.
I don’t want to live in a country in which the government is my mommy and daddy.
You assert that the only logical motive for going after these small claims is the profit motive.
and then…
it would only take 1,000 sick people showing up, looking for help, to slip past the controls of Humana to wipe out the entire profits of a company serving 18 million others.
So perhaps the disconnect between you and I on this subject (and to be fair, I suppose I was reacting to a statement you made in response to someone else. So perhaps we’re making the mistake of carrying on an argument in which we have incorrect assumptions about what the other believes) in the sense that I’m not necessarily asserting that the corporations are attempting to squeeze people out of the insurance money because they are greedy, heartless bastards. I really don’t know (and in the end, I don’t care) about what the personal motivations are of the individuals implementing these policies. I think I may actually agree with you that on an individual level (the individual in this case being the person making the decisions at the insurance company) it may be very difficult to make these decisions and they may often seem like the right ones (and heck, they may be the right ones.
But that’s the point, in for-profit insurance, you have to make a profit, you don’t have a choice. You, by definition, are going to gravitate towards eliminating the most costly patients. But these are the very people who need healthcare the most.
And that’s why this isn’t like auto insurance. With auto insurance, it’s rare that a customer is such a financial drain that they are wiping out large swaths of profit for the company. People that might be are pretty easy to identify due to previous accidents and driving records. So it’s not like one day customers suddenly turn into huge financial sinkholes. With insurance they do. One day you get diagnosed with cancer. All of the sudden you are an incredibly unattractive customer.
So you are right, one person’s cost controls are another’s heartless corporation. I couldn’t agree more. What I’m arguing is that sort of calculation can’t happen in health insurance. And if it doesn’t, for-profit health insurance may be untenable. That’s part of the thought process I’m using to get to advocacy for single-payer.
“But I’ll take a step back and ask Jeff, to then explain the recent poll numbers that show large support from doctors on Obama’s efforts to reform health care?”
Investor’s Business daily has just done a poll that shows that not only do 65% of the doctors surveyed oppose Pres. Obama’s plan, 45% of them would consider taking an early retirement if it passes.
So not only will we have to come up with enough new doctors (and hospitals) to treat 45 (or now I guess 30) million new people, but we are going to have to deal with up to half of our doctors quitting.
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=506199
And yes, I’m enjoying the conversation too. This blog has good insight, even in the comments, which is why it’s the only blog that I routinely follow the comments of posts even if I’m not participating in a discussion.
By the way, I give pthread great credit for admitting that he supports a single payer system. he’s being more honest than the democrats are about that.
But I have a question for him….who is that single payer going to be? There can’t be a single payer system..instead it will be a 300 million payer system poorly administered by the government. I guarantee you that government bureaucracy and regulation will cost more money than the profits that the health insurance companies are currently making.
A NEJM poll showed basically the exact opposite result… Interesting…
http://healthcarereform.nejm.org/?p=1790&query=home
Yay fun with statistics.
The empirical question, pthread, and one for which I don’t know the answer (but I have a guess, which might be obvious based on what I’ve written), is who those 20,000 rejected individuals are, cited by Potter?
Are they disproportionately individuals who signed up for their private health insurance, aware that they had a cough for the past several weeks, and about to make a potentially life-determining appointment with a specialist in a couple of weeks?
Or are they individuals who had signed up in perfectly good faith, had a full clean bill of health, and then were struck out of nowhere, somewhere down the road, and rejected by their insurance plan?
I honestly don’t know. But given the size of the dollars involved (seemingly rather small), it would appear that it is more the former (people with a pre-existing not actually diagnosed) than the latter (people who were healthy and only later fell ill).
If the rejections were more often folks who signed up in good faith when healthy, this would then be a malevolent business strategy on the part of Big Insurance, and as I have argued, the dollars involved don’t seem large enough to justify the dangers inherent in such a strategy. If it were more often folks who were really ill but presented as if they weren’t, then these exclusions would be the exception, not the rule, and the dollars involved would fit the notion that this was a distasteful, if somewhat rare, cost of doing business for Big Insurance.
When I rejected the profit motive explanation, it was in the context of the suggestion that insurance companies dump these individuals in order to buttress their bottom line. An alternative explanation might be called something like the “internal controls motive”, where the insurer dumps the individual to enforce their internal controls, since their bottom line is actually quite sensitive to a small number of folks gaming the system. Of course, internal controls, like everything else, are designed to maximize profits. As far as motives are concerned, it does seem to me that there is a distinction.
Getting back to ObamaCare, at a 30,000 foot level the answer is to get all these people under their own large umbrella. Of course, the reason many of these folks were showing up for private insurance was because something really expensive was likely to happen to them. That expensive thing will still happen in ObamaCare.
But that’s a conversation for a different thread.
Admittedly my assertion of a mass exodus of providers is anecdotal at best. More certainly, I am sure there are a number of facility owned doctors who would love to see reform. They stand to make more money if the institutions who own them are reimbursed better through reform. So I am certain there are large number of providers who would be glad to see the reforms being knocked around congress. They will most certainly lead to higher reimbursements and lower collection costs for institutions. The providers we stand to lose will be the small private practice doc that hasn’t sold out to the larger institutions yet.
I think gahrie touches on THE key issue underpinning much of the emotion of this debate. Is EQUAL healthcare the right of all Americans. A simplified example. Let’s say the Univ. of Chicago develops a new machine in conjunction with GE that will detect early onset Alzheimers. Further, they also formulate a medicine that will STOP the progression of the disease. Under our current system only those with great health insurance will probably get access to that treatment plan. It would probably be highly expensive for a number of years while U of C and GE recoup there R&D costs. My family, with our self employed, catastrophic coverage would not afford this care. My father in law with his UAW retiree h/c coverage would pay $150 deductible and get the test and treatment. So my question is, just because we have the ability to deliver a given treatment or medication, does EVERY American have an equal right to receive that treatment?
I assert that we don’t today and we won’t tomorrow, even with reforms. Most certainly there would have to be some type of caps to help control costs. President Obama’s idea to do away with annual and lifetime caps on insurance sounds great in a speech but in reality I don’t see it as implementable. That is a key way to control premium costs. If you outlaw caps, we most certainly will be headed right toward a single payer system, because they will have to be able to print money!
This is the core of the issue in my mind, just because it is available does every person have the right to receive exactly the same treatment. Being treated at a local hospital in Podunk, NE is not the same as being treated at the Mayo Clinic. I know this because my father died at the Univ of Chicago while receiving state of the art care. He was transferred there from a backwoods hospital in our hometown, that probably wrote his death sentence because they delivered too much of the wrong sedative to a patient experiencing liver failure. Thank GOD my parents had fantastic medical benefits through the public school system that employed them, otherwise my Mom would be living with me. She had to pay less than $2,000 out of her pocket for $400,000 in treatment costs. I wish we all could have that coverage, but the math doesn’t work.
Insurance is a product designed NOT to have to payoff, and health insurance is the most common product to payoff. There lies the problem. Again, the consumer is not paying for most of the cost of care. We had every thing done we possibly could to try and save my father, he still passed. Recently, I have wondered what it would have been like to have to decide “can we afford that test?” “…can we have that procedure done?” given the likely hood of nothing working and bringing him out of his coma. Had we been paying for the services, we probably would have had to cut off treatment sooner and realize we had lost Dad w/o spending thousands of extra dollars on things that even then the docs warned us there was little chance it would work. Believe me I wanted EVERYTHING done to try and bring my father back around, but I knew WE weren’t going to break my mom in making those decisions. There was no risk to us in making our decisions.
Some will say that is the way it should be for all of us. I will tell you, it didn’t save my father’s life.
Incredibly tough and complex issues.
Actually, now that this has my brain engaged, I will concede this point, pthread:
Even though I believe that Big Insurance companies are acting in good faith and rejecting members in a rather restrained fashion, the very nature of the business ought to give one pause when considering contracting for private insurance.
I mean, suppose you lay bare your entire health history to Humana, tell them about all the problems you’ve had in the past, but you’re cool now, you’re healthy, and this doctor’s note proves it….
…from the standpoint of the company, probably one among you and the five people that follows you is a fraudster. Should you campaign for your forthrightness? Especially if your doctor’s report mentions, I don’t know, a couple of benign and tiny moles on your arm – one of which becomes cancerous nine months out? Were you the fraudster?
Private insurance is inherently a bit of a cluster, I admit. No one has to be a bad or malicious person to make it that way – the system just sucks.
By the way, just for the record, I am personally financially suffering at the hands of health insurance.
I’m currently in the middle of a course of expensive dental care (aprox. $24,000 worth). I have been paying my dental insurance fees for 15 years as a hedge against just this type of eventuality. But guess what…my insurance caps out at $2,750 a year. So for the last three months, and until December, not only am I paying the full ride for my dental care, I am also paying for dental insurance I will not receive. In January, I will again be eligible for an annual $2,750 worth of dental insurance, which I will either use within the month and exhaust for the rest of the year, or not need at all because I have finished the work that had to be done.
But you know what? That is the way the system works….and it works well for most people most of the time. It will work well for me once my dental work is completed. It would have been nice for me to have all my work payed for (or at least subsidized), but it would not have been fair for me to demand that everyone pay a little more so that I could pay a lot less.
just as a point of reference, the Mayo clinic tends to actually be cheeper per incidence of a given ailment than almost every other hospital in the country. Good health care need not be insanely expensive. This goes back to the discussion earlier vis-a-vi, there are a lot of problems in how we do health care in the US.
I guarantee you that government bureaucracy and regulation will cost more money than the profits that the health insurance companies are currently making.
Except that every single example we have in existence of government administered insurance in this country or elsewhere says the opposite.
Healthcare costs under single-payer systems are much lower per-capita than ours.
If you want to talk just about administrative overhead, government-run insurance in this country has lower administrative overhead. Even if you buy that the calculations that figure (some argue you should include the salaries of congress to be equivalent with a board, that’s laughable on its face, but whatever; others argue that the way those numbers are calculated is less representative of how those numbers would translate to the public at large, I’ve seen effective rebuttals of this as well), say, Medicare is more efficient than private insurance are being overly generous towards Medicare… Medicare is figured to be many times more efficient. So even if the numbers are skewed downward, it strains belief that they are in reality so many times higher than is accepted that they radically exceed private insurance’s administrative overhead.
Then why are medicare and medicaid going broke?
Why do single payer plans in other countries ration health care?
Are they disproportionately individuals who signed up for their private health insurance, aware that they had a cough for the past several weeks, and about to make a potentially life-determining appointment with a specialist in a couple of weeks?
Well I think this gets to the root of what I was saying above, and what I think you hit on at the end of your comment: you simply can’t keep shifting around the high-risk people or have them entering right when they need care.
My concern, however, is that the umbrella you speak of is still not big enough. The “big enough” umbrella, in my opinion, is everybody. Single-payer spreads the risk pool out as large as it can be (well, without invoking the New World Order 🙂 ). With single-payer everybody is covered so there isn’t the opportunity to stay out of the system until you need care.
I think the provisions for not allowing a patient to be refused or dropped for pre-existing conditions is a requirement for a modern medical system. Unfortunately I just don’t think it’s compatible with a for-profit insurance system, especially with many players in the game. Inevitable they are going to be trying to shift around these expensive patients.
Even though I believe that Big Insurance companies are acting in good faith and rejecting members in a rather restrained fashion, the very nature of the business ought to give one pause when considering contracting for private insurance.
Right. And I don’t think this is even incompatible with what you said above. I can understand the negative reaction to the over-simplified rallying cry that insurance companies are staffed by the evil spawn of the devil. In that sense I get the Michale Moore comparison.
I think gahrie touches on THE key issue underpinning much of the emotion of this debate. Is EQUAL healthcare the right of all Americans.
I don’t think anyone is arguing for equal healthcare for all Americans. I think they are arguing for a right to a basic level of care. If you want to get a gold-plated enema, go for it.
I’m currently in the middle of a course of expensive dental care (aprox. $24,000 worth). I have been paying my dental insurance fees for 15 years as a hedge against just this type of eventuality. But guess what…my insurance caps out at $2,750 a year. So for the last three months, and until December, not only am I paying the full ride for my dental care, I am also paying for dental insurance I will not receive.
Wow! $24k?! Jesus man, just get dentures and move on. 😛
I actually have a similar situation which exemplifies the inefficiencies of the healthcare system as it exists today.
I have hit the maximum payout for dental care this year (although mine is *way* lower). I still need a few fillings (not having insurance most of my adult life has led to I think six cavities needing to be filled in total). The dentist says it’s possible if I didn’t get them done this year (this was back in the Spring) they could need a root canal or two, but she conceded it makes the most sense financially (for me) to wait.
So this insurance company can only end up paying more because of this cap on my care. My cavities aren’t going away. At best they’ll pay what they would have paid this year, at worst much more. But health insurance in this country is so screwed up that they are actually exposing themselves to more financial risk over time.
Then why are medicare and medicaid going broke?
That’s largely a demographics issue.
Why do single payer plans in other countries ration health care?
Not all of them do. Also, many would argue we’re already rationing care here. At any rate, nobody is talking about banning private clinics. If you want to pay for your rich-guy healthcare, you can do so. And doctors are free to only accept your rich-guy insurance.
“If you want to pay for your rich-guy healthcare, you can do so.”
Actually..single payer often means no I can’t. See Canada.
And even if I can, your single payer program is going to make my “richguy” health care conform to it’s rules, and at the same time force me to subsidize the single payer system also.
“Then why are medicare and medicaid going broke?
That’s largely a demographics issue.”
What?
You mean “medicare and medicaid are used by old people and sick people who need health care. We need to force a bunch of young healthy people to pay for health care and not use it to make it work….”
Actually..single payer often means no I can’t. See Canada.
Well this isn’t Canada. Nobody is suggesting that insurance be outlawed. Hell, practically nobody is suggesting single-payer. I’ve never personally heard of anyone suggest that here. And before you find some single crack pot out there, I really don’t care.
It’s not realistically an option, and the level of discourse here needn’t be brought down to a level where we resort to the base tactics of creating a straw man consisting of single-payer meaning all private insurance is illegal.
You mean
No, I mean what I said. The biggest issue is the boomers entering retirement. Is this the end of the world? No.
Regardless (and actually the response you tried to put in my mouth touches on this) covering only poor and old people is fundamentally different than covering the entire population.
You know, in part due to this conversation, I’ve come to the conclusion that ObamaCare won’t automatically be a bad thing for us Americans inclined to distrust socialized….anything.
First of all, I am fairly confident that when we reconvene in 25 years, health care in the US will look roughly the way it does in Ontario. You’ll have single payer for catastrophic/basic care, and then you will have the majority of citizens with means contracting for supplemental care. There will be differences of course – given American culture, I expect that Americans will get more perks in their supplemental contracts than Ontarians do.
This will immediately benefit us anti-socialists in two critical ways: first, the inevitable care of the poor will no longer be relegated to fiscally unwieldy, sinking and stinking state Medicaid programs. Bringing the poor into the health system earlier in their disease processes should inevitably make their care less costly to me.
The second benefit will be more direct to us – having catastrophic care insured by the state, we will no longer have to wonder whether we really have the insurance we think we have when we contract for private insurance. The insurance companies will not feel as threatened by the possibility that we are hiding something expensive, as the state should be mostly responsible for covering the hideously expensive stuff.
The back page of the October 2009 Money magazine has a column making the case for the economic dangers of not reforming health care. The column cites an alarming stat: in 10 years, somewhere between 7 and 11% of high-income (i.e. $88,000/yr+) Americans will lack health insurance. This is a troubling stat, since most high-income Americans presumably work for a prestigious company or law firm or University that can afford fancy and attractive group coverage. If 11% of high income Americans lack health insurance in 2019, what percentage of high income Americans that would be private pay will lack health insurance? 40%? 50%?
This is food for thought to Gahrie’s comment that I will take care of myself, thank you. That’s great if Gahrie continues (assuming he does now) to have access to an attractive group insurance pool. But one never knows, from loss of job to family situations or changes at the workplace, when the access to the attractive group insurance pool goes away.
If we are all at risk for losing our group insurance, then we should consider one good lesson from this conversation, that no one can fully trust that they have no pre-existings. Heck, you could be contracting for private insurance someday, clean bill of health, only to discover that extensive dental work you had several years back left you susceptible to an infection – specifically the gum disease that is correlated with heart disease. Then you find that your mid-six-figure heart treatment isn’t covered, because of an innocuous dental procedure some years back. No one is really safe from that in the current private insurance model.
Now, for the negatives. The biggest downside of the Ontario model is the nefarious waiting times and soft rationing. That could happen here too, there’s no doubt. I think Americans will insist that their private plan supplements include jumping the queue for a fancy enema; we’re just like that, moreso than Ontarians are.
But maybe not. However, if you’re convinced that the status quo is better in this regard, I invite you once more to check out the Humana 2004-2008 income statement, linked in my post #12 above. You’re looking at a company with revenues around $28 billion, and before-tax profits of $1 billion. I am sure pthread will back me up on this, but a company with BT profit margins of 4% has very little room for error.
Further, we have it on pretty good confidence that companies and consumers cannot tolerate many more rate increases for (even their fancy) group insurance. What this means for Humana is that they have little ability to grow their profits by growing their sales.
So how will Humana grow profits if the sales line is unmovable? Well, they’ll have to reduce costs. What accounts for ~90% of Humana’s total cost? Benefit payouts.
Does anyone really believe that soft rationing isn’t coming from Humana? How else will they grow their profits?
I only read a few comments because there is no pure argument here.
1. Even libertarians believe that the government should enforce the rule of law. If a private sector company breaks the law, the offending parties should be prosecuted.
2. There is no pure capitalism within the health care sectors nor in most economic sectors. Health care is especially tortured with the end user rarely paying for the service he receives. 50% is paid by government, and third party insurers pay most of the rest. The whole sector would be different if most users had to make decisions based on out of pocket expenses.
3. Private sector companies are always going to be four or five steps ahead of the regulators. In fact, as our system promotes rent seeking on the part of companies, they may have had a hand in creating the regulations.
4. Community outreach is nice. It just does not work very well. With the billions and billions of money spent in means tested programs since the beginning of the Great Society, we still have about the same percentage of people in poverty as in 1965. However, they are better off in absolute terms and materials goods because we help them buy stuff that is not counted in their poverty status.
5. There are few, if any, sectors of the economy where a public sector enterprise can out perform private sector enterprises. However, the public sector should have a monopoly on violence, but they fail to obtain such in America’s big cities, not a real confidence builder in that sector.
6. and finally, abuse is a function of the lack of accountability in large organizations and human nature within the same. It happens in both the private sector and the public. In my experience, correcting that problem is more likely to take place in the private sector. A great example is the abusive agricultural supports that have existed since the Great Depression. Once a public program is in place it is forever no matter how useless it is.
The biggest reform needed, tort reform, isn’t even on the table right now.
To see how big a difference tort reform can make, look at what has happened to Miss.’s health care system in the last five years.
Been thinking a lot about this topic the last day or two. Much as socialist Canada offends my conservative bona fides, I am warming up to the idea of an Ontario-style health delivery system in the US, with the basics for all and then enhanced customized services for those who have means.
The most significant benefit for conservatives is the ability to contract for private insurance safely, without having to fear some disqualifying pre-existing condition. The basic single-payer system should take care of much of the big ticket stuff, reducing the motive of the insurance company to discriminate against private payors.
There’s another benefit by reducing the burden on Medicaid, though I imagine someone has already noted that the burden of universal coverage isn’t really in the ER. Its curing everyone who has curable cancer, which doesn’t happen today in the US.
Indeed, the aforementioned back page article in the October Money quoted a study saying that the US easily leads the developed world in ‘preventable’ deaths, where ‘preventable’ is defined as individuals having treatable diseases that the society just doesn’t treat.
This topic always risks triggering an argument comprised of moral outrage (from the left) vs. individual liberty (from the right). I look at it from a human capital perspective. Every time a father dies from a preventable illness, a son or daughter is burdened with greater challenge in making it to adulthood successfully. Every time a mother is incapacitated by poor treatment of a fixable condition, her family is placed at greater risk.
Which, in one sense, elicits a response of “so what”? Life is tough, after all, get a helmet. As a conservative, I generally dislike the bleeding-heart aspect of this argument. But I worry greatly about the human capital perspective. Seems to me that America has taken her global dominance for granted for a long long time, and our failures to cultivate the next generation of human capital are legion and widespread.
Joining the rest of the developed world in ensuring that parents with curable illnesses are, in fact, cured is probably not a bad place to start in remedying our deplorable national disregard for ensuring the development of the next generation.
This topic always risks triggering an argument comprised of moral outrage (from the left) vs. individual liberty (from the right).
Since yesterday I’ve been pondering a bit how this argument (in general, not just here, although you can see it here as well) is not even really about healthcare, it’s about first principles. I know this probably isn’t a revelation for anyone, although I guess I never really considered both how true this was and how fundamentally difficult it makes some of these issues; or what it really means to coming up with resolutions.
The only person in this thread who seems to have moved past that at all is Jazz. That includes myself; I pulled the “people are dying card” on him (although in my defense I used this, at least I think, to justify why I feel this is important, not necessarily why I am right).
Looking at other responses, for example from Gahrie, we see a perspective that healthcare *can’t* be done right by the government because of inherent inefficiencies (my perspective is of course the opposite, I see inherent inefficiencies in a private organization trying to provide healthcare insurance). So note rarely are Gahrie and I objecting specifically to each other’s data points but we fundamentally reject the axioms that the other holds true, the first principles.
Heck, with wood.gw, he essentially skipped even having the argument and simply stated his first principles, and I guess made the assumption that we could all infer from there what that meant (which I suppose is a fair assumption). My initial reaction to this was that it was dismissive of the overall discussion and ignorant to the real issues, but in some ways it cuts more directly to the heart of the matter.
So perhaps I’m babbling on a lot to ask the obvious question that comes from this: how the heck can we move past what is a fundamental deadlock? Here or in the government? If we can’t accept a set of fundamental truisms, how can we move forward?
And perhaps that’s the only reason I’ve been slightly sympathetic to the “ramrod” argument about this bill. On the one hand, it’s pretty disingenuous for Republicans to act as if Democrats are shoving this down their throats. The ideas being discussed have had extensive debate in think tanks and elsewhere for years, and the bills themselves have been forming for months. The specifics before us needn’t be debated endlessly.
But what perhaps there needs to be is a debate about the validity of these first principles that each of us are holding on to so dearly (or maybe I want to say the flexibility, or how flexible one should be with them).
pthread – while I appreciate the compliment above, for the sake of full disclosure (and if it helps solidify your perspective), I lost my father when I was 14. That experience was certainly relevant to the conclusions I drew in this conversation.
If I have moved at all here, it has really only been from one ideological safe harbor to another – not exactly the kind of out-of-the-box thinking that is needed for all of us to come to a consensus on the disruptive issue of health care reform. Which is just a roundabout way of confirming that you raise a good point about folks clinging to ideology.
“Looking at other responses, for example from Gahrie, we see a perspective that healthcare *can’t* be done right by the government because of inherent inefficiencies (my perspective is of course the opposite, I see inherent inefficiencies in a private organization trying to provide healthcare insurance). ”
gahrie position is essentially that government WILL fail (he also asserts things that he claims the government will do which aren’t actually in the plan).
While we can’t know for sure until it happens what will happen, we can look at how the government run health care options currently do and the truth is they do incredibly well. I’m sure you can find a mistake here, or a waste there, but by and large they are efficient and effective.
My view, and that of others who support Obama’s plan (or something close to it) is that the current system, which relies primarily on private insurers, is sufficiently broken that it requires government intervention.
There are some people who think the current system is so completely broken we need to throw it out and move to 100% government run health care. I am not one of those people, and fortunately neither is the President at this point based on his plan.
One side is basing their arguments on current conditions, current situations, and past trends.
The other side is basing their arguments on things which they fear might someday happen and things which are proveably false.
This is not how you have a productive discussion. We could keep coming up with doomsday scenarios until ACTUAL doomsday, but the more and more we give credence to the, i’m sorry, extremist right positions regarding health care, the less productive we actually are. Critics of Obama’s plan who are SERIOUS about improving or changing it need to stand against the ridiculous claims coming from people like Palin, Beck, and Limbaugh. There are absolutely legitimate areas for improvement and its in ALL of our best interests to focus on those.
pthread: First of all, nice post.
“how the heck can we move past what is a fundamental deadlock? Here or in the government? If we can’t accept a set of fundamental truisms, how can we move forward?”
The obvious answer is freedom of choice. The main virtue of the free market system is that it allows people to make choices. The main vice of command economies is the absence of choice.
If I wasn’t absolutely convinced (by the actual words and actions of the Democrats pushing health care reform) that the government option was merely a tactic in the overall strategy of creating a government run single payer system, I could support it as an option.
The answer is to once again fall back upon the beauty of our federal system. Let the individual states decide. If you want a system run by the government, move to Massacusetts. If you want a free market system with massive tort reform, move to Mississipi. Allow every state to make its own choice, and then sit back and see what works and what doesn’t. There is absolutely no reason for the federal government to impose a system on the states.
“gahrie position is essentially that government WILL fail (he also asserts things that he claims the government will do which aren’t actually in the plan).”
Which plan? There are at least five separate plans under discussion at this point. How do you know my assertions are false? Even the people pushing the bills acknowledge they haven’t even read them.
Have the Democrats asserted that a government system will ration health care? No, but every honest actor acknowledges that it will have to.
Have the Democrats asserted that a government option is just a ruse on the way to a government run single payer system? Not anymore….
Have the Democrats completely refused to discuss tort reform? You betcha.
And to be clear, my assertion is not that government run health care WILL fail, it is that it HAS failed. Medicare and medicaid cost untold billions more than was projected when they were created. Fraud, waste and abuse is rampant. VA care is a travesty and a tragedy.
The true health care reform needed is tort reform, and a more rational and efficent system of government oversight and regulation.
For those who thought I was being overly sarcastic in my comment #35 above:
http://www.reason.com/news/show/136278.html
Been thinking a bit about this notion that ideology trumps reason in the healthcare debate. The problem may be that partisan memes guide ideology, which ends up being all we see. If we talked about the underlying issues (first principles, if you will), we may find that a consensus is closer than it appears.
Consider this thought experiment: suppose every American were gathered in a giant room, and suppose further that all were forced to check their partisanship at the door. Stripped of partisan pretense, and briefed on the underlying issues, all America would then be asked three questions:
1) Do you fear that one day you might be forced to contract for private health insurance, as currently delivered, and that unbeknownst to you something like an unreported hangnail may cause heart disease, ultimately costing you several hundred thousand in unrecoverable cost?
2) Do you find it appalling – for whatever reason – that America leads the developed world in preventable disease-related deaths?
3) Do you think Americans should have the right to contract for whatever they want, as long as it doesn’t harm others, including fancy health services?
My instinct tells me that, stripped of their pretenses, probably 3/4 or more of Americans would answer “yes” to all three questions. At which point, what to do about health insurance becomes fairly obvious:
Given three “yes’s”, it should be clear that deep down we all believe that a two-tier system, if done correctly, is in our collective, and mostly individual, interest. As mentioned before, this system would in theory be similar to Ontario’s, though the details would be quite different.
In America, the “lower”, or “government” tier would have little mandate beyond “make sure everyone gets reasonable treatment for curable illness, and also ensure the general preventive health of the population”. The “higher” tier might be thought of roughly similar to concierge medicine, though its mandate would go quite a bit further than what is conventionally considered concierge medicine today. Actually, its mandate would go as far as the market participants wished, like any market’s would.
Such a system nicely answers the three questions posed at the open of this post, and so the majority of Americans ought to be pleased with it. My sense is that most Americans would be, if they could only move past explosive terms like “socialist”, “corrupt corporations” and the like.
In fact, this hybrid system probably solves two other major concerns of us right-wing-ish folks, which I will ramble about next…
Major concern of the right wing #1: ObamaCare will stifle innovation.
In the hybrid model proposed in 66 above, all Americans are collectively in the base, or lower tier, pool. Suppose you were to contract a curable form of leukemia. Within that lower tier, you would expect to receive traditional treatment for the illness, with a well-established probability of success.
If you have a concierge-esque contract (higher-tier), depending on the terms, you can get access to innovative forms of treatment for your disease. Of course, you pay for that, potentially a lot. For your business, insurance companies are happy to pass along your dollars to the pharma companies that are chasing down these fancy new treatments. This system will change the pace of pharma innovation, but depending on how the details are set up, it might even accelerate it. It by no means would inevitably derail it.
This second point is more cogent in the context of this conversation: This hybrid may end up quietly creating tort reform, without much sturm und drang.
This is ironic since Gahrie is one of the biggest opponents of the proposed reform, but Gahrie favors tort reform. Here’s why the hybrid model may just result in tort reform.
First, a digression about how companies work – these days you hear endless talk about how insurance companies are best because companies compete and competition magically makes the world a wonderful place. Companies do compete, and competition is usually the best thing. However, one must remember that the primary objective of a company is to deliver the shareholder’s profit objective, which, of course, is usually – and really only legally – achieved through competition.
On to the insurance companies. When each of the cartel of major insurers is budgeting for the coming year, you can be certain that they have some sort of “provision for lawsuits” built into their SG&A expense line. They probably turn around and pass this cost on to their customer in the form of higher premia. Therefore, as long as they don’t blow past the “provision for lawsuits” line in SG&A, they’re still on track for their profit objectives, even with doling out tons of cash to the malpractice lawyers.
Because as the year goes by, the insurance company will get sued. Fairly often. Some of the cases will have merit, some won’t. Either way, the insurance company will be strongly motivated to settle all, or almost all, the cases out of court. As long as the expense is not ‘breaking their budget’, settling out of court is not a problem – the customer is basically paying for it – and so the insurance company is indifferent to settlements. But they really don’t want to be raked over the coals in the public’s eye, particularly relative to their peers, so they are often unwilling to challenge even ostensibly frivolous cases.
If all of the major cartel insurers are facing the same pressure, and all of them are planning in roughly the same manner, and all are pricing up to offset this cost, you get a type of de facto collusion that is inefficient for consumers (though good I suppose for trial lawyers). Its not real collusion because no one is talking to each other. Of course, they don’t need to talk to each other – they’re all responding roughly the same way to the same pressures.
Enter the lower tier of Obama Care. Now the government is the sole payor on the more lucrative (to the malpractice lawyers) part of the health delivery spectrum. But unlike private insurance companies, the government is not concerned about bad press relative to its peers. Also unlike private insurance companies, the government has little pricing power (the people are “taxed” out), and the government also faces strong budgetary pressure.
Under those circumstances, you might be amazed at how effectively a bunch of former malpractice lawyers in Congress suddenly put the pedal to the medal on tort reform. Seems to me it would happen once it was a budget necessity in Congress, which it will be if Congress is funding the lower tier of a two-tier American health care system.
Major concern of the right wing #1: ObamaCare will stifle innovation.
How exactly would having an additional option stiffle innovation? The proposed system would simply be another option where people would STILL have to pay a premium for their care, it would just make it possible for them to:
A) Choose seomthing OTHER than their employer provided care
B) Group with other people so as to have more bargaining power.
Isn’t the whole POINT of capitalism that more options is better?
I’d also like to know what examples conservatives can offer up of situations where the government has destroyed an industry through its specific involvement to the detriment of society in this country?
Why is it exactly that UPS and FedEx continue to make money competing with the USPS? By the theory espoused by the right wingers, both should be out of business by now. But they aren’t.
The Obama plan would hlep make health care available to millions of Americans and conservatives are consider it might cause a dip in profits for private insurance? The same private insurance that can allready make life or death decisions for you, no Government Death Panel (copyright Sarah Palin) necessary? Sorry but fighting against the public option for the reasons being expressed is getting harder and harder to take seriously.
David K.
You are willfully ignoring two facts:
1) The people who designed and are pushing this version of health care reform have almost to a man been video taped as stating that the government option is designed to eventually lead to a single payer system which would destroy private health insurance.
2) All five current versions in Congress include massive new mandates and regulations on private insurance that certainly appear to be designed to make private insurance unable to effectively compete with a government option.
3) The government option will of course be massively subsidized by the American taxpayer.
How exactly would having an additional option stiffle [sic] innovation?
Because it’s not just “an additional option,” it’s an option provided by the gov’t, which makes a huge difference, as I explained in comment # 10 above.
Why is it exactly that UPS and FedEx continue to make money competing with the USPS? By the theory espoused by the right wingers, both should be out of business by now. But they aren’t.
Because UPS and FedEx aren’t really competing with the USPS. The USPS is the only entity allowed by federal law to deliver first class mail to your mailbox. UPS and FedEx are strictly prohibited from delivering “non-urgent” letters. Moreover, the USPS operated at a $2.4 billion loss last quarter, and is on track to lose $7 billion in 2009, which is “practically General Motors territory” according to those crazy right-wingers at the NYTimes, which is calling for the privatization of the USPS amid its “staggering” loses.
In conclusion (if this really is the end) I have to admit this thread has had a pretty significant impact on my thinking. If we return to this topic in 30 years’ time, and looking back we realize that what started out as a well-meaning and intentioned effort to ensure that no one died unnecessarily from not-automatically-fatal illnesses, but over time gradually shrunk in scope due to budgetary concerns and general American distaste for all things socialist, with the rest of health services managed by concierge-y operations, run mostly by comparatively recent upstarts (as established insurers struggled to modify and rebrand in a timely manner), and one of those upstarts was begun by a fellow who blogged by the nom-de-guerre Jazz on an obscure blog, assuming you remember this thread…
…it would not be ridiculous to assume that this conversation played some role in the development of said upstart.
3) The government option will of course be massively subsidized by the American taxpayer.
Except the part that it won’t be. I mean I know you enjoy ignoring facts and making stuff up, or just listening to whatever Glenn Beck and Fox News tell you to think, but Obama has specifically stated that the government run option will NOT be funded by tax payer dollars, it will be funded by the premiums its members pay.
It’s hard to even begin to take you seriously when you make stuff up like this.
Actually Joe Mama, they DO compete with the USPS for package delivery, and while the USPS is hurting financially, its not because of package delivery its because of the massively decreased amount of physical mail due to the use of e-mail. It’s not as if the Postal System is struggling do to mismanagement or government waste, any more than the local livery stable suffered with the advent of the automobile.
Further, not one of you were able to give an answer to my challange. Give an instance where government stepped in and destroyed a private industry to the detriment of this country.
All this talk of what the government WILL do (even though they aren’t saying they will) reminds me of how every time a Democrat gets elected it means they are going to take away our guns. Last time I checked, you could still own a gun.
Give an instance where government stepped in and destroyed a private industry to the detriment of this country.
Well “destroyed” is a bit dramatic and a rather absurd goal post to use, but I would take a careful look at the student loan market before blithely assuming that gov’t involvement in private industry can’t have detrimental results.
But back to the USPS…it’s true that the USPS is sufficiently inefficient that UPS and FedEx can compete with it in their niche that is not prohibited by law. However, that’s not exactly the comparison you want to make to argue for gov’t-provided health care. Putting aside the problematic comparison between the most advanced medical care system in the world and moving a package from point A to point B, it’s not as if UPS and FedEx were doing it first and then the gov’t created a new mail delivery vehicle to force UPS and FedEx to become cheaper and more efficient. On the contrary, UPS and FedEx recognized a market for reliable package delivery in response to a near complete failure of the “gov’t option.” If you have an urgent life-or-death package you need delivered, are you going to stand in line at your local post office? Me neither.
In #71, Joe Mama makes the case for the inferiority of the USPS by pointing out that:
Moreover, the USPS operated at a $2.4 billion loss last quarter, and is on track to lose $7 billion in 2009, which is “practically General Motors territory”.
Leaving aside the fact that General Motors was, in fact, run (fairly capably) by corporate chieftains for almost a century, here’s a thought that may trouble some folks on this blog:
Businesses die. All the time. Sometimes this is because management is incompetent, occasionally it is because management is corrupt, but most often it is because business conditions, once attractive, change, and the business has no ability to respond.
Keeping this in mind, does Joe Mama really envision an alternate universe where the USPS had been privatized 100 years ago, split into two or three still competing companies, run by god-like creatures who (like the USPS) invested huge capital into a commodity, afterthought business, one in which they had very little pricing power?
And does Joe Mama further believe that, when the market for the thin-margin, commodity product of postal delivery substantially dried up, the teh awesome corporate entities would have come up with some magic way to keep their businesses whole?
The vast littered history of failed corporations would suggest probably not.
The deeper irony here is that, if there had been competition for a product like commodity postal delivery, no doubt the price wars would have increased, passing savings on to consumers but putting even worse margin pressure on the suppliers. Joe Mama may be right that the drying up of the market for postal delivery is less a factor in the USPS’ failure than gross inefficiencies (!), but he finishes #76 by pointing out that you also have to wait in line at the USPS, which shows you that it sucks, dude.
If the postal service had been privatized 100 years ago, with competing entities taking pricing to gain share, you honestly believe as a result they would have staffed up to reduce your wait time? C’mon man.
Jazz, if the “stand in line” throwaway line at the end of my comment bothers you that much, then feel free to ignore it and read the end of #76 as: “If you have an urgent life-or-death package you need delivered, are you going to use your local post office? Me neither.” Standing in line at the post office is a minor annoyance that, while perhaps symbolic of gov’t inefficiency (see also DMV), is not the basis of my argument.
Grant the “use” clarification for “stand in line”. To my mind, the distinction doesn’t really help the imagined private alternative to the USPS.
After all, in addition to understaffing the service desk, the imaginary competing commodity mail deliverers would likely shirk on their internal controls too.
Internal controls are expensive, especially in an enterprise that is handling millions of small transactions a day. Revenues in a competitive commodity environment wouldn’t likely support acceptable investment for the competing USPS replacement entities.
At a broader level, libertarian faith in the beauty of businesses competing (though not necessarily attributable to Joe Mama, above), reveals a baffling blind spot as regards the future of health care: businesses compete, and some lose. Might your cartel insurer be the one that loses?
Looking at the culture, we collectively seem to have a dysfunctional perception of capitalism: some hate it, thinking that corporations are populated by a bunch of evil scoundrels, while others love it, thinking that corporate competition is the road to all things wonderful. What’s weird is that the lovers of competition, when faced with the dark reality of competition’s losers, then become like those who hate companies, thinking that the losers were really just evil, and if only we could control evil, all would be well with the world.
A good case study of this is Enron. Pretty much everyone, at all sides of the political spectrum, believes that what happened at Enron is a result of the evil of men like Lay and Skilling. I can’t disprove that notion. But consider: its the mid-90s, and an industry with a bunch of giant, heavily-regulated firms is suddenly deregulated. Several management teams that had been making big bucks for not doing much, just serving their government-mandated share of the market, are suddenly left to their own devices.
Might one of these competitors decide that the best approach in the brave new world is to aggressively book revenue, push the envelope in pursuit of growth, and muscle competitors out of the new unregulated marketplace? Seems like a reasonable approach. Ultimately failed, but in the spirit of competition such a strategy from Enron, in the mid-1990s, is hardly ‘evil’.
Of course, health insurance is very different from energy, its an industry with really very little regulation, you know with very substantial margins, and not going through any vast disruptive change…oh, wait a second, maybe its not that different.
There won’t be another Enron in the insurance marketplace (thus causing my heart surgery not to be reimbursed, among other nightmares), as long as companies compete. What if Enron can ultimately be traced to a reasonable competitive strategy?
To my mind, the deeper irony is that privatization of mail service has worked in many other countries, including Japan and Germany (Deutsche Post runs the DHL brand and is one of the largest logistics groups in the world), and the EU is in the process of privatizing the postal services of member nations.
Joe, while privatization of postal services elsewhere helps your argument, we should remember that companies “privatize” businesses all the time, where “privatize” is code for “dump poor-performing crap”.
Regardless of whether a private institution would be able to deliver the mail more efficiently than the government, as a taxpayer I think I would prefer that the private entity try. This does not mean that the private player would do any better. I just hate underwriting the failure with my taxes.
Can’t argue with that 🙂
This is a great discussion and it is the only discussion on this topic, on any of the sites I follow that has good arguments from both sides. I found especially interesting the first principles discussion. I guess that is what it really comes down to.
In an effort to add something to the discussion, although I might be lacking, I agree with Jazz I believe that stated a good place to start would be a base level of insurance and a catestrophic insurance. The only problem with the base insurance level is what do you consider the base insurance. In my mind it would be hospitalization and primary care doctors, maybe even dental and vision. But what I expect would happen is that special interests would get involved and bugger it up. For example, should there be psychiatric care, alchol and drug abuse care? There are a miriad of things that could be added to the “base” package that would significantly increase the cost.
I two problems that I think mess up the whole health care system are that people don’t know what it really costs and in most cases the insurance is purchased by your employer. A model to change to may be that of car insurance. In NY there is a base amount of coverage required. This would meet Jazz’s suggestion. Secondly, it is paid for by the insured. This example may have been used above but I can’t remember.
Lastly, you really can’t compare health insurance to the USPS. They provide a service delivering packages. Health insurance is a completely different business model. Back to first principals, I still don’t trust the government to be an insurance company. There is no incentive for efficeincy and customer service. That is my basic disagreement with government run entities. In most, but not all cases, if they are under budget they go on a spending orgy at the end of the year to spend their budget (I worked for the army corps of engineers and saw this first hand), or if over budget they transfer money from another department and raise fees or taxes next year to cover what they expect the increase will be.
I just hate underwriting the failure with my taxes.
You aren’t. The USPS is not tax supported. In fact it subsidizes the government by not charging them for mailing things.
David, per Joe Mama’s quote in #71, if the USPS incurs expenses that exceed revenues by $7 billion in 2009, the money to cover those expenses is going to have to come from somewhere. I assume it comes from the tax base; do they have an endowment?
Jazz, many companies have expenses that exceed revenues, I assume that they get the money the same way as those companies, probably outstanding debt with banks, etc.
The USPS is NOT tax supported.
Lets take a look at what would happen if the USPS were a privately run buisness:
1) Costs would go up for sending mail
2) You would have to pay to recieve mail
3) Mail delivery depending on location would probably vary by price
4) Mail would only be delivered 5 times a week, and would likely take longer to get there.
I could go on. The simple truth is that the USPS has been an incredible succesfully run GOVERNMENT entity for decades, heck centuries. It is only within the past 10 years or so that they have really struggled, and again this is not due to inefficiencies or management failures or malfeasance, but the advent of e-mail and the internet in general which has led to a marked decrease in revenue. Further, the existence of non-gov’t run buisnesses that compete witha major aspect of the USPS, package delivery, is proof that a gov’t run, non-tax-funded entity is not a threat to the market. Since that is what the Obama plan health care OPTION would be it is an apt comparison.
One last thought. If the existence of a company that suffers a loss is proof that the system is broken, what does that say about private industries? By that same measure we should declare that Amazon (who lost money for quite a while) or Microsoft (who just reported a loss for the quarter) are proof that private industry doesn’t work.
David K:
“Lets take a look at what would happen if the USPS were a privately run buisness:
1) Costs would go up for sending mail
2) You would have to pay to recieve mail
3) Mail delivery depending on location would probably vary by price
4) Mail would only be delivered 5 times a week, and would likely take longer to get there.”
Costs ARE going up (they just got approval to raise the price of stamps again) , and the postal service wants to reduce delivery to five days a week.
To David @87:
I assume that they get the money the same way as those companies, probably outstanding debt with banks
My compliments on making one of the more sophisticated corporate finance observations one finds on this blog. As the resident ferocious Democrat back here, one might not have picked you for such understanding. Of course, this is probably Case Study #1,000,000 on why people shouldn’t get excited over “OMG you favor single-payor? Socialist!” or “OMG you like capitalism? Evil greedy bastard!” The real world never works that way, even if it seems like it on a blog.
That said, you might be right that the USPS has a credit facility to cover losses, much like a company. I was more thinking in the direction that, to the extent that the USPS is a fundamentally broken business model, those credit dollars are being thrown down a well, which will ultimately burden the taxpayer, but that’s a conversation for another time. One more: just to pay off those debts, I imagine the USPS will have to raise stamp costs to a point where a thank-you note to Aunt Millie will seem like it imposes quite a tax indeed.
One other thing for Joe Mama @81: you can’t really compare the USPS and postal delivery in Japan. Japan is a physical footprint the size of California with five times the population of (populous) California. The logistical challenges of delivering mail profitably in the US are certainly several times worse than in Japan, yes?
many companies have expenses that exceed revenues, I assume that the[ USPS will] get the money the same way as those companies, probably outstanding debt with banks, etc.
WRONG – The USPS has lobbied and is lobbying Congress for relief, including an increased ability to borrow from the Treasury Dept. Those are the facts. Just because the USPS is technically a for-profit corp. that is supposed to be self-sustaining doesn’t mean it isn’t propped up by taxpayers when it doesn’t turn a profit (kind of like other private cos. in the “too big to fail” era, but that’s beside the point). I’ve seen no evidence to support the purported “sophisticated corporate finance observation” that the USPS raises capital the way private cos. do, and none has been provided here. Jazz is exactly right that taxpayers are underwriting the USPS’ failure.