Will Adverse Selection Force ObamaCare into a Death Spiral?

By Lambert Strether of Corrente

This post, with its somewhat alarmist headline — I mean, let’s hope it’s alarmist[1] — was prompted by alert reader Jason, who mailed us flagging some important information on Blue Cross/Blue Shield in his home state of North Carolina (and more like this, please).

But before we get to Jason’s mail, let’s define the term “adverse selection.” Adverse selection is a form of information asymmetry, where sellers and buyers don’t have the same information;  for example, a health insurance buyer who knows they need health care, and a health insurance seller who does not know which buyers need health care and which do not. Economics professor Robert Frank explains how an unregulated health insurance market with such asymmetries would play out in the New York Times (2013):

The crux of the matter is what economists call the adverse-selection problem. Uninsured people with pre-existing conditions often face tens or even hundreds of thousands of dollars in out-of-pocket medical costs annually. If insurers charged everyone the same rate, buying coverage would be far more attractive financially for people with chronic illnesses than for healthy people. And as healthy policyholders began dropping out of the insured pool, it would become increasingly composed of sick people, forcing insurers to raise their rates. …. But higher rates make insurance even less attractive for healthy people, causing even more of them to drop out. Before long, coverage would become too expensive for almost everyone.

In other words, a death spiral. ObamaCare’s mandate was supposed to keep enough healthy people in the pool so that the adverse selection problem did not arise[2]. (According to the articles cited in the notes to this Wikipedia article on adverse selection, the evidence for adverse selection in the health insurance market is mixed at best[3]; ironically, therefore, ObamaCare might end up providing that evidence!)

So how’s that working out? Let’s now turn to Jason’s mail (lightly edited):

I’m starting to wonder if there will be a big healthcare system blow up coming soon.

Jason’s interest was piqued by a link that showed Blue Cross/Blue Shield (BCBS) in Illlinois eliminating its most popular individual plan. He goes on:

BCBS in North Carolina is doing the same things in certain counties.

And Blue Cross themselves explain:

In order to address rising health care costs and to continue to provide sustainable insurance for our members, BCBSNC will be revising its individual product offerings for 2016.   Effective January 1, 2016, our Blue Advantage and Blue Select plans, which offer our broadest provider networks, will no longer be offered to individual health care consumers in the Charlotte and Triangle areas who purchased their plans since January 1, 2014, as a result of the Affordable Care Act.

(Notice right here how ObamaCare is random with respect to jurisdiction. If you live in the Charlotte and Triangle areas, you go to Pain City; otherwise, you go to Happyville. Yay!) Jason explains how BCBS affects him:

I basically don’t have a good option. The value plans basically cover nothing, none (yes literally none, zero) of my doctors take it. The local plan is tied to the local hospital network and affiliated doctors and is better, but presents problems as specialists I see for a rare genetic condition aren’t local or covered by either. There isn’t another option either, as I live near Charlotte and most of these specialists are at medical schools, so my only options are at UNC or Duke which don’t take the plans I have to choose from. There are no other real options either. Although there are plans from other insurers they aren’t comprehensive either and don’t cover doctors I need.

(NC readers will remember a post from Dromaius in 2013 on how insurance companies design narrow networks to make sure “consumers” needing specialists don’t sign up for their policies.) Jason’s solution:

I am seriously starting to think that moving might be the only way to get a decent healthcare plan and just might be my best option.

(Wait, I thought Obama said “we were able to deliver on universal health care”? To be fair, if you parse the words, he did just that. To take delivery, you need only leave your home and move somewhere else. Such a deal.) North Carolina’s BCBS has a blog, where they explain their thought process for re-inserting their sucking mandibles “revising” their “individual product offerings:

Why We’re Adjusting Our 2016 ACA Rate Filing

Early on, industry and government officials counted on two assumptions: A healthier mix of customers in the second year (2015), and a leveling-out of medical spending this year following a surge in demand for the initial year. We now have enough data to know that both of these assumptions have not proven true.

Earlier this summer, my colleague Brian Tajlili wrote in a blog post that our ACA customers are reporting even more chronic health conditions than last year, and they’re using a lot of expensive health care services. And he noted that we may need to adjust our filing to reflect a higher increase in order to cover these costs.

Unfortunately, we now know that to be the case. Our claims and expenses are higher than the premiums we are collecting. As we reported last month, the operating losses on our ACA business in 2014 were $123 million — a number that can’t be sustained over time.

And it’s not just BCBS in North Carolina:

Our rate request is consistent with others across the country as reported by The New York Times.

Jason translates how BCBS is “adjusting” its “rate filing”:

They basically say that their customers are needing and getting lots of healthcare and because of this they are losing money so they are jacking up rates. They then say that lots of people are getting low-cost, limited network plans so they decided to take away the option of getting better plans for some people depending on where they live.

(Again, does this sound like Obama’s “universal health care” to you?)

So let’s step back. We’re seeing what could be the effects of adverse selection: The price increases. And we see, from BCBS, the cause of adverse selection: A mix of customers that’s too unhealthy for BCBS to bloat itself make a profit. But what about ObamaCare and the mandate? Will the pool of insured, eventually, include enough healthy citizens customers for ObamaCare to make sense as a business proposition? It’s not looking good, since the policies are so crapified[4]. Remember this? From the NBER:

However, even under the most optimistic assumptions, close to half of the formerly uninsured (especially those with higher incomes) experience both higher financial burden and lower estimated welfare.

So the pool is bad — by which we mean that those who need health care are getting it, and those who don’t aren’t paying for them — and not likely to get better. Bob Laszewski writes in Forbes:

Yesterday, the Obama administration said that they expect to have 10 million people enrolled on the Obamacare insurance exchanges in 2016. They further said they expect to sign-up only one in four of those still uninsured and eligible during the 2016 open enrollment scheduled to begin on November 1.

These are astonishing admissions.

In 2013 the Congressional Budget Office (CBO) estimated that the Obamacare insurance exchanges would enroll an average of 22 million people during 2016.

If the administration is able achieve an average paid-for enrollment of 10 million people during 2016, they would have only signed up 36% of the potential market of 28.1 million.

Why is this important?

Because in order for a [for-profit] health insurance program to be sustainable and affordable, it must sign up many more healthy people than sick people in order to pay the costs of those who are sick. Since Obamacare is still relatively new we don’t know for certain what percentage of the total eligible we need to make the program work. But, we do know that the longtime health insurance industry underwriting rule is that 75% of an eligible group is necessary to get “an adequate cross section of risk”–the right balance between sick and healthy.

(An “an adequate cross section of risk” is adequate to avoid adverse selection.) Well, if 50% of those who aren’t enrolled have decided ObamaCare is a bad deal, that would seem to put the 75% baseline at risk. Laszewski confirms:

By historical standards, if the administration were to meet its 2016 enrollment estimates it would have only half of the population needed to make the [for-profit] program sustainable. No matter what Obamacare’s actual take-up requirement turns out to be, 36% is not even close.

Why isn’t Obamacare growing?

Because, other than for the lowest income people who enjoy the biggest subsidies and lowest deductibles, the insurance products health plans are required by Obamacare to sell people are just plain unattractive with their still after subsidy premiums and high deductibles and co-pays. The value simply isn’t there for the working and middle class–unless of course you are sick.

Of course, ObamaCare’s tax penalties, which grow increasingly large over time, may change that value equation; a touch of the lash always makes the galley slaves row harder, after all.[5]

* * *

Interestingly, ObamaCare’s next open enrollment period will begin and end immediately before the 2016 Presidential campaign begins in earnest with the Iowa caucuses; and the open enrollment period after that will begin around the time that people go to the polls. So if an ObamaCare death spiral moves from mere hints and intimations to harsh realities, progressives in and around the Democratic Party will be confronted with a historic choice: Will they die in the last ditch to defend ObamaCare as is? Will they advocate tweaks? Will they revive the so-called public option?[6] Or — especially given that Clinton has already head-faked left on so many other policies — will they finally push for the simple, rugged, and proven “Everybody in, nobody out” single payer program advocated by Bernie Sanders?

NOTES

[1] Because I’m not a “worse is better” kind of guy.

[2] Obama’s demogoguery on the mandate in 2008 was too much even for Krugman. Clinton supported the mandate; and Obama ran Harry and Louise-style ads (the background) against Clinton, opposing it. Naturally, when in office, Obama supported it.

[3] “Asymmetric Information in Health Insurance: Evidence from the National Medical Expenditure Survey,” The RAND Journal of Economics, 2001. “A robust prediction of adverse-selection models is that riskier types by more coverage and, on average, end up using more care. We test for unobservables linking health insurance status and health care consumption. We find no evidence of informational asymmetries.”

[4] If you squeeze the profit balloon on the policy side, by insisting that those with pre-existing conditions be covered, as ObamaCare does, then the profit balloon expands on the crapification side, and you get narrow networks without specialists and/or limited by geography, high co-pays and deductibles, narrow formularies, and other forms of obfuscation (or, to put it less politely, fraud). We should be seeking to pop the profit balloon in health care, not squeeze it.

[5] Or — anything’s possible — the Tea Party, et al., might actually grow some stones and start doing serious tax resistance, now that the screws are beginning to tighten; interestingly, the ObamaCare statute forbids the IRS from garnishing your wages or putting a lien on you if you don’t pay the tax penalty for not fulfilling the mandate, which sure looks like a set-up to me. (Yes, the IRS can take your refund, but surely that can be gamed.) Another reason 2016 might be more interesting even than the usual Presidential year.

[6] For background, see here and here.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

114 comments

  1. low_integer

    Suggested edit in bold:

    But before we get to Jason’s mail, let’s define the term “adverse selection.” Adverse selection is a form of information asymmetry, where sellers and buyers don’t have the same information; for example, a health insurance buyer who knows they need health care, and a health insurance seller who does not know which buyers need health care and which do not.

    1. BRUCE E. WOYCH

      Adverse Selection had validity back in 1960 – 1970 when Insurance actually distributed risk as a service provider. HIPPA originated from the same concern for asymmetrical information. As Insurance became a profit-pricing scheme more than a cost sharing, the accounting devices became more sophisticated and reversed the tables on buyers. Adverse Rejection (coined here) became the reality and assurance of profit driven medical / cost ratios that actually rationed medical care as it spread the cost. HIPPA protects the Insurance, physicians and hospitals more than it ever protected “privacy” and people’s dignity. In fact, Obamacare is a total misnomer, since it is not care at all but price assurance and a rationing scale for Universal Insurance. It should rightfully be called the Obama-Insurance Plan. In the short run this sounds like it will serve a good deal of under served people, particularly those poor souls that have pre-existing threats to their life or health concerns that have gone unattended. Death has often resolved these problems more than health care in America. For some people (that are already on systems of support) this is a crude balance of payment system of justice. Of course it is totally inhumane.
      Adverse Selection having been recognized as such could easily be corrected with assigned risk categories as we get in car insurance. Assigned risk could be standardized to actually distribute risk, but the pricing of medical treatment has a component in this formula. Real cost versus life style support where hospitals are built like museums and flag ship private equity takes profits off the top while insurance pools become dark pools of interest all conspire to raise cost of life medical care in the United States. Insurance claims are rejected and fought over for profit interests not patient interest. True Public Health in this country requires a conscience. There is no such thing under insurance driven service providers, and health care medical / cost rationing when the true cost of health care is a small percentage of the financial waste that goes into puffing up the market driven incentives.

  2. April

    Bernie is correct. Medicare for All is the solution. I can’t wait to be old enough to qualify for it. You can see any doctor you need with it.

    And not all plans are losing money. I just got several hundred dollars in a refund for my 2014 Silver Plan. Blue Shield of CA overcharged us. The key to making insurance work is to have a big enough pool so those of us in the big state of CA are getting 5% back.

    The best way to fix the insurance mess is to get everyone into a full featured pool and make sure providers get adequate compensation. Dump the insurance corps and other middlemen brokers like the drug distributors.

    1. Kokuanani

      You can see any doctor you need with it.

      I hate to break some bad news to you — and this will vary according to where you live — but I have been eligible for Medicare for several years, and it is EXTREMELY difficult to find a doctor who takes Medicare patients.

      My original doctor, whom I’d used for many years, first (seven years ago) stopped taking NEW patients who were on Medicare, and shortly thereafter kicked out any of us ON Medicare — even those of us who’d been with her long term. Oh, I could “stay” with her, but I’d get to pay for my own costs, unless, of course, I could get a “new” insurance policy at 65+. Insert maniacal laugh here.

      Where I live — the metropolitan DC area — eliminating Medicare patients is no financial threat to doctors, since there are so many federal and contractor employees with excellent coverage to replace us.

      When this problem arose for me, I talked to several friends in similar situations, and they too could not find a doctor to accept them as a patient. Again, this was for folks covered by MediCARE, not the dreaded MediCAID.

      I finally ended up with Kaiser.

      1. AdamK

        If all will be covered by Medicare there won’t be other choice for physicians but accept them. Years of pretense that healthcare can be considered industry and not simply public service are coming to an end, and even physicians will have to adjust not to mention medical schools.

    2. washunate

      make sure providers get adequate compensation

      That’s the primary reason healthcare costs so much in the first place. Healthcare providers should receive less compensation, not more.

      1. Lil'D

        I don’t think healthcare providers are overpaid. It’s the mass of non providers who are just shuffling papers around. I have pretty good insurance but since we switched over, every time I do anything, Aetna sends me a request to provide additional supporting documentation or they will deny. It’s not terribly hard to provide it, though often I have to ask the doctor’s office to send me a copy and then send it back to Aetna. None of these activities “provide healthcare”. But it makes the doctor less efficient and imposes a cost on me of time and effort to substantiate even minor charges.
        I love my doctor and get great care, and have good coverage, and am healthy, so overall, I’m in much better shape than most. But still, system is pecking away at quality care, and is clearly inefficient.

        1. washunate

          I agree there is inefficiency in the insurance paperwork. But routine visits to independent doctors are a small part of overall healthcare costs. Most of the costs in our system are incurred at large hospital chains and for expensive medical equipment and drugs.

        2. Ed S.

          I don’t think healthcare providers are overpaid

          It’s frequently difficult to determine how much of a medical “fee” actually goes into the provider’s pocket. As an example, my spouse broke her leg several years ago and required 2 surgeries to repair (spaced out over a year).

          The total “list price” cost for the repair was in excess of $100,000; this included outpatient surgery center fee in excess of $20,000 per 90 minute surgery (and the “center” was the ground floor of a non-descript office building).

          The surgeon’s fee was roughly $3,000 x 2 (which was then discounted by 30%). In other words, the person who did the actual work billed 6% of the total cost.

          At the local University hospital, the apparent “standard rate” for ANY office visit is $500 to $600. So if the physician sees 15 people per day, that’s $9,000 in revenue. My guess is that they see 10 to 15% of that in their pay envelope.

      2. furby076

        healthcare provider pay varies by speciality and geographic area. There are specialities that make about $100k/year in major markets. That is NOTHING, absolutely NOTHING, for someone who spent about 10-12 years in school, with hundreds of thousands of dollars in debt.
        It’s not the individual healthcare providers (read: Your doctor) jacking up the cost

        1. washunate

          That’s the whole point. What it means to be a doctor has radically changed. Healthcare providers are no longer the town doctor that makes house calls running his own practice. Healthcare providers are billion dollar corporations employing thousands of people, from overpaid specialists and administrators to minimum wage support staff. In every metro area in the nation, hospitals and universities are some of the largest employers. There are some states where a hospital chain is literally the largest single non-governmental employer in the entire state.

          And after all, why does medical school itself cost so much that people come out of it with tens or even hundreds of thousands of dollars of debt?

  3. AWB

    I’m sure single payer would solve everything, except this unmitigated disaster of social engineering from the liberal left would be hardly as damaging.

    The way this plays out is a two tiered system of retirement and health care, one for the elite and those who can afford it, and one for everyone else. At least that’s the way the elite envision it. The inconvenient truth for them is the devil will as surely destroy them as well as everyone else.

    Enjoy your croissants.

    1. tegnost

      I think you’ve almost got it, it;s a two tiered system where the elite have retirement and health care, and everyone else pays for it. A 3 or 4 hundred dollar monthly payment for a product that also has a big deductible and doesn’t include any health care….hmmm trying to figure out here what the problem might be,,,but hey it does starve the student loan collections out of tax returns, when do those guys start to complain?

      1. curlydan

        you got it. the death spiral is that Obamacare tries to force people to buy health insurance but offers prices (and especially deductibles) that are simply too high. Even with increasing penalties, it’s still not worth it for low-income earners to sign up for this pig.

        Congress compounds the problems by slowly bleeding Medicare all the while approving $32 billion this week for emergency wars. That’s bipartisanship, baby!

        “Evil minds that plot destruction
        Sorcerers of death’s construction
        In the fields the bodies burning
        As the war machine keeps turning
        Death and hatred to mankind
        Poisoning their brainwashed minds
        Oh lord yeah”
        -Black Sabbath, “War Pigs”

    2. reslez

      > this unmitigated disaster of social engineering from the liberal left

      ObamaCare is significantly to the right of Nixon’s proposal in the 70s. The institutional left supported ObamaCare because it guaranteed health industry profits. The institutional left supports the neoliberal consensus the same as the institutional right. There is no difference.

      The croissants are delicious, thanks.

  4. jgordon

    There seems to be an incredible disconnect between thr limosiune liberals endlessly lavishing praise on Obamacare, and people who actually have to use it. Here is a clue for them: 60 dollars is a lot of money. For most people making near minimum wage that is the difference between eating or not eating. Who the F are these people to inform us what an affordable premium is? No wonder Obamacare is falling apart. The people who designed it are out of touch with reality

    1. Jim Haygood

      ’60 dollars is a lot of money’

      I wished I had some money
      With which to buy a round
      I wished I’d cashed my paycheck
      Before I came to town
      But I reached into my pocket
      Found three twenties and a ten
      It feels so good feelin’ good again

      — Robert Earl Keen (1998)

      Hill rats don’t listen to country music.

  5. scott

    I suppose if the only insurance you could get for your car had a $6500 deductible, you’d probably skip that, also.

    The pre-Obamacare practice of not covering the sick has turned into the current practice of not TREATING the sick. Disgustin.

    1. Arizona Slim

      @scott makes a very good point. And I’d like to add to it by saying that a homeowner’s insurance policy with a $6,500 deductible would have very few takers.

  6. Jim Haygood

    ‘I am seriously starting to think that moving might be the only way to get a decent health care plan and just might be my best option.’

    Asheville is nice this time of year. But if Blue Cross yanked coverage for Charlotte and the Triangle this year, they’ll unplug the rest of the state next year. Then in 2017, a new Congress will change all the rules.

    Lambert is surely right: signing up 36% of the targeted market means adverse selection, big time. Many of the remaining 64% have what economists call a short planning horizon. They place a higher value on avoiding the pain of paying a high premium today, than on the punishment of next year’s tax penalty (which is easily avoided merely by skipping a utility bill to provoke a disconnect notice).

    A group investing their own money in this cockamamie scheme would have been cautious enough to run a pilot project before committing hundreds of billions to it. But college-educated policy wonks on the Hill (who have excellent health plans) thought, in typical paternalistic fashion, that they could simply decree the dispensation of Obamacare to a grateful populace of simple wood hewers and water fetchers. Wrong-o!

    Nothing can be done till a new admin is installed in 2017. By that time, Obamacare will be as passé as its namesake, giving the R party an opportunity to ‘mend not end’ it with something even worse. How about signing up a million new infantry soldiers and sending them door to door to collect them premiums? America means business!

    1. Katniss Everdeen

      “How about signing up a million new infantry soldiers and sending them door to door to collect them premiums?”

      I’d consider this “levity” except that there have already been instances of swat teams breaking down the doors of delinquent student loan borrowers in their collection “efforts.”

      Authorities in modern america appear increasingly convinced that nothing concentrates the mind like a busted door and a dead chihuahua.

  7. REWS

    I took a look at reference [3] and do not think the work is valid. These two sentences stood out ” We do not observe the choice sets of those individuals who are not offered insurance and remain uninsured. For each
    of these individuals we randomly assigned an actual plan chosen by those who did buy a private
    plan.” Meaning that the authors of [3] did not have data on individuals without employer provided health insurance.

    As a result, my sense is that the data analyzed in [3] would support a hypothesis that when employers offer their employees health insurance, employees will purchase the insurance largely without regards to their actual health state; however, the data analyzed would not support a hypothesis that there is no empirical evidence for adverse selection in health insurance markets.

  8. allan

    One aspect of this is that if you have a previously existing set of doctors you see, you will need to decide which ones to throw over the `in-network’ wall and which ones to keep in-network. In other words, you will need to predict which of your medical conditions will be the most expensive for 2016. This is what Mankiw and Summers call being a `smart health care consumer’.

    And then a year from now, when the plans change and crappify, you’ll have to go through the same exercise all over again. Because markets.

  9. Northeaster

    Move to Massachusetts, we’re at or near the top of people “covered”, just don’t look at the costs, as we’re also number one for that too (or pretty close). No, don’t move here.

    That NBER study is spot on, so much so I sent it to my State Legislators and describing the enormous bill my spouse received for a recent procedure. I’m fairly antagonistic with my legislators to begin with, so it was no wonder why I received the : “We’ll look into it” response. However, the point being is while we’re able to absorb these ridiculous costs (for now), we know many can’t or on the cusp of breaking them into financial ruin because someone or somebody’s thought they were “rich”. As I explained to my legislator, their actions, or lack of corrective active is absolutely destroying middle-class families.

    In my personal case, as the NBER mentions, I simply no longer go to the doctors, for anything. Just to draw blood is a $100 bill (ok, it was $97 and change), that’s outrageous. If I need antibiotics, I just buy animal ones online, tons cheaper and no script (read billed for a visit). Some may see this as a risk, but it’s a hell of a lot better than dying in financial ruin leaving nothing for the family. So I’ll continue this way, I’m relatively healthy anyway (good diet, exercise regularly, not fat), so the risk is worth it. If I do die from some horrible disease, at least my family will get a check to take care of things when I’m gone.

    Than again, Obamacare/Romneycare is working exactly as intended, just not for The People.

    http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1446033891878&chddm=649842&chls=IntervalBasedLine&cmpto=INDEXSP:.INX;NYSE:UNH;NYSE:AET;NYSE:ANTM;NYSE:CI&cmptdms=0;0;0;0;0&q=NYSE:HUM&&fct=big&ei=17kwVrG6EcS4e6y4qqAN

    1. reslez

      Two years ago my employer switched to a high-deductible plan + HSA. Before that I had a “Cadillac” PPO. (Note the premiums did not change at all.) Even with the so-called gold-plated plan, every time I went to the doctor for anything I would be hit with a $250 bill. Even for something as innocuous as “hey I’m visiting Thailand this summer and need to update my vaccinations”. Kind of like when you take your car to the dealer for an out of warranty repair, a ridiculous and automatic expense. Except that I was supposedly “insured”.

      What is the point of this insurance, exactly? The deductibles and plan limits on hospitalization mean that if something catastrophic were to happen, I will not be taken care of. So it doesn’t pay for routine care, doesn’t pay for disaster care, I guess what it pays for is people with diabetes (pretty much half the baby boomers in my family, all of whom are obese). My response has been to avoid doctors entirely. I’m healthy and have no risk factors, thank goodness.

      My insurance premium is my contribution to the sick pool. They won’t get anything out of me but that, if I can help it.

  10. timbers

    Live in Massachusetts, been on various temp jobs and on and off RomneyCare at various times. My experience:

    1). Niether my doctor nor desntist take any of the plans offered in RomneyCare saying they are “aweful”, but my doctor’s staff did tell me the least aweful plan, so I choose that. My doctor will continue to see existing patients on RomneyCare.

    2). As I re-enter full time employment, am annoyed I must calculate when/how much I will have to start paying for insurance I don’t like, or if I should drop it, as I have friends who have employer based insruance how can cover if I ask them.

    3). Why do taxes become part of one’s healthcare choices? Totally nuts!

    1. flora

      ” doctor’s staff did tell me the least aweful plan”

      That’s a good point about asking your current docs, dentists, nurses, dr’s office staff for their opinions about which plan they they think is the least awful. Expect they have more experience and better info than the ACA online website or the ins. cos. advertising.

  11. paddlingwithoutboats

    Conversations about the mess we have trying to get decent health care in the US have to go back a bit, to the seventies. Below are extracts of the Nixon Whitehouse Tapes with Ehrlichman and Nixon discussing passage of the HMO act. It has direct relevance to why for-profit health care is not only an oxymoron without the oxy, but a national embarrassment;

    Ehrlichman: “This … this is a …”
    President Nixon: “I don’t [unclear] …”
    Ehrlichman: “… private enterprise one.”
    President Nixon: “Well, that appeals to me.”
    Ehrlichman: “Edgar Kaiser is running his Permanente deal for profit. And the reason that he can … the reason he can do it … I had Edgar Kaiser come in … talk to me about this and I went into it in some depth. All the incentives are toward less medical care, because …”
    President Nixon: [Unclear.]
    Ehrlichman: “… the less care they give them, the more money they make.”
    President Nixon: “Fine.” [Unclear.]
    Ehrlichman: [Unclear] “… and the incentives run the right way.”
    President Nixon: “Not bad.”

    More;
    “Perhaps the best introduction to the Kaiser HMO and Kaiser Permanente Medical Care Plan is the summary by Mr. Edgar Kaiser that the less Kaiser does for patients the more money it makes. To get the full context one can go to the University of Virginia and review the presentation Mr. Edgar Kaiser (then Kaiser CEO) made to President Nixon through Mr. Erlichman – the less we do the more we earn. This convinced President Nixon to go forward with the HMO Act of 1973 with Kaiser as the template.”

    The transcription is from the University of Virginia, for the clearest possible presentation (pathway discovered by Vickie Travis). Check – February 17, 1971, 5:26 pm – 5:53 pm, Oval Office Conversation 450-23. Look for: tape rmn_e450c.
    [Kaiser brags elsewhere that the HMO Act of 1973 was largely designed around its model. In many ways all of the US HMOs are Kaiser clones. Most, like Kaiser, have the hidden at risk formula whereby the physicians get a large benefit – really kickback – for every premium dollar saved
    (unspent).]

    (Read the rest of The Kaiser Papers Unauthorized Outline & Document Summary for Attorneys)

    Another extract I recovered (from a catastrophic computer failure last year, sorry not better linkage/data on sources):
    History
    The history of Kaiser Permanente dates to 1933 in Eagle Mountain|Desert Center, California. There, Garfield opened the Contractors General Hospital, with twelve beds, to treat construction workers building the Los Angeles Aqueduct in the Mojave Desert. The hospital was in a precarious financial state, fueled by Garfield’s desire to treat all patients regardless of their ability to pay. Harold Hatch, an insurance agent, proposed that the insurance companies pay the hospital a total amount, in advance, for each worker covered. The financial relationship between the insurance companies and the hospital was efficient, and allowed Garfield to focus on a new idea: preventative health care.
    Intrigued by the concept developed by Hatch and Garfield in the Mojave Desert, Henry Kaiser persuaded Garfield to open a prepaid practice for his construction workers building the Grand Coulee Dam in Washington state in 1938. Coverage was later extended to the families of the workers. In 1942, Kaiser established health plans for workers and families at shipyards in Richmond, California and Vancouver, Washington, and at a steel mill in Fontana, California. In 1945, Kaiser membership was opened to the public, as membership had dropped to 11,000 following World War II. When the shipyards closed in 1946, membership dropped to 25,000, from a height of 200,000.
    Between 1952 and 1955, membership grew to 500,000, as Kaiser worked with union leaders to extend healthcare to all unionized employees. In 1958, Kaiser added Hawaii to its original three regions in Northern California, Southern California, and Oregon. Membership reached one million in 1963. In 1969, Kaiser added regions in Colorado and Ohio. Nine years later, in 1976, membership reached three million. In 1977, four years after the signing of the Health Maintenance Organization Act of 1973, all six of Kaiser’s regions became federally-qualified HMOs. In 1980, Kaiser acquired a non-profit group practice to create the Mid-Atlantic region, encompassing the District of Columbia, Maryland, and Virginia. In 1985, Kaiser added Georgia.
    Kaiser has pulled out of four money-losing regions. Kaiser sold its Texas HMO in 1998. The problems in Texas were so severe that Kaiser directed its law firm to attempt to block the release of a Texas Department of Insurance report in 1997 – a report that prompted the state attorney general to threaten to revoke Kaiser’s license. In North Carolina, the Industrial Union Department of the AFL-CIO issued a 1996 report critical of Kaiser quality, and Kaiser closed health plans in Charlotte and Raleigh-Durham in North Carolina four years later. Kaiser closed its unprofitable Northeast division in 2000.
    During the 1990s, Kaiser hired public relations firm Bain and Associates to position their brand in Washington, D.C. and gain influence with national opinion-makers. As a result, Kaiser executives were invited to participate in four White House special panels, and lead the testimony in both the Senate and House hearings. Kaiser spokespersons were also placed on MacNeil-Lehrer, First Business, and CBS Evening News to promote the Kaiser brand of HMO. A report by the California Nurses Association found that in 1995 Kaiser paid out $96.1 million to its top four management consultant firms alone.
    In 1995, Kaiser celebrated its fiftieth anniversary as a public health plan. Two years later, membership reached nine million. In 1997, Kaiser established an agreement with the AFL-CIO to provide for a more positive relationship between management and labor, known as the Labor- Management Partnership.
    In 1999, a number of groups sued the organization over its “In the Hands of Doctors” advertising campaign. The groups charged that doctors were not fully in control of decision-making, or that they were persuaded to limit care with financial bonuses. Kaiser Permanente pulled the ads, and in 2003 agreed to settle the claims by publicly publishing the guidelines under which its doctors make patient-care decisions.
    In 2004, Kaiser launched a $40 million dollar ad campaign titled “Thrive.” The television, radio, billboard, print, and web campaign focuses on the theme of preventative care. The television and radio spots feature voiceovers from actress Allison Janney. The campaign is the first since the
    Navigation
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    organization pulled its “In the Hands of Doctors” campaign. Critics of the Thrive campaign accuse Kaiser of advertising fraud and racial profiling.
    In 2005, The U.S. and state attorneys general penalized Kaiser Foundation Health Plan Inc., Kaiser Foundation Hospitals and the Hawaii Permanente Medical Group $1.9 million for making improper Medicare and Medicaid claims.
    In 2005, the California Department of Managed Health Care (DMHC) levied an historic fine of $200,000 against Kaiser Permanente for disclosing patient information on a public web site.
    Criticism
    Kaiser’s policy of forcing patients with malpractice claims into arbitration has been highly controversial. Wilfredo Engalla died in 1991, after waiting 6 months just to have an arbiter appointed. The California Supreme Court found that Kaiser had a financial incentive to wait until after Engalla died; his spouse could recover $500,000 from Kaiser if the case was arbitrated while he was alive, but only $250,000 after he died. Patients and attorneys continue to fight for the right to sue.
    Critics also charge Kaiser with decreasing service accessibility, accomplished by “managing” the information provided to patients regarding available services and how to access them. For example, Kaiser promotes less-costly preventive procedures while suppressing information about other elective and/or expensive services. Moreover, services are arranged to make them easy (e.g., primary care) or difficult (e.g., specialists) to utilize. Kaiser also uses delays for cost containment strategy. Kaiser implements delays through the need for referrals, limiting the number of contracted specialists, restricting appointment availability (or making appointments inconvenient), and by increasing office visit waiting periods.
    In 2004, a patient sued Kaiser for elder abuse and was awarded $100,000 in arbitration. Other quality concerns include long ER wait times, that have resulted in a number of deaths. There are also concerns that doctors get bonuses for providing inferior care. In 2002 Kaiser call center reps were given bonuses for limiting doctor visits. There is also some concern about bias in quality measures, since the main measuring organization (NCQA) is funded and overseen by a coalition of HMOs, and doctors are paid bonuses to meet the measured criteria.
    Critics have also accused Kaiser of exploiting patients for medical experiments. From 1989 to 1991, Kaiser along with the L.A. County Department of Health and the CDC, injected over 700 mostly minority babies with unlicensed experimental vaccines with fraudulently-obtained consent from the parents. Kaiser uses information from all patients to build proprietary population-management databases.

  12. Carolinian

    The problem with Obamacare–obvious to any objective observer from the get go–is that it pretends America has an insurance problem when what it really has is a cost problem. Private insurance used to be rational back in the days when medical pricing was more rational. However when providers and drug companies are allowed to arbitrarily charge what they like, with three day hospital stays costing tens of thousands of dollars, then the insurance companies do everything in their power to game the system. Obama care was always a medical industry scheme to protect their income stream by forcing the populace to participate in their business model under threat of government penalties. It is crony capitalism at its finest–the hallmark of Obama and the neoliberals. They talk about self regulating markets while using the government at every turn to prop up their businesses.

    Single payer would be good but national health care would be better. However any long term solution will have to acknowledge that the present Rube Goldberg system doesn’t work.

    1. financial matters

      Good points. The Rube Goldberg complexity needs to be wound down to get a better look at true costs. I think either single payer or national health care could accomplish that.

      I think the benefits to the insurance companies and top level administrators and providers are interconnected. This could be more directly dealt with if we had a single payer, Medicare, or a national health program which clearly laid out actual costs and levels of compensation.

      Then we could also look more clearly at the costs of educating the people we need for their different roles in this system.

      Taking white collar crime, especially fraud, more seriously would also help.

      1. Jim Haygood

        The budget deal creates new felonies, with more severe terms, for Medicare and Social Security fraud.

          1. Jim Haygood

            One should hope not!

            Sec. 813: New and stronger penalties

            Creates a new specific felony for conspiracy to commit Social Security fraud, punishable by up to 5 years in prison, fines generally up to $250,000, or both.

            Increases the maximum felony penalty from 5 years to 10 years for individuals in positions of trust (including claimant representatives, doctors and other health care providers, translators, and current or former SSA employees) who use their specialized knowledge to defraud the SSA, in addition to fines (generally up to $250,000).

            Increases the maximum Civil Monetary Penalty (CMP) that the SSA can levy against individuals in a position of trust from $5,000 to $7,500 for each false statement, representation, conversion, or omission the individual makes or causes to be made.

            http://docs.house.gov/meetings/RU/RU00/CPRT-114-RU00-D001.pdf

            Do you see ‘executives’ in there? Me neither.

        1. Beans

          Fraud is a feature not a bug. No gov agency will stop it because that would result in massive job losses. Those dealing in fraud have zero fear of anyone trying to stop what they are doing. Sure we get a token story here and there but make no mistake – fraud is a huge part of the medical industrial complex profit stream.

    2. Happy Camper

      “…pretends America has an insurance problem when what it really has is a cost problem.” Spot on.

      In addition to price is also the issue of effectiveness. Various studies have cast doubt on the effectiveness of most cancer treatments, and indicate that medication may be as effective as surgery in treating many types of cardiovascular blockages (at a fraction of the price). The list goes on – there are a number of expensive procedures performed that likely not appreciably improve the health outcome of the patient. It’s a form of “soft”, industry-sanctioned fraud.

      Then there are the various forms of “hard” fraud.

      However, I don’t think that this country will truly get a handle on it’s medical care costs until we seriously acknowledge the role of our lifestyle and dietary choices on our health. Which runs counter to yet another group of corporations who profit off of selling food that is, at best, detrimental to our health.

  13. Linda Amick

    Anecdotally, as an oldster, I am continuously shocked by how much chronic illness there is in ALL the human groups I interact with; this includes children.
    This fact is never considered in any discussion.
    I raise dogs. It is alarming the chronic illness increase in this population AND the increasing difficulties with the reproductive processes.
    Our toxic environment, food supply, medical procedures/pharmaceuticals must have an influence.

    1. sam s smith

      Death rates have come down quite a bit in the last 80 years.

      Used to be you got a cut, it got infected, you died.

  14. DanB

    Will they die in the last ditch to defend ObamaCare as is? The limousine liberal option.

    Will they advocate tweaks? Also a limousine liberal option; this will also include some of those actually affected.

    Will they revive the so-called public option? Those adversely affected will choose this option.

    Or … will they finally push for the simple, rugged, and proven “Everybody in, nobody out” single payer program advocated by Bernie Sanders? No, because this would require a transformation of personal and political identity. However if this turns out to be a severe case of adverse selection, this transformation could take place.

  15. DJG

    I don’t want to get ahead of events, but we are seeing some kind of meltdown. Anecdotally, I have been “canceled” here in Chicago, and I’m hearing that others with individual plans have, too. The self-employed, and those doughty small-business owners extolled by both parties, get hit again. My health-insurance agent (I’m not going to even touch the exchanges) told me yesterday that she’s already had fifty calls, clients checking in, all dropped. Blue of Illinois is changing the networks so that those on the individual plans cannot get into the major hospitals. Deductibles seem to have gone down on the proposed plan–with its $267 a month increase. But BC BS is removing out-of-pocket maximums. We’re talking potential exposure of thousands of dollars for an individual.

    All of which reminds me that Obama is a typical U.S. corporate manager. Bluster and genial incompetence. Lack of concern for the workforce. Constant attempts to claim to be constrained by “market forces.” He’ll be a stellar addition to the General Electric board once out of office. Which reminds me of the problems with Hillary Clinton’s appeal: the classic U.S. lady corporate manager, Carly Fiorina without the snarling.

    1. Arizona Slim

      Funny you should mention self employment. Because I used to get my “health insurance” through an outfit called the National Association for the Self Employed. Biggest pile of dung I ever paid for.

      1. Anonymous

        Our (formerly) Gold plan in Illinois also got cancelled as of January 2016. The proffered alternative:

        Turned it effectively into a Silver plan by raising the co-insurance from 20% to 30%
        Removed the out of pocket max for out of network expense.
        Raised the deductible by 50%, from $1,000 per person to $1,500
        Excluded us from the major teaching hospitals in Chicago, which is where anyone with a brain around here goes if you need a specialist or major procedure.
        Oh, but it left the rate unchanged: at $1,527 per month for just the two of us.

        A real bargain, that.

  16. Eric Patton

    My favorite part is when people ask about single payer — and be sure to read this in the whiniest voice possible:

    But how are you going to pay for it?

    I wish they would just come out and say what they really think:

    Look, I don’t give a shit about people, alright? If people die, I don’t care. If people suffer, that’s irrelevant to me. I’ve got mine, and f— everyone else.

    The only thing I really ask from people is honesty. I don’t care how much of a d-bag you are, just tell the truth.

    1. fresno dan

      All “reform” in the US is the same – 1. making sure the suppliers and producers (or to simplify, donors) get paid what they think is enough (i.e., super profits) money – no real market reforms like price transparency is ever included. Indeed, like all advertising, it is premised on misdirection, obfuscation, and ignoring any problems that make higher ups look bad. 2. Making sure the penalties for consumers not paying are much, much, much more draconian.

    2. CraaaaazyChris

      “But how are you going to pay for it?” Answer: “The same way we pay for war in Iraq, Afganistan, Syria, Yemen, etc.”

      We seem to have no trouble funding boondoggles. I’ll take the single-payer boondoggle over another round of military boondoggles in the middle east.

    3. marym

      http://www.pnhp.org/news/2011/february/summary-hr-676-the-expanded-improved-medicare-for-all-act

      Funding proposal from HR 676 – Expanded and Improved Medicare for All:

      Existing sources of Federal Government revenues for health care
      Increasing personal income taxes on the top 5 percent income earners
      Instituting a modest and progressive excise tax on payroll and self-employment income
      Instituting a modest tax on unearned income
      Instituting a small tax on stock and bond transactions

      This summary also cites studies that 95% of families would pay less for all healthcare costs, and savings from reduced administration, bulk purchasing, and coordination among providers, and reducing health care inflation would be in the $100’s of billions.

  17. phemfrog

    Our high deductible ($3400 family) plan through an employer just got a “slight increase” in premiums. Their definition of slight is funny. 17% increase. I’d love a slight raise! Costs are insane. I just paid $1500 for an EGD. Endoscopy. Definitely makes me think twice before I get any care. And we are lucky we can wing it financially, as we are solid middle class ( about $95k family income) it. I don’t know what lower income people do!

  18. LAS

    Adverse selection was a huge problem before the ACA. The ACA did not cause it, but attempted to mitigate it. Unfortunately, I have to agree with you, that the ACA has not — apparently — overcome the problem. Besides the BCBS plans you speak of, the health care co-ops that were supposed to create competition on the insurance exchanges are closing, Costs have been too much for the co-ops, who did not correctly estimate risk of their medical losses, and they have no capital cushion to fall back upon. In a market that offers both for profit and not for profit insurance, sick people are more attracted to the not for profit entity because it is less likely to deny them needed care; and this leads to self-sorting or adverse selection for genuine shared risk pooling.

    Single payer is likely the best solution. We may get it — through the insurance mergers also going on and appearing in the news. The difficulty is the single payer will be a for profit monopoly and not government.

    1. washunate

      I’m curious, how did PPACA attempt to mitigate adverse selection? You make it sound like it was a genuine attempt to overcome a major problem in our society.

      1. LAS

        Basically, the 3 legged stool components: no one could be denied coverage because of pre-existing conditions, the mandate to offer/have insurance and the limited/regulated plans.

        1. washunate

          no one could be denied coverage because of pre-existing conditions

          Are you familiar with adverse selection? That does not ameliorate adverse selection; it exacerbates it. Healthcare expenses are neither randomly distributed nor broadly distributed. They are highly concentrated and have a high degree of predictability.

          the mandate to offer/have insurance

          The mandate has more holes than Swiss cheese. It’s 2015, and the employer shared responsibility payments are not even fully in force. The subsidies in the exchange are based upon a ludicrous definition of affordability. There are exemptions for hardships (kinda defeating the whole point, eh?). And there is a laughably broad definition of what is covered by insurance. Buying a high deductible junk insurance policy does nothing to help subsidize people who need comprehensive healthcare.

          limited/regulated plans

          Sure, there are some standardized plans. They even have cool video-game status levels, like platinum, gold, silver, and bronze. So what? A few plans offering the choice between crappy and unaffordable coverage is not materially different than hundreds of different plans offering crappy or unaffordable coverage.

          1. LAS

            None of these in isolation could work – I agree with you there – but the concept of a 3-legged stool was expected to overcome it and force together into one pool people with all sorts of risk levels. That was the material point.

            When people have the chance to self-select, then the adverse selection problem comes out again. It can be as subtle as for profit insurance companies advertising features of their plans that are specifically attractive to the young and the healthy – like gym club memberships as protective medicine and ignoring the need to know about diabetes medicine. Healthy young people will get excited while those chronically ill with diabetes will shun the plan as possibly not meeting their needs.

            1. OIFVet

              You know how one can create the largest possible pool of people from all risk level groups? Single payer. It also removes complexity, which in turn lowers administrative costs. It has large bargaining power that further drives down the costs. So why, exactly, did we need this Rube Goldberg contraption?

              1. washunate

                I do hope you get an answer to that question. LAS appears to be pushing political drivel at this point.

                1. Code Name D

                  When the Heritage Foundation first laid down the ideas that would later be the foundations for Romney and Obamacare, the mortgage boom was in full swing. So they thought they would replicate the real estate miracle into healthcare insurance.

                  When you buy into a policy, you are added to a risk pool that is securitized and divided into traunches based on their risk. High risk pools, consisting of older and sick signatories were thought to be the more lucrative insurance pools because there was the greatest potential for improvement, the “health care co-ops” LAS mentioned.

                  An insurance company would create a risk pool of signatories and then package and sell these policies to brokerage market. Because of markets, the insurance providers would innovate ways to make its insurance pool more profitable by making it healthier.

                  The problem was that this plan was NEVER realistic.

                  Its first problem was that the market theory it was founded on was bollix from the start. The housing market did so well because it was driven by a speculative bubble. Even under the best of conditions, the markets would never see this sort of energy. And even if it did – it would be fleeting as all bubbles inevitably come crashing down.

                  I suspect that this is the main reason why so many policies are simply being ended – because the failed to see expected returns on these securities exchanges.

                  Its second problem was that making the risk pools “healthier” was never realistic to begin with. During “the debate” they always seemed to talk as if the main problem was that people were just too fat and all of our problems would be solved if only consumers would eat better and exercise more. So it’s as if they create a risk full of fat people, give a few lectures about the food pyramid, hang up some signup sheets for the local marathons, and BOOM – profits.

                  But healthcare issues are far more intractable than this; pollution, high stress, poverty, food deserts, sedentary work environments, even winter weather, proved to be far more intractable problems. Even dealing with obesity is a lot harder to do than they make it out to be.

                  Third, it seemed to take them by surprise that the “young invisibles” actually needed a lot of healthcare. Women tend to get pregnant and go through labor – a risky business thanks to human anatomy. Men tend to face work-place-injuries. And who could have possibly guessed that young people would – get older. You would have thought their big-data mining operations would have found that sort of thing.

                  Adverse selection was baked into the vary DNA of Obamacare. Its effort to “over come” this problem were jokes before it ever got off the ground.

        2. OIFVet

          I think you may want to rethink your argument. How, exactly, did the exclusion of pre-existing conditions result in adverse selection prior to 0care?

  19. washunate

    Lambert, you are being rather optimistic and cheerful with that headline. It presumes that PPACA wasn’t already a death spiral!

    But seriously, there simply is no way to make a market in a system that isn’t market-based. You either have to create a system where providers of healthcare are operating in a competitive marketplace, or you have to force consumers to pay for overpriced services, or you have to nationalize the whole thing. There is an inherent conflict between providers that want high prices and patients that want low prices.

      1. washunate

        Just trying to help your reputation in the forced smiles crowd who think you’re too dreary or sensational or something.

    1. fresno dan

      I agree with you – there is a lot of irrationality in even using the concept of a market for health insurance.
      Sure, you can shop for home owners insurance – the variables are clear (home assessed value, insurance premiums, some knowledge of the honesty and stability of the insurance company)

      But it really makes no sense to “shop” for health insurance “coverage”.
      No one who is young is likely able to know or predict accurately whether they will develop multiple sclerosis and a host of other diseases – although a thorough family history will give you some inkling of some degenerative diseases and geriatric illnesses.
      But no one can ever predict an accident that leaves them a quadriplegic with varying levels of medical surveillance necessary. It would be analogous to your home insurance covering fires started by electrical origins, but not fireplaces or wildfires.

      So the idea that you have to check your insurance policy to see if it covers a specific medication means by definition that the insurance is not fit for the task for which you are buying it.
      The idea that the government requires coverage of some things (and makes quite a big show of it), while completely ignoring that polices do not cover procedures and medications that are 100% agreed to by competent disinterested medical authorities indicates to me how in bed with the health industry the regulators are.

  20. LAS

    Lambert, your health economics writing is still a little too over the top emotional or sensational, rather than carefully founded. But at least you have a good topic here in the idea of adverse selection.

    1. Lambert Strether Post author

      Really. You’re implying that access to health care isn’t, for many, a life and death matter? Accepting that perspective, which passages would you recommend that I tone down so as to be more congenial to your taste?

  21. oho

    my anecdote, I’m somewhere under 30, healthy, mindful of my health and have no family health history of anything extraordinary.

    Between the premiums and deductibles/coinsurance/copays of the available plans, literally the ONLY way Obamacare would make sense for me is if I got hit by a drunk driver on my next outing to the grocery store. Or I find some tumor lump.

    Now obviously those bad odds aren’t zero……but I’m willing to take on that actuarial risk in order to have some extra cash to pay my student loan debt and make ends meet.

    Besides given my financial circumstances, if I got hit by a drunk driver and admitted to an ER, the deductible by itself would ruin my finances/set off a cascade of defaults as I don’t have any sort of short-term/long-term disability insurance/workers’ comp, etc.

    So it’s damned if I do or risk being damned if I don’t.

    1. washunate

      One of the ironies is that of those two examples, one of them isn’t even covered by PPACA. Getting hit by a drunk driver is an auto insurance claim. That was one of my favorite subjects when people would talk about insurance in 2008 and 2009. If they used car accidents as a reason to justify PPACA, you knew they were selling something.

      And on the other example, the tumor, pre-existing conditions doesn’t mean what it means in plain English. An insurance company can’t deny you coverage in open enrollment, of course. But health plans can absolutely discriminate based on health status if you just apply randomly for coverage after finding out you need expensive medical care.

      This is exactly why so few young and healthy people are excited about PPACA. Even the most extreme situations that were used to justify why people would sign up don’t actually hold up to scrutiny :-)

      http://www.dmv.org/insurance/liability-insurance.php
      http://obamacarefacts.com/pre-existing-conditions/

      1. hunkerdown

        In Michigan, auto insurance includes a personal injury component, which is mandatory (and constitutes the bulk of the auto premium) unless you have separate health cover. If you do, the personal injury liability coverage is on the order of $500 and quite inexpensive, and in the event of a motor vehicle accident, the auto and health insurers (if different) will typically coordinate benefits.

        And who in blazes is dmv.org?

        dogMedia Solutions is a Marketing Solution Company. There are times when every company needs to look outside of the box when it comes to marketing. dogMedia Solutions always researches opportunities for a strong ROI for the client before taking on their projects.

        You’re going to quote some unaccountable salesmucus looking for ROI as a fact source?

        1. washunate

          I don’t think we disagree. The state based nature of insurance was one of the most bizarre aspects about PPACA advocates. They completely disregarded how insurance actually works in the US, from the fact that states are the main regulators of insurance to the fact that other types of insurance, like auto insurance, function precisely because insurance companies are allowed to engage in underwriting – in other words, charging more expensive customers higher premiums.

          unaccountable salesmucus

          I’m not sure what’s unaccountable about them. They put their salesmucus right there in black and white (and blue). I think plain English information written for potential customers is some of the most straightforward language in this topic area. It’s like observing that even Milton Friedman is against the drug war. Not an endorsement of their overall approach. Rather, pointing out that even insurance salespeople can speak more clearly and directly than the apologists for Obamacare. Drivers are responsible for the costs of hitting pedestrians. Bodily injury liability insurance is the part of auto insurance that covers that (assuming, as sam points out, you follow the law; many Americans break laws, so that’s another level of the complexity to the car accident scenario).

          If you prefer a document specific to Michigan, I believe this is it. The law appears to require a minimum amount of $20K coverage per person hurt. And if a court awards more than the coverage purchased, the driver is on the hook for the difference (not the pedestrian). Even if the driver coordinates auto insurance coverage with their health insurance coverage, that doesn’t mean net liability is transferred from the driver to the pedestrian. It is simply a transfer of liability among the insurance coverages obtained by the driver.

          https://www.michigan.gov/documents/difs/Auto_Insurance_Guide_448003_7.pdf

  22. LAS

    I think adverse selection is pretty well established as an effect in the health insurance market. A very good (practically a classic) paper on the effect is “Paying for Health Insurance: The Trade-Off Between Competition and Adverse Selection” by David M. Cutler and Sarah J. Reber, who studied health plan choices by employees of Harvard University.

    1. Arizona Slim

      A few years ago, David Cutler spoke at the University of Arizona’s Eller College of Business. It was a pretty routine talk until, oh, his second or third to last PowerPoint slide.

      In essence, he said that the private health insurance system has failed in what it originally set out to do. It hasn’t lowered the cost of care, nor has it improved the quality of care.

  23. Katniss Everdeen

    The concept of adverse selection is interesting in that it implies some balance between “healthy” and “sick” subscribers that makes the system both profitable and affordable.

    I wonder if that’s even possible. At least without force.

    From the insurance company’s point of view, a “healthy” person is one who pays premiums but never requires reimbursement for medical treatment. It’s not that they never see a doctor, or that they’re actually in good “health,” it’s that their bills never exceed their deductibles, so the insurance company never writes a check. The insurance companies DEFINE “healthy” using deductibles, narrow networks and “covered services.” That definition is “fluid” since all three of those things are constantly changing to maintain the insurance company’s profitability status quo.

    I think the general public defines “healthy” somewhat differently.

    But do the insurance companies and their loyal house negro REALLY expect that no one will ever catch on?

    Personally, I’d say that the whole “adverse selection” construct is a fancy way of saying that they’ve run out of eskimos gullible enough to buy the very expensive ice.

    1. jgordon

      That is exactly it. They have created a market where the only rational choice for most people was to not partake.

      That was simply not acceptable however, thus the Obamacare push. So now instead of former insurance execs being forced to flip burgers, we are rapidly moving towards a place where former insurance execs will be dangling from lightposts. It seems that none put civil unrest into their calculations when concocting their labyrinthine and crazy legislation.

    2. OpenThePodBayDoorsHAL

      I’m not sure this is rocket science, 40 million people with no coverage, presumably some large proportion has some condition they didn’t get treated because they couldn’t afford it. So who is going to sign up for coverage?
      And can we acknowledge once again that O-B-A-M-A is the one who took single payer off the table on Day 1. If he just *had* to keep insurance billionaires happy he could have kept them in the mix like the Netherlands did, but make them compete on price below a maximum cap and on service quality.
      Two things happened when I moved to Australia from San Francisco, first was a giant sigh of relief that I would not be living under the threat of a giant earthquake and could drive under overpasses and into underground parking lots again without fear. Second was a giant sigh of relief that I would be able to get good, affordable health care. Single payer.

  24. LAS

    One of the other interesting things readers should know about adverse selection is that its presence makes it impossible for insurers to estimate risk accurately (they can’t correctly price the insurance). We used to hear a lot about how financial products or deals related to housing were not priced according to their true risk. Well, it is a comparable sort of problem when adverse selection appears in the health insurance market – the assumptions about knowing the risk pool are breaking down in the case of adverse selection. It causes seeming paradoxes such as not for profit insurance groups going out of business because of not having anticipated what the for profit insurance groups and consumers are doing.

    1. washunate

      To say with more words what Katniss observed, I’m intrigued by how specifically gibberish this is.

      Health insurance companies are quite good at pricing risk accurately. That’s the problem. Healthcare expenses in the most costly medical system on the planet are remarkably amenable to some basic actuarial practices. Thus, a market price would be way too high for precisely the subset of the population that desperately needs expensive treatment.

      Adverse selection only comes in when you are trying to get less costly consumers to subsidize more costly consumers.

    2. fresno dan

      I think you raise valid points.
      But as someone who has been in the hospital on the both the giving and receiving end, one aspect of “adverse” selection is that it is often considered only from the aspect of the patient/consumer.

      When I lived near Washington DC, and I had had a coronary bypass, undoubtedly I was getting more medical care than I was paying for in premiums – but for a few years longer than necessary. Because most of those increased follow up weren’t really due to my desire, but to the cardiologists desire.

      The fact of the matter is that cardiologists, like every other profession, is a business. What is required, what is necessary, and what is poor care have a great deal of variation – – but what makes money isn’t variable – so far, its always more. I would have cut my follow up care by 50%, but it would have meant causing problems with my insurance company as well as getting replacement cardiologists.

      So I retire and move to Sacramento – not nearly as many tests and scans, but still my primary and a cardiologist see me twice a year each. Again, way more than is necessary in my view, but still difficult situation to not follow medical advice.

      Now that I’m in the hinderlands of Redding, Ca I have a primary, and he agrees with me that me seeing him twice a year is sufficient to go over my blood tests and that unless he sees something worrisome, a cardiologist isn’t necessary. I once asked one of my Harvard trained cardiologists if I would ever need to have a re-bypass. He said it was impossible to know ahead of time. I asked if any of these tests would help determine that, and he told me the bottom line is that they would never split a patient open just based on tests, but would need real symptoms that indicated a serious underlying problem.

      The fact is that it is not insurance companies alone that are causing the problem. We had a discussion about Sears in another posting, and how trying to squeeze every drop of profit out of it makes it just an unbearable retailer.
      In my view, medicine is doing way too many things that are unnecessary to those who can afford it, and way too few things for those who can’t afford it.

      I agree there is one market aspect that would be very helpful – public posting of all prices.
      People may not realize this, but in the early fifties, a law mandating the public posting of automobile prices on each automobile did more to assure price competition than anything else.
      https://en.wikipedia.org/wiki/Car_dealerships_in_North_America

      Imagine in what I said in a posting further up the string – if only the insurance company and the homebuilder had anything to do with your house being rebuilt after a fire. It would almost guarantee a crappily, expensive house is rebuilt, with very little innovation. How could there be innovation when no one really knows what it costs??? Or what is going on? I need fewer tests and more “why is this test necessary? what results that mean we have to DO something and, and what results (the vast majority) mean nothing happens?

    3. Lambert Strether Post author

      Two levels of market failure: The ObamaCare marketplace itself, and the provision of health care. Neither (as we see) are amenable to market-based solutions.

  25. Pat

    I know I am repeating myself, but when you take the most expensive universal health ‘care’ system in the western world as your model because it is the one based most on ‘markets’ AND then strip it of all the regulatory core that hold it up because it is not markets you are designing a plan that cannot work. Admittedly the Supreme Court ruling on both the Medicaid expansion and how the fine could be administered probably sped up the disintegration, but it was always there.
    1.) they allowed too many regions and too many age divisions for the insurance companies
    2.) the subsidies were too low and the deductibles and max out of pockets allowed were too high
    3.) they let too much be classified as medical costs for the insurance companies
    4.) they threw away regulatory oversight
    and most important of all they did not include price controls for the actual health care – something that is very much part of the Swiss System

    You have to wonder about the brain trust behind this, at least until you get that this was NEVER about health care, it was always about saving an industry that was pricing itself out of existence both for employee coverage and individual coverage. This was always about making sure that people had to buy insurance regardless of how useless it was. It is just getting to be obviously useless for anyone but the most desperate far faster then the Brain Trust expected. We were all supposed to have a few years of getting used to losing a goodly percentage of our income for no reason except to have a piece of paper saying we were insured by getting a little bit of coverage before even that was gone and it was nothing but a waste. Too bad they hadn’t looked around and realized that everyone else already had a claim on people’s income above the fifties idea of housing/food being less then forty percent of your income and they didn’t have almost ten percent to spend on a yearly physical and an insurance card.

    1. Jim Haygood

      ‘they did not include price controls for the actual health care’

      They can’t, because the ‘insured’ sector subsidizes Medicare/Medicaid, which is price controlled.

      If Medicare pricing were enforced across the board, the current business model would collapse.

      1. reslez

        > the ‘insured’ sector subsidizes Medicare/Medicaid

        The insured sector subsidizes their own profits and $30 million/year for health exec CEOs. The US pays twice to three times as much as any other industrialized nation for no reason except greed. Infant mortality 47th in the world. These are real people and real children dying from lack of care.

        1. Oregoncharles

          No that’s a misunderstanding of the point. Medicare and Medicaid pay far less than the standard or insurance charges. Hence, doctors and facilities use their winnings from insured patients to cover their “losses” on Medicare patients (like me).

          This is one of the big advantages of a single payer system: it can dictate pricing scales. Of course, if it goes too low, you start losing doctors and even hospitals; this may be an issue in Britain and Canada (which has Medicare-for-all).

      2. Pat

        What those price controls would do is make it so that everyone paid the same price for the same thing. If an insurance company pays $2 per aspirin then the person out of network would pay that as well. None of this one price for some, a different price for another and yet another even more ridiculous one for another. And that price would be based on cost plus a reasonable profit NOT whatever the market will bear. And if you don’t think that is the case, take a look at recent actions of various drug companies pricing generic drugs. Not to mention the cost of out of network doctors for jobs that should not be billed at five and six figures.

        As reslez has already said to you, this is about greed. The same greed that makes bankers think they should be able to borrow money from the government for nothing and still charge customers 20% interest. Greed and frankly theft.

  26. NeqNeq

    Interesting that there are two conflicting claims made in the BCBS blogs linked in the OP.

    *One blog entry says that 2014 Claims were $1.65B while Premiums were $1.18B. So, expenditures on care ran 140% of premiums.

    *The other blog entry seems to claim that for every $1 of 2014 ACA premium collected, $0.87 was spent on care. So, expenditures on care ran 87% of premiums.

    BCBS makes a point of “explaining” that the amount spent on care was well above the 80% ACA minimum (See, we are not greedy leaches! Promise!).

  27. p.a.

    The Forbes numbers are bollocks. They only counted exchange customers, not those on the Medicaid expansion rolls. Of course this says nothing about the relative health of exchange v Medicaid populations and its budget implications.

    1. Lambert Strether Post author

      I’m not clear why you think that Medicaid and ObamaCare should be treated as one risk pool and not two. Structurally, that is exactly what ObamaCare does not do. Before throwing around words like “bollocks,” take care to read the post more carefully.

  28. evil is evil

    Not major problems. The US is stopping its boycott of Cuba, remember? Medical tourism is a lot cheaper than any uncovered medications or real medical services.

    Leave the ER patients and fly out if you have a sniffle. You can pay cash for the plane and the hospital and doctor and get better and faster and much more courteous service than from any gang of American quacks banded together in any AMA state or that control the medical practioners in any hospital or clinic.

    Until the medical schools are freed from any contact with the tightest, richest, most politically connected union in history (the AMA) and anyone who wants to become a doctor is let in, you won’t ever get the medical quacks, the insurance gangs nor the federal thugs out of your insurance pockets. The medical schools have to be freed.

    1. Chris Williams

      I agree mate, same here in Australia.

      I avoid doctors. The AMA here restricts the numbers being trained, so as to minimise competition and max their holiday choices.

      Imagine being able to open a surgery and, almost immediately, you have a full appointments book.

      It’s theft on a grand scale.

      Single payer here is Medicare – been going since the 70s. If you pay income tax it’s a fixed percent 1.5 or so of your taxable income.

      But we also have mandated insurance, with tax penalties if you don’t have a policy and you have an income above about $50k. Plenty of people who wouldn’t have insurance otherwise then buy the policy as it is cheaper than the tax.

      Better than the US system. You bet as most of us have access to a public hospital and doctors of our choice.

      However, it is not perfect and there are plenty of incentives for doctors to over service patients and this impacts the budget.

      Oh yes, and we are still paying for the healthcare budget from taxes. No MMT for us either.

  29. JustAnObserver

    I wonder if the Medicaid thing explains why BCBS is dumping useful plans in the OP’s state of South Carolina which has not implemented Medicaid expansion.

    Have BCBS , up to now, been implicitly using an actuarial model whereby all (or a big chunk of) the high risk, low income, patients would be going the – state funded – Medicaid route. Leaving them to insure a less adversely distributed (aka more profitable) pool.

    The penny has now dropped that SC’s opposition to any scheme that might insure “Those People (TM)” is absolutely visceral and no amount of economic practicality will ever change it.

  30. dolleymadison

    Prior to Obama care my family of four paid 6,000 per year for both medical and dental. Co pays were 30 bucks for both office visits and meds. Deductibles were 2000 per person, NOT 8,000 per family. I tried to get insurance last year – cheapest was 18,000 with a 12,000 FAMILY deductible – meds not covered, with one sick visit and one well visit per person allowed per year with a 90 co pay for each visit. Tried again this year it’s gone up 20% ….so…F#CK THEM. Paying out of pocket, and praying my kids don’t get sick or injured. If my hubby or I do we will just die. (We bought life insurance instead)

  31. Oregoncharles

    ” Or — anything’s possible — the Tea Party, et al., might actually grow some stones and start doing serious tax resistance, now that the screws are beginning to tighten; interestingly, the ObamaCare statute forbids the IRS from garnishing your wages or putting a lien on you if you don’t pay the tax penalty for not fulfilling the mandate, which sure looks like a set-up to me. (Yes, the IRS can take your refund, but surely that can be gamed.) Another reason 2016 might be more interesting even than the usual Presidential year.”

    Just what I was thinking. Only:

    Why would the left leave that plum for the right-wingers? Time for a tax-refusal campaign! Rig your deductions so you don’t have a refund, then refuse to pay the penalty.

    We can’t ask people to go without insurance (crappy as it is) in order to set up a campaign, but it sounds like plenty are volunteering.

      1. Oregoncharles

        But tax resistance is very much a Left thing.

        I was hoping for more response to that idea – I’m considering trying to start a resistance campaign.

  32. Anonymous II

    Some observations gleaned from talking to folks who work in the health care insurance plans in SE Michigan:
    The insurance companies try to lure subscribers into joining networks of hospitals and doctors that are less popular and seen as less prestigious. The less popular medical providers may be located at huge, busy inner city facilities that have been given a bad rap or are not as prestigious as a nearby university facility that is attached to the local Big Ten School. The lure is lower premiums but subscribers pay a price by being excluded from a local hospital very near their home that is not part of the ‘poor person’ network.

    The same marketing technique is used to place subscribers in networks of Primary Care Physicians (PCPs) who are more efficient at streamlining patients in and out of their offices. This PCP Focus group also has better quality of care stats; these providers’ offices are far flung across the state. However, there are more popular providers even in this supposedly elite group and their rosters fill up quickly so the plan has to close off the roster to chase patients to the less well known providers.

    Additionally as a general observation about the ACA: premiums are the focus of shoppers but it’s the out of pocket maximums (oopm) that are causing many people to sour on the whole business of health care. So your premium is affordable (feet of bronze is not quite clay) but you have a $12,000 family oopm and that monthly prescription (Rx) costs you $650. Per month. ! or $1300! per month. Definitely not affordable but sales agents too often gloss over the OOPM and sell plans based on ‘affordable’ premiums.

    Finally, the ever present and looming threat of loosing a subsidy that pays for say something like %75 percent of ones monthly premium is very real. Tax rules change. Poof! there goes the subsidy or proof of citizenship turns up missing and Voila! there goes the subsidy of say $850 month.

  33. Quantum Future

    True story. At 44 and some digestive issues (the French drink a lot of mineral water for a reason) I decided to get a colonoscopy. I had Divericulitis, the cure is basically for me abstain from certain foods and eat 38 grams of fiber which we all should do every day. Some should read the book Wheat Belly. We are not cows with two digestive system and since GMO’s wheat has become a staple in nearly all foods.

    So to get to the point I am an entrepenuar. I pay cash for medical services and have life insurance. I pay the Obamacare tax but I can write so much off it isnt much of a burden. I exercise, take supplements and moderate habits. So at gastro dr. was told cholonoscopy was $8,000. I said that is insurance price what is cash price as I was quoted $400 in Cancun Mexico so tell me cash price or I go on a nice vacation and get that done. They quoted $2,200. I stayed here and got it done. Then I got bill for $1,300 for polop testing which they were supposed to have me sign authorization for but didnt.

    In the end, if I had a major medical issue that required medical care I would either move overseas or just bankrupt myself, shed all debt and open Mybusiness.com2. This is how broken our system really is. I now really understand the term ‘brain drain’.

    Here is the reality. Our nation is bankrupt and living on borrowed time. The reserve currency has allowed us to kick the can but that is going to China. That is a feature not a bug of the Central Bank model and such drives politics now as such has conquered the globe. No real surprise the FIRE industry has been given a pass by a bought and paid for political system. I get it, but dont think I agree with such a model or will stick around to put up with this shit.

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