• Lots of people can’t fire their insurance companies

    Governor Romney is getting a lot of heat for a line that appears to have been taken out of context. I’d like to talk about it in context. I think that’s much more illuminating:

    “I want individuals to have their own insurance. That means the insurance company will have an incentive to keep people healthy. It also means if you don’t like what they do, you can fire them. I like being able to fire people who provide services to me. If someone doesn’t give me the good service I need, I’m going to go get somebody else to provide that service to me.”

    Gov. Romney is not saying that he enjoys telling people that they no longer have a job. He’s saying that, when it comes to health insurance, if a company is doing a bad job, he would enjoy telling them to take a hike. Who wouldn’t?

    First of all, let’s unpack the idea that if individuals have their own insurance, the “insurance company will have an incentive to keep [them] healthy”. That’s totally backwards. The idea that people might fire their insurance companies is exactly why they don’t have an incentive to keep you healthy. Insurance companies preferentially cover healthy people, and they want those who are ill to leave, or, better yet, not enroll in the first place. Captive populations, like those in the VA, or maybe plans with long-term contracts through big employers might have the right incentive, but the types of plans Gov. Romney seems to have in mind don’t do the very thing he is saying they do. Insurance companies have a vested interest in keeping you healthy when you can’t or won’t leave.

    But that’s the least of his problems. The real issue, unfortunately, is that very, very few people have the luxury that Gov. Romney is endorsing. Let’s say that you are self-employed, and lucky enough to have found a company to provide you with health insurance. Then, let’s say you develop cancer. You suddenly find out that your insurance company stinks. So you fire them, right?

    Of course not. You’re screwed. Now you have a pre-existing condition. There’s not an insurance company out there that wants to cover you. So you don’t fire them. You scream, and curse, and cry, but you’re stuck. Only healthy people have the luxury of picking and choosing.

    Let’s also not forget that most people don’t find out that they’re not getting “good service” until they’re sick. Healthy people don’t make much use of their insurance, so they don’t know how bad it is. They only find out after they’re ill, and then it’s too late. It’s only fun to fire the insurance company if you’re sure you can go to another company to get what you need. Almost no one can.

    Of course, you could be so assured if guaranteed issue was the law. It would be even better if there were community ratings, so you knew the next insurance company couldn’t gouge you for being sick. That’s the case in Massachussetts, under the law Governor Romney signed, so it’s possible he’s just thinking back to that.

    It’s also true under the ACA. But if that gets repealed, as Governor Romney suggests, then very few Americans, excepting those that live in states like Massachusetts, will get to enjoy the firing he proclaims to enjoy.

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    • These thoughts deserve a wider venue. I hope they get picked up — the present conversation on Romney’s statement is at a lower level.

      But I don’t entirely agree with your slant.

      Take your statement: “The idea that people might fire their insurance companies is exactly why they don’t have an incentive to keep you healthy. Insurance companies preferentially cover healthy people, and they want those who are ill to leave, or, better yet, not enroll in the first place.” Agree with the first sentence. But on the second, you’re introducing a red herring. Insurance companies are happy to cover anyone as long they pay a premium commensurate with their health status. The reason they don’t have an incentive to keep you healthy when you can change plans is you are not able to tell them you won’t fire them when they do make you healthier. Long term contracts would solve this problem, but they fail for other reasons — not least that they are not enforceable. That’s the point, and you do finish on it: “Insurance companies have a vested interest in keeping you healthy when you can’t or won’t leave.” That is, when they can’t fire you (recision). To hammer it home I’d add that you’re assuming they are bearing the cost of your health and can’t adjust the premium as your health changes year to year.

      On your point that individuals who have em

      • John Chilton you are sooo wrong.. My wife and I tried to get health insurance from Aetna in September of 2010 and were denied. We could afford coverage and we thought that we were very healthy, no option was available to pay based on our health status, we were simply ‘Denied’. We tried to get coverage from other companies and again denied because the application asked if we were ever denied coverage. The truthful answer was yes. With that you try to find a company that will cover you….good luck.. Thanks for Medicare, we were able to get coverage in late 2011 all the time praying that we would not get sick.
        We both had annual physicals and were considered very healthy….I had a thyroid condition 25 years ago and my wife at 5’5” weighing 175lbs was considered obese.

      • ” But on the second, you’re introducing a red herring. Insurance companies are happy to cover anyone as long they pay a premium commensurate with their health status. ”

        This is simply not true. Pre Obamacare, try to get health care coverage if you are HIV positive . . . .

    • Doesn’t HIPAA prevent insurance companies from excluding you for pre-existing coverage if you’ve had continuous coverage? That would allow you to fire your insurance company (not that I’ve ever tried it).

      • “Doesn’t HIPAA prevent insurance companies from excluding you for pre-existing coverage if you’ve had continuous coverage?”

        Theoretically, yes. But nothing says that an insurance company couldn’t offer you a policy at a price you couldn’t possibly pay. And, this really only applies to employer-based insurance anyway.

    • Good post and I agree with the majority of your points but would like to clarify/correct one: “maybe insurance companies with long term contracts with big employers might have the right incentive”. Most large employers are self-insured and the insurance company is merely a claims processor for a fixed cost per month. The incentive the insurance company has is to apply the right discounts, pay the claims accurately and pay them quickly. Many cost management programs (disease management, case management, wellness, etc) are not with the insurance company but are contracted with yet another party. Again, these are self-insured. The incentive to hold down costs lies with the employer, who all too frequently meets that challenge by shifting costs..

    • I have to disagree with you John about your rebuttal. Insurance companies can cover sick people for rising premium levels, but only to a certain point. Even with pooling of individuals, there comes an inflection point where the cost of providing the coverage plus administrative costs would be more than any individual would be willing to pay.

      This happens in other types of insurance as well. Once you get to a certain cost point, private insurers refuse to cover you and you have to find insurance through residual markets (typically state funded/backed insurance). In the worst case scenarios, those residual markets will refuse to insure you as well.

    • I hate sounding like Newt, but we need a fundamentally new approach to this. First, we don’t really have much “health insurance” in this country, in the sense that we normally think about insurance. We have a system where we prepay and as a group share the costs of planned care. What sane person longs for the day when we go through our car insurance when we need an oil change? Yet, we expect to get “insurance” to cover a blood sample.

      I know the profit incentives are all messed up in our system, but until we deal with the very basic question of care vs insurance, and what we truly need covered in the first place, the whole thing is doomed to fail (and this was why I opposed the ACA in the first place – it just cemented a system that is flawed from the ground up).

      • The cost of blood tests and primary care physician visits are a negligible portion of the country’s health care expenditures. Making policy decisions based on these tiny costs is like deciding whether to buy a house based on the color of the doorbell.

        Almost all of the cost of health care in this country is for either trauma or chronic or serious conditions: cancer, car crashes, cardiovascular illnesses, and, unfortunately, diabetes. For any of these conditions, individuals cannot pay without insurance and yes, it is insurance. These illnesses are the whole reason we pay premiums every month, and they are the whole reason our premiums are so high. If that’s not insurance, I don’t know what is. Your blood test is just a red herring.

      • I understand your point, and would counter by saying that for many young (under 50), healthy individuals health insurance is basically like car insurance, it covers catastrophes (major accidents) and you are responsible for picking up the minor costs of preventative health maintenance (I think my deductible is >1500$, so basically anything short of a hospitalization or surgery I pay for…).
        But how would a catastrophic insurance system work for those who are either A) already a catastrophe (expensive diagnoses, chronic condition, congenital condition, etc.) or B) sure to become a catastrophe in the next couple of years (elderly, numerous comorbidities/risk factors)?

        • I am afraid that if you have ever had a minor operation for most insurance plans that you probably don’t realize the co-pays amount to a significant amount of money. I’m not against the idea of co-pays to discipline demand but in general for operations and care that is needed and is not optional, then it’s a burden on individuals and families who have tight budgets in the first place.

          I don’t think in most circumstances any comparison between automobile insurance and health insurance is “apt”. Comparing the two only muddles the thought process.

      • With the proper understanding that a warranty is a form of insurance, the correct answer is lots of people are interested in getting their insurance to pay for all of their routine auto maintenance costs. This is becoming one of the most common marketing mtechniques for high end autos and given historical trends, soon to be low end car sales.

        i.e. the correct answer to your rhetorical question, who wants to go through their insurance to get their oil changed, is most people.

        • I shouldn’t even have to point this out but I’ll do it anyway: a car warranty has NOTHING to do with car insurance.

          The rest should explain itself once you remember that.

          • I shouldn’t have to point out that a car warranty is insurance against a breakdown.

            Not that I’d advise anyone to buy it: It appears to be actuarially overpriced for anyone who doesn’t abuse their car and maintains it well.

            You can also buy plans that pay for routine maintenance. That’s not insurance. It’s a form of prepayment.

            If the warranty is multi-year I could see the seller finding it in its interest to include routine maintenance to keep the car “healthier”.

      • I can change my own oil. I cannot draw my own blood, have it analyzed and interpreted and treated if needed.

    • Well, if oil changes cost $460 cash or $29.95 through our car insurance, I guarantee sane people would be paying for their oil changes through their auto insurance coverage.

      Moreover, if my car dies I am inconvenienced….

    • John B. Chilton wrote:

      “Insurance companies are happy to cover anyone as long they pay a premium commensurate with their health status. ”

      Not so. I was turned down for coverage by numerous insurance companies for a preexisting condition.

    • You do have one thing wrong, and it’s an important thing. Part of “Obamacare” is to make it nigh impossible to refuse health insurance on pre-existing conditions. And it in fact diminishes how much the insurer can raise their premiums over the person’s previous insurer. If the Democrats in the house and Senate weren’t such chickens, it would have been even stronger.

    • Dylan Thurston wrote “Doesn’t HIPAA prevent insurance companies from excluding you for pre-existing coverage if you’ve had continuous coverage? That would allow you to fire your insurance company (not that I’ve ever tried it).”

      Nope (although that is more or less part of Obamacare). The HIPAA law is about limiting pre-existing condition restrictions for *employer* plans.

    • Absolutely right. Everything is wrong about treating health insurance as an ordinary market commodity, and only those who are above the need for it would make that confusion. As you note, the time at which you need it is not the time at which you know you need it. Plus it’s got little “price elasticity of demand” so prices don’t affect demand that much, people just have to pay. Romney never ceases to amaze me for how out-of-touch he is.

      By the way, Krugman is featuring this piece in his latest column at NYT:
      http://krugman.blogs.nytimes.com/2012/01/10/who-fires-whom/

    • If I recall correctly, the only guaranteed issue mandated by HIPAA is in the case where you are coming off of a group insurance plan AND have exhausted COBRA. (I am in the hideous individual insurance market so I know more about it than I ever wanted to.)

    • Whoever thinks that insurance companies will provide health insurance to those that can pay,have not worked in a school system where we were dropped by the company. They dropped everyone. And a neighboring district couldn’t find anyone to insure them, luckily KS decided to let school districts have state insurance, if they can pay tens of thousands of dollars up front but KS will not let them into the same pool as their employeees and of course, legislators. I have been there as our district had to scramble to find a company when they were dropped by a HMO!

    • Dylan Thurston wrote “Doesn’t HIPAA prevent insurance companies from excluding you for pre-existing coverage if you’ve had continuous coverage? That would allow you to fire your insurance company (not that I’ve ever tried it).”

      No. And yes. One of the provisions of the ACA that has already gone into effect is that no insurance company can deny you insurance coverage if you have a pre-existing condition. HOWEVER, there is no limit on what they can charge you for that coverage. So the reason you can’t fire your current insurance (if you are lucky enough to have it) is that there is no way in the world a new insurer will give you a better deal for better service. Which is what Romney implies happens under competition.

      It simply doesn’t.

      BTW, you don’t have to get a pre-existing condition to fall into this trap. You simply have to have aged a bit. Say you purchased a plan at the age of 30. Over the next 6 years that insurer has increased your premium regularly, cut and changed benefits, increased your co-pays, etc. So, at the age of 36 you’d like to shop around. But now you’ve crossed a new demographic line since you are over the age of 35. Simply by being “old” you are considered riskier than when you went shopping around 6 years earlier and what you are offered is very high premiums and crappy coverage packages, possibly (and even likely worse that the deteriorated, more expensive insurance you already have).

      Not to mention, if you get your insurance through an employer, your choice is limited to the insurer (or handful of insurers) and plans your company offers. And you’re only allowed to make changes during annual open enrollment periods. Not a lot of opportunity to shop around.

      • “One of the provisions of the ACA that has already gone into effect is that no insurance company can deny you insurance coverage if you have a pre-existing condition”

        This has not gone into effect yet. It will be effective in 2014. Until then there are Pre-Existing Condition Insurance Plans, which are essentially high risk pools, in effect. The ban on pre-existing conditions will only cover all insurers in 2014.

    • What strikes me most about this excellent post is that everything said here ought to go without saying, but, sadly, doesn’t. People still think, or pretend, that buying health insurance is no different from buying the latest gadget from Apple.

      We’ve got to keep on repeating the obvious, as long as we need to.

    • This was my first thought when I heard Romney say this. “Hey, fellow American, let’s say you’re dying of cancer, and your insurance company doesn’t want to pay for your treatment. Just tell them ‘THANK YOU VERY MUCH MY GOOD SIR, BUT I WILL BE TAKING MY ONE THOUSAND DOLLARS A MONTH ELSEWHERE’,”
      I’m mostly surprised he didn’t make a joke about how much women love to shop, so just get your wife to shop for new insurance while you relax on your deathbed.

    • What would happen if we began to phase out health insurance over time or at least that part of insurance that does not function like an HMO? If we let people keep their own money in the game rather than give them the option of using other people’s money as they can now we reduce the incentives to use the medical system or at least the most expensive parts of it. We thereby reduce demand for the really expensive treatments and increase demand for the less expense treatment. If we add to that a significant reduction in Medicare services for the last year of life we curtail a lot of expense for Medicare and reduce demand for services. Lower demand means lower costs and we all gain. When perhaps not all gain as the medical predators who foist expense treatments on those who can pay with other people’s money may not gain. In this case their loss would be our gain.

      • Dude…use some commas. That is really hard to follow with your phrases all running together.

        As people have mentioned above, the health care system does not function like a free market system, so I have to disagree with you.

    • The problem is almost all medical insurance in the country is run either through government programs for the needy or–more perversely–through employers.

      Ignoring the government programs–which allot insurance by, essentially, decree–tying medical insurance to employers pretty much guarantees you will get discrimination against long-term or prior health problems because the profit end of the business is coming out of employer pockets (and much less obviously the employees).

      Consider it this way:

      The biggest payoff for the insurance company is when more money comes in than they have to spend on our medical care. The best way to do that is to take money from people who are generally healthy and limit the risk assumed by accepting people with a history of medical problems (indicators of probably ongoing costs).

      The biggest payoff for the employers is to fire anyone with extensive enough problems to be unable to work profitably. This essentially weeds out the more severe medical issues from their employers. By doing this, it essentially “purifies” their employees for the insurance company, lowering the amount of risk and letting the profit margin for the insurance company be less variable and generally more over time.

      Which is one reason taxpayers scream about medical insurance programs like Medicare and Medicaid because it ends up being a collection point for people who can’t get insurance elsewhere and/or have medical issues that prevent them from being able to hold jobs. The comparative expense is higher and–unlike employer insurance where the contribution toward medical coverage on your behalf by your employer is typically hidden and taken off the top of what you get paid–tax rates are typically more explicit.

      One of the first things I would do, if I had the power to fix this system, is to take employers out of the loop completely. Basically, not let employers “weed out” people for the medical insurance companies and not be a source of information for them.

      The second would be to prohibit fixing prices, but that’s another thing altogether…