Premium support proposal and critique: Reader comments

This post is part of a series. If you haven’t read the prior posts in the series, you really should. The introduction explains what I’m doing and links to all posts to date. Below are some of the comments from readers on those posts. I’m including them in a post because it’s my hunch that very few readers read the comments, and I want this to be as interactive as I can make it. I have responded to some of these comments, but I’m not including my responses here. For those, follow the links. Additionally, some of these comments are addressed in prior posts.

By Mark Spohr on December 8th, 2011 at 09:25:

I think you have set up a false set of constraints which help lead to your desired conclusion.
– 1. TMs benefits cannot be enhanced.
Why? There is broad popular support for more benefits. There are large areas of waste in the current system. There is even room for more taxes to support additional funding if you ignore the tea party/corporate wing of our politicians.
– 2. Medicare is a public private hybrid.
True but all of the private part is a mess. MA costs more than TM, cherry picks clients and wastes resources. It is a failure. The Medigap private policies are a confusing mess of overpriced and underperforming insurance plans. (I speak from direct painful experience just having spent several days with my brain exploding trying to figure out my Moms Medigap options.)
– 3. Beneficiaries have heterogeneous preferences for coverage…
Everyone wants coverage for their particular health needs and they want this coverage to include whatever future needs they may have. So in one view, yes, each person has different coverage preferences. But in a broader view, everyone has the same coverage preferences… everyone wants their health needs covered.
Any attempt to divide coverage to tailor to an individual just introduces inefficiencies and moral hazard into the market.

If you accept your constraints, you will end up designing ever more complex private health insurance schemes which will have the effect of confusing patients (costing them more) and enriching the health industry (which will be able to exploit the confusion and divided purchasing power).

By Jeremy N on December 9th, 2011 at 10:28:

I disagree that the optimal system should include only plans that provide the standard benefit. If the standard benefit were actually minimal, I might agree, but as it is, every year the governments (both national and state) add more and more requirements to insurance plans forcing them to cover more and more that only helps subsets of people. Is there another advantage to this requirement other than it “…maximizes beneficiaries’ ability to … compare plans.” Why is reducing the cost of comparison shopping more important than reducing costs, or providing an insurance plan that better fits their needs?

Your points about private plans are well taken. First, there will be no transparency unless it is legislated. There is no incentive for providers to be transparent. Second, while it should reduce the costs of private Medicare plans, how well would it work fro private insurance for the non-elderly? The ACA incorporate some of this in some ways, but differently enough that I am not sure it is transferable.

By Floccina on December 13th, 2011 at 11:45:

I do not see how premium subsidies would help reduce costs. There are two things that could be done to reduce spending, lower prices and reduce consumption. If you offer people a subsidy to pursue some activity requiring an input that’s in more-or-less fixed supply, the price of that input goes up. So we need perhaps increase potential supply and reduce consumption. To increase potential supply we need to make it easier to supply the goods, one possibility is to make it easier to get licences to practice medicine (MD, RN, PA, NP etc.) and to eliminate rules as to who can do what. To reduce consumption more benefit needs to go to the person who forgoes treatment.

By bokun59 on December 13th, 2011 at 12:24:

Since it is a well-established fact that around 5 percent of the population accounts for about 50 percent of the costs of health care, wouldn’t the subsidies to those 5 percent be, frankly, astronomical? More to the point: what company in its right mind would want to take any of that 5 percent absent such an astronomical subsidy? How does this approach address the problem of the 5 percenters? If I ran an insurance company, I would be hell-bent on making sure that TM got that 5 percent and my company stayed far, far away from them as I would know that there is no way the Congress is going to pay such an astronomical subsidy for those 5 percenters. The only possible solution I can see is to require that every insurance company, including TM, take a certain number of the 5 percent. Otherwise, it would be easy to see a scenario wherein the 5 percent get, ‘magically’, placed in TM.

By David R. on December 14th, 2011 at 12:32:

The comment

“That it is a problem requires one to believe that TM offers unique features that we must maintain (like these or these) even though competitive bidding would still ensure efficient provision of the Medicare benefit without TM in the mix. ”

is correct with respect to TM, but does not explain what the unique feature of TM is. That feature is that TM has the largest and most diverse possible risk pool. This, along with the non-profit aspect of TM is why premium support cannot and will not work.

Once this risk pool is broken up, TM will be left with the high risk enrollees, and their costs will rise. Unless they are highly regulated private plans will not offer insurance to an 85 year old person with chronic health problems.

Everyone needs to focus on the risk management aspects of Medicare, but no one seems to want to do so. Is it that they just don’t understand the concept?

“It’s not terribly hard to see why. Like it or not, US politics runs on money. Traditional Medicare (TM) doesn’t have any to lend in service of political campaigns or campaign issues. Insurance companies and those who work for and profit from them do. Sure, beneficiary groups like AARP could be a powerful force in support of TM, but I don’t think they’re any match for health insurers.”

The notion that the trillions of dollars of money funnelled through traditional medicare isn’t distorted in ways that are calculated to advance the political fortunes and ideological committments of the people who control the purse strings is hard to square with the empirical record and pretty much all of public choice theory. To those who object to this claim I say, let’s start with John Murtha International airport, take a tour through the corn ethanol program, and then move onto the defense appropriations process.

The reality is that it’s just as likely that people who want everything from an expanded role for government in the health sector to a full-on Canadian style single payer regime for ideological or political reasons would do everything in their power to rig the game against private particpants – and they have an inexhaustible warchest worth hundreds of billions of dollars per year *and* the capacity to engage in intimidation through regulation on their side.

Here in Switzerland it is easy (maybe too easy) to change plans once each year. Organizations poll beneficiaries about perceived quality of the customer experience, and publish the results widely, especially during the open enrollment period.

If a plan is aggressive about denying claims, or pays bills late, or has opaque billing statements, these facts quickly become known, and people vote with their feet. Since insurers are selected by individuals and not by companies, this phenomenon includes virtually the entire population.

I sometimes think it is too easy to change plans. Some customers change plans every year, chasing the lowest possible premium (with decent quality). Such frequent changes have to add to administrative costs, and a period of bad luck with claims experience can put smaller insurers into a financial crunch.

Apologies to those whose comments I did not include. Nothing personal.


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