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POLICY/HEALTH PLANS: The individual market is screwed

Whenever you hear some “free-marketeer” complaining that people with incomes over $50K don’t buy health insurance and so uninsurance is voluntary, think about this woman, featured in the NY Times, who would love to buy health insurance but has cancer and so cannot—unless she comes up with $27,000 a year out of her $60K income.

The individual market is corrupt and evil, and inherently unfair. And the organizations that make their living there (hello HealthMarkets, Assurant, Golden Rule et al) are the kinds that you find on the bottom of your shoe. (I’m awaiting Jon Cohn’s book coming out next month to tell you more…).

It is of course not strictly speaking the insurers’ fault. They live in a world where they’re selected against by both sick people and the competition—so it is a collective race to the bottom. Just to remind you for the one millionth time, individual choices of health benefit plans can only be effective and fair within a universal single pool system that needs its rules and boundaries set very carefully, and has risk adjustment built in the back end. And don’t let the libertarians tell you that if you take away all the rules and regs natural pooling will sort it out, unless they’re prepared to move to N.Carolina, get cancer and see how they get on.

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mikeKenAaronJohn R. GrahamBarry Carol Recent comment authors
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mike
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mike

Your money or your life!
That is the call of a highway robber. It’s also the ‘free’ market choice of our health care system. Healthcare must be nationalized and payed for by the taxpayer directly instead of the indirect method of charging those who can pay 10 times the cost of health care.

Ken
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Ken

I will pass on the minutia and related special-interest bloviation and get to what I think will happen, no matter what your right/left “so called free market”/”government run” position is. You will have universal single pool health care, and here is why…. Because of the complete mismanagement of our economy (even Adam Smith from his time states the limits and problems with complete laissez-faire approaches) and the outright theft going on in the name of “Capitalism”, things are about to change in the US. In a few years, we will wish to have had the stroll in the park that… Read more »

Tom Leith
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Tom Leith

Whether your premium goes up depends on the size of your class and on who else in your class gets sick. Some classes are pretty small, and one member becoming seriously ill could make mutual insurance unaffordable for everyone in the class. Of course, the reason people buy into such a small class is that they do not understand the concept of insurance…
t

Aaron
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To clear up a few inaccuracies here: In the individual market getting sick WILL NOT result in your premium being increased or your policy getting cancelled. As long as you pay your premium the insurer cannot cancel your policy, and any rate increases have to be applied to an entire class, not individual policyholders. And while the story in the linked article is a sad one, would anyone expect Allstate to offer me an affordable auto insurance policy if I’d just gotten into a terrible accident? Should Northwestern Mutual sell me a cheap whole life policy after I’m diagnosed with… Read more »

Tom Leith
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Tom Leith

Vincent the Logician admonishes: > Don’t be ridiculous. I see: argumentem ad hominem is only illogical when someone does it to you. > Since this study has >650k people the INTERGROUP > health differences can not possibly account for > the different levels of premiums. Oh, this is rich! Now Vincent the Logician thinks Proof by Repeated Assertion is logical too! Try, Vincent, try hard to follow the following: The cardinality of the union of all the groups does not imply homogeneity of the groups. If you think it does, try to prove it does. With logic. Formal logic. Squiggly… Read more »

vincent
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vincent

Tom, Don’t be ridiculous. The data I gave indicated that the larger the group the cheaper the plan, period. Since this study has >650k people the INTERGROUP health differences can not possibly account for the different levels of premiums. In other words, given the large cross section of insured, it is highly unlikely that the people who work at firms of <10 are sicker than people working at firms 25-50. If you can't follow that simple bit of logic then please don't use the word logician in a derogatory fashion. "In other words, the different groups may very well have… Read more »

vincent
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vincent

Barry,
Please read what I have been saying. I have repeatedly made one simple point. Employer sponsored health care distorts the market. I have provided the reasons behind this statement. You have yet to directly respond to the arguments I have provided. Oddly enough, you have regurgitated my exact point
“Eliminating the tax preference for employer provided health insurance would also be helpful because it would increase interest in high deductible health insurance plans and increase price sensitivity on the part of both consumers and providers.”
Have a nice day.

Tom Leith
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Tom Leith

Another non sequitur from Vincent the Logician: > Since this was a study of >650,000 people > there could not possibly be an intergroup health risk > difference. The sum of people covered by the small group plans does not say anything at all about the composition of the groups. The referenced article itself explicitly recognizes this and directly contradicts the conclusion drawn: “…firms with relatively few employees may be more likely to adjust their health insurance decisions based on the likelihood that certain employees will need health services. As with individual coverage, this phenomenon can cause premiums in small… Read more »

Barry Carol
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Barry Carol

Vincent, The fact is that health insurance is expensive, and many of the uninsured just plain can’t afford it, especially if they need family coverage. In 2004, an article about managed competition published in Health Affairs showed the annual cost of five separate family coverage health insurance options offered by Stanford University to its employees. The cheapest was the Kaiser HMO at about $9,500 per year followed by an HMO offered by Pacificare (now part of United HealthGroup) for $9,600. The most expensive option was a PPO costing over $16,000. This was three years ago and for an organization with… Read more »

vincent
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vincent

Tom, You, like Barry, are using the negative consequences of the current system on the individual market to discredit the functioning of that market. Hugo Chavez has instituted price controls to make food more affordable. Suppliers are not selling their sugar on that market. A black market has developed in which the price of sugar is even higher than it would be in a free market. Your arguments about health insurance applied to this scenario: On the black market, the “devil’s” free market, sugar prices are very high. Therefore, we need to strengthen our current market function (ie price control… Read more »

vincent
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vincent

Barry, You are not responding to my arguments directly and you are using the negative effects of the current system as premises to attempt to discredit my arguments against the current system. This is evasive and illogical, respectively. I think that we can unconditionally agree that there must be effective risk pooling, so neither of us needs to address that basic point again. I would also agree with this part of your statement “Overall, the insurer makes money if coverage was priced properly” Now here are the things that are not true. 1)”Under the normal insurance model (homeowner, auto, etc.),… Read more »

Tom Leith
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Tom Leith

Vincent writes: > Well, the [employer based] group will get a > preferential rate [versus the individual market] > because of their purchasing power. Not because > of their underlying risk. This ignores the problem of Adverse Selection. Oncology isn’t the only complex field. > The overall cost of insuring the 100,000 is the same > [whether via all together, or with 50,000 individual > policies and a group of 50,000] and the overall > expenditures for the 100,000 will be the same. This isn’t true. Part of the cost of insuring anyone is the cost of marketing the insurance… Read more »

Barry Carol
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Barry Carol

Vincent, We must be talking past each other. Let me try again. First, I agree that, as John Fembup (a poster on this blog) often points out, health insurance is expensive because healthcare is expensive. The cost of insurance has to reflect the cost of healthcare (claims) plus administration and profit. Strategies to reduce the cost of healthcare are a completely different set of issues and could include such approaches as malpractice reform (to reduce defensive medicine), more widespread use of living wills (to reduce futile and often unwanted care at the end of life), greater use of interoperable electronic… Read more »

vincent
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vincent

maybe i’m wrong, i can’t even count 😉

vincent
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vincent

Barry, I think you are missing the underlying issues. 1)You keep talking about insurance being “affordable”. This misses my point entirely. The price of the insurance is a reflection of underlying costs. These costs exist regardless of who is paying for them. You want the insurance to be “affordable”, but this has no meaning in the overall scheme of paying for care. Someone has to pay for it. The real issue here is how that cost is distributed. I would urge you to look into any historical record of any attempt to make some good or service “affordable”. You will… Read more »