(no subject)
I haven't posted in a while, but I heard something on NPR this morning that so made me go, "huh?" that I just had to talk about it. John McCain apparently talked about his new health care plan recently, to contrast it with the Democratic plans. Now this information may have been available before, but this is the first I've heard of it. Essentially, Sen. McCain's plan seems to boil down to "Let the market figure it out". He'd like to move away from employer sponsored health care and instead move to model where everyone buys their own health insurance. His idea here (and if you don't think about the plan at all, it almost sounds sensible) is that people will make better and more informed choices about health insurance when they have a choice.
The problem, according to Sen. McCain, is not that people don't have coverage (wait? what? something like 20% of Americans have no insurance and many more are under insured), it's that their choices for coverage are by and large limited by their employers. If you have a cheap employer, you might pay 75% of your premiums and get crappy coverage. Conversely, my employer might consider health care a priority and I pay might 20% of my premiums for better coverage. I might pay less for better coverage, because my company puts greater emphasis on the benefit than yours. If we were on a level playing field, all just shopping for the best deal, then you would only have yourself to blame for this situation, but right now it's your employers fault.
So on the face of it, there's something here. Like so many Republican free market ideas, there is a certain surface level "power to the people" glow to the whole thing. Hey, it works for consumer products, why wouldn't it work for insurance. Then you think about the idea (or at least I did), and you think, "wait a minute here..."
Insurance through employers (as well as the national health care plans proposed by Sens. Clinton and Obama) work on a a pair of complementary concepts called "economies of scale" and "shared risk". Both of these concepts require large numbers of people to be in groups of some sort to work, and both work better the larger the groups are.
"Economies of Scale" is the same general concept that allows big box retailers to discount their prices so much over smaller businesses. It basically boils down to "the more volume you do, the less you have to make off of each sale." Why? Well it's pretty simple. Ordering big volumes keeps shipping costs down, having a large number of low skill employees keeps labor costs down, square footage is usually cheaper the more you rent, Suppliers will usually sell to you cheaper because they know you'll order again and again. There are hundreds of little ways that these stores can shave a few pennies off of their costs, and in the end it all adds up to lower prices.
Insurance works the same way. It's not appreciably harder to manage a fund that pays for one person's bills than it is to manage one that pays for 1000 people's bills; but if each of those thousand funds had to have it's own manager, vs just one for the 1000 person fund, who do you think has higher labor costs? An insurance company might pay a team of 10 or 20 people to manage all the costs and benefits for a company, say, the size of GM... On the other hand that same insurance company will likely pay around 50 people to manage a similar number of people broken up over 100 or 200 smaller companies with the same total workforce. Start breaking it down to individual people who number in the same range as GM's total work force you're probably talking 100 or 200 people to manage the same number of customers. This is why GM sized companies get better health insurance deals than 20 person law offices, and why 20 person law offices still get better deals than individual people.
"Shared risk" is the other huge concept here. Let's say that I put together a fund for myself to pay for my health bills, all on my own. I put $200 a month into my fund on the theory that I'm young and not likely to get all THAT sick. 3 years from now I discover that I have cancer, and it's going to cost $10,000 to treat. There's not enough money in my fund.. I've bankrupted it, and unless I have some more money lying around I cannot pay for my treatment. Now let's say that I started my fund with 10 friends, and ALL of us put in $200 a month. Each of us has put in $7200, and mine alone wouldn't have covered my treatment. Luckily, the deal was that it was all available to all of us. Now there is $72,000 that I can draw on for my treatment, and my partly $10,000 is a drop in bucket. The chances of ALL of us getting an expensive disease in the same three year period are pretty slim, so the risk is spread out. If any one, or even 3 or 4, of us has to have a $10,000 treatment the fund can handle it... and since we continue to contribute to it after our treatment, it'll recover some or all of what we took out before the next person needs it. We're still screwed if someone needs a $100,000 treatment, but what if we increased our pool to 100 people?
Now the favored way for insurance companies to manage shared risk is by not insuring risky people. As a healthy 34 year old non-smoking male, most insurance companies are happy to have me.. I keep putting money in, but rarely take any out. As I age, they'd prefer to ask me for more money.. after all, I'm that much more likely to need to take out all, or even more, than I put in. If I get seriously ill, they'd prefer to drop me completely, unhealthy people are a poor investment.
The reason that old and unhealthy people can usually get coverage through jobs is simple. Companies won't have it. It would be a logistical and recruiting nightmare to have to charge different amounts to different employees, or worse to have to tell some employees that they can't have the coverage that everyone else does because they're a cancer survivor, or have high blood pressure. They say to the insurance companies: "Look I'm buying [10,20,1000,100000] policies here, most of which will be profitable to you, you have to cover everyone." Faced with the loss of 7, or 15, or 8000 profitable polices over 3, or 5 , or 2000 less profitable one the insurance companies go ahead and take their chances.
Economies of scale and shared risk form the backbone of the current health care system. Sucky as it is, those two concepts keep it from sucking even more. Both Democratic candidates understand this and seek to leverage these concepts to improve the over all quality of health care by increasing the size of the pools. If GM is better able to employ economies of scale than our fictional law office, which in turn is able to do better than a single person, what about a pool the size of the whole population of the country? In theory this maximizes both the spread of risk and the scaled economics. It should (in theory) provide the absolutely cheapest per person cost, because the pool is as large as possible. Are there problems here? Yes. Do the Democratic candidates disagree on some of the details? Yes. But based on how the industry works now, the underlying theory is sound. The most coverage for the most people with the minimum overhead.
Sen. McCain's plan ignores these realities. There are no economies of scale in 330 million people all talking to their own insurance agent about a health plan. Worse, it frees insurance companies from one of their most burdensome current problems... With no one person trying to negotiate fair rates and coverage for all of his/her 10, 20, or 1000 employees, there is no one to prevent insurance companies from insuring and charging as they please. Which means that the weakest among us, the old and infirm, are going to be the first ones with little or no insurance, or else paying through the nose for it.
Elizabeth Edwards, wife of former Democratic candidate Sen. John Edwards, cancer survivor, and current victim of a relapse which is sadly likely to kill her, said it very well. She simply noted that under Sen McCain's plan, she and he would finally have something in common. Neither would be able to get health insurance. You see, John McCain is a cancer surviver himself.
Now I admit that I'm a pretty liberal guy... I'm usually inclined more toward the Dems than the Republicans so maybe I'm just biased here; but I just can't see how any reasonable person could see this as a good idea. It seems, if anything, calculated to make matters worse rather than better. Maybe there's more here that I'm missing, like a law requiring the insurance companies to cover everyone,and placing a ceiling on the cost. If that's the case please point me toward the information, because I can't find it. One of his planks is to ensure access to all Americans, but he doesn't really say anything about how. Even with that, I'm not clear on how he plans to save money while not leveraging the biggest money saver available, economies of scale. I just don't get it...
The problem, according to Sen. McCain, is not that people don't have coverage (wait? what? something like 20% of Americans have no insurance and many more are under insured), it's that their choices for coverage are by and large limited by their employers. If you have a cheap employer, you might pay 75% of your premiums and get crappy coverage. Conversely, my employer might consider health care a priority and I pay might 20% of my premiums for better coverage. I might pay less for better coverage, because my company puts greater emphasis on the benefit than yours. If we were on a level playing field, all just shopping for the best deal, then you would only have yourself to blame for this situation, but right now it's your employers fault.
So on the face of it, there's something here. Like so many Republican free market ideas, there is a certain surface level "power to the people" glow to the whole thing. Hey, it works for consumer products, why wouldn't it work for insurance. Then you think about the idea (or at least I did), and you think, "wait a minute here..."
Insurance through employers (as well as the national health care plans proposed by Sens. Clinton and Obama) work on a a pair of complementary concepts called "economies of scale" and "shared risk". Both of these concepts require large numbers of people to be in groups of some sort to work, and both work better the larger the groups are.
"Economies of Scale" is the same general concept that allows big box retailers to discount their prices so much over smaller businesses. It basically boils down to "the more volume you do, the less you have to make off of each sale." Why? Well it's pretty simple. Ordering big volumes keeps shipping costs down, having a large number of low skill employees keeps labor costs down, square footage is usually cheaper the more you rent, Suppliers will usually sell to you cheaper because they know you'll order again and again. There are hundreds of little ways that these stores can shave a few pennies off of their costs, and in the end it all adds up to lower prices.
Insurance works the same way. It's not appreciably harder to manage a fund that pays for one person's bills than it is to manage one that pays for 1000 people's bills; but if each of those thousand funds had to have it's own manager, vs just one for the 1000 person fund, who do you think has higher labor costs? An insurance company might pay a team of 10 or 20 people to manage all the costs and benefits for a company, say, the size of GM... On the other hand that same insurance company will likely pay around 50 people to manage a similar number of people broken up over 100 or 200 smaller companies with the same total workforce. Start breaking it down to individual people who number in the same range as GM's total work force you're probably talking 100 or 200 people to manage the same number of customers. This is why GM sized companies get better health insurance deals than 20 person law offices, and why 20 person law offices still get better deals than individual people.
"Shared risk" is the other huge concept here. Let's say that I put together a fund for myself to pay for my health bills, all on my own. I put $200 a month into my fund on the theory that I'm young and not likely to get all THAT sick. 3 years from now I discover that I have cancer, and it's going to cost $10,000 to treat. There's not enough money in my fund.. I've bankrupted it, and unless I have some more money lying around I cannot pay for my treatment. Now let's say that I started my fund with 10 friends, and ALL of us put in $200 a month. Each of us has put in $7200, and mine alone wouldn't have covered my treatment. Luckily, the deal was that it was all available to all of us. Now there is $72,000 that I can draw on for my treatment, and my partly $10,000 is a drop in bucket. The chances of ALL of us getting an expensive disease in the same three year period are pretty slim, so the risk is spread out. If any one, or even 3 or 4, of us has to have a $10,000 treatment the fund can handle it... and since we continue to contribute to it after our treatment, it'll recover some or all of what we took out before the next person needs it. We're still screwed if someone needs a $100,000 treatment, but what if we increased our pool to 100 people?
Now the favored way for insurance companies to manage shared risk is by not insuring risky people. As a healthy 34 year old non-smoking male, most insurance companies are happy to have me.. I keep putting money in, but rarely take any out. As I age, they'd prefer to ask me for more money.. after all, I'm that much more likely to need to take out all, or even more, than I put in. If I get seriously ill, they'd prefer to drop me completely, unhealthy people are a poor investment.
The reason that old and unhealthy people can usually get coverage through jobs is simple. Companies won't have it. It would be a logistical and recruiting nightmare to have to charge different amounts to different employees, or worse to have to tell some employees that they can't have the coverage that everyone else does because they're a cancer survivor, or have high blood pressure. They say to the insurance companies: "Look I'm buying [10,20,1000,100000] policies here, most of which will be profitable to you, you have to cover everyone." Faced with the loss of 7, or 15, or 8000 profitable polices over 3, or 5 , or 2000 less profitable one the insurance companies go ahead and take their chances.
Economies of scale and shared risk form the backbone of the current health care system. Sucky as it is, those two concepts keep it from sucking even more. Both Democratic candidates understand this and seek to leverage these concepts to improve the over all quality of health care by increasing the size of the pools. If GM is better able to employ economies of scale than our fictional law office, which in turn is able to do better than a single person, what about a pool the size of the whole population of the country? In theory this maximizes both the spread of risk and the scaled economics. It should (in theory) provide the absolutely cheapest per person cost, because the pool is as large as possible. Are there problems here? Yes. Do the Democratic candidates disagree on some of the details? Yes. But based on how the industry works now, the underlying theory is sound. The most coverage for the most people with the minimum overhead.
Sen. McCain's plan ignores these realities. There are no economies of scale in 330 million people all talking to their own insurance agent about a health plan. Worse, it frees insurance companies from one of their most burdensome current problems... With no one person trying to negotiate fair rates and coverage for all of his/her 10, 20, or 1000 employees, there is no one to prevent insurance companies from insuring and charging as they please. Which means that the weakest among us, the old and infirm, are going to be the first ones with little or no insurance, or else paying through the nose for it.
Elizabeth Edwards, wife of former Democratic candidate Sen. John Edwards, cancer survivor, and current victim of a relapse which is sadly likely to kill her, said it very well. She simply noted that under Sen McCain's plan, she and he would finally have something in common. Neither would be able to get health insurance. You see, John McCain is a cancer surviver himself.
Now I admit that I'm a pretty liberal guy... I'm usually inclined more toward the Dems than the Republicans so maybe I'm just biased here; but I just can't see how any reasonable person could see this as a good idea. It seems, if anything, calculated to make matters worse rather than better. Maybe there's more here that I'm missing, like a law requiring the insurance companies to cover everyone,and placing a ceiling on the cost. If that's the case please point me toward the information, because I can't find it. One of his planks is to ensure access to all Americans, but he doesn't really say anything about how. Even with that, I'm not clear on how he plans to save money while not leveraging the biggest money saver available, economies of scale. I just don't get it...