Goodman on health insurance

John Goodman and Devon Herrick have a good essay on where we are with health insurance.

The central impetus of Obamacare was not to insure more people.

...About 95% of those who vote already have insurance, Schumer noted. So Obamacare was promising to spend a great deal of money on people who don’t vote.

Instead, their message focused on protecting sick people from abuses by insurance companies. More often than not, that meant protecting people who migrated from an employer plan to the individual market with a preexisting condition.

Virtually every Republican proposal to reform Obamacare has been attacked by opponents as weakening protections for those with preexisting conditions.

And Republicans from the President on down have, so far and in public, committed that they will continue to address this problem with the sledgehammer of forcing insurance companies to charge the same premium to everyone who shows up, sick or not. From this Adam and Eve apple the rest of the mess follows. For now insurance is outrageously expensive for healthy people.  And both the government and insurance companies work hard to ration and limit how well they serve sick people.

Once upon a time in America there was good, relatively expensive, individual health insurance. It was "guaranteed renewable." If you bought it when you were healthy, and then got sick, they could neither cancel your policy or raise your premiums. People with part time jobs or self employed bought it. It wasn't perfect, but then again nothing is.

There is a market-based answer to pre-existing conditions, which I've been plugging for 25 years now: improve that guaranteed renewable structure. Most of all, then doctors and hospitals compete to serve sick people, rather than shun them. Only in medicine does a business try to get rid of its most faithful customers. (Thanks to John and Devon for the plug.)

As John and Devon put it,

Before Obamacare, the customers for individual market insurance were either self-employed or buying coverage between jobs. They were mainly seeking financial protection against potential future medical expenses.

Especially the right to stay insured if they got sick.

In the meantime what happened to Obamacare? It has largely expanded medicaid and subsidized exchange policies for low income people. And it has destroyed the market for individual health insurance. If you make more than the qualifying income, and are not affiliated with some large business that runs an employer-based group, you are screwed.


Obamacare exchange policies have turned in to a cruel joke. If you do not know someone with any health problems who has been forced here, ask them. I do, and have witnessed it. You get an incredibly expensive  health insurance card that allows policy wonks to tout the number of "insured," but almost no doctor will take it, and there are thousands of dollars of deductible anyway. And now that the cash market has also been destroyed, good luck to you.

John and Devon articulate this nicely:

When Blue Cross of Texas first entered the Dallas exchange in 2014, for example, its plan looked a lot like the plans it sold to employers. The coverage extended to virtually every hospital in the Dallas-Fort Worth area, including the prestigious University of Texas Southwestern Medical Center.

But after sustaining huge financial losses, the insurer retreated the following year to a more restrictive plan that treated UT Southwestern as an out-of-network hospital. That meant patients faced steep out-of-pocket expenses on top of an already large deductible. The following year, UT Southwestern was excluded entirely.

Today, not a single exchange plan in Texas covers UT Southwestern. The same process has been repeated across the country.

...Take Houston’s MD Anderson Cancer Center, which was named America’s best cancer-care hospital by U.S. News & World Report in 13 of the past 16 years... it doesn’t accept a single private health insurance plan sold on the individual market in Texas.

Since Blue Cross of Minnesota withdrew from the individual market in 2016, the state’s Mayo Clinic—once cited by President Barack Obama as a model for the nation—has been off limits to many Minnesotans covered by Obamacare exchange plans.

For instance, most of the 170,000 people with Obamacare who live in the Twin Cities do not have access to the Mayo Clinic. Likewise, Memorial Sloan Kettering appears out of bounds for every exchange plan in New York. ...

More generally

three-quarters of insurers (72%) feature narrow networks in the plans offered through the federally managed exchanges (HealthCare.gov). This is in stark contrast to 5% to 7% of employer plans that limit worker choices to a narrow network of physicians and hospitals.

...Obamacare plans typically contract with one-third fewer doctors and hospitals, on the average, than commercial plans. This equates to 42% fewer heart specialists and cancer doctors, one-third fewer mental health and primary care providers, and one-quarter fewer hospitals.  

The main reason Obamacare plans have narrow networks is to hold down costs. That leads to lower premiums and makes the plans more attractive to buyers—especially buyers who don’t have any health problems.

Doctors too

. Time and time again, consumers who enrolled in Obamacare plans heard a common refrain when they tried to see a doctor: “We don’t take Obamacare.”

I know from a relative's experience it is particularly true if you happen to be out of state. If you get Obamacare in, say, Illinois, and you happen to be in New York when you get sick, basically your only option is to fly back to Illinois. Oh, and then discover that the doctors that were listed as taking the insurance in the fall no longer do.

Don't get cancer

Cancer patients in New York have discovered none of the typical gold, silver, or bronze individual plans on the New York exchange have Memorial Sloan Kettering Cancer Center in their networks. Sloan Kettering is considered one of the premier cancer centers in the country.

This is not uncommon. Nationwide, one-quarter of the cancer centers designated by the National Cancer Institute participated in no Obamacare plans. Many of the top cancer centers reported being in-network in at least one but not all exchange plans in their respective states.

And so on.

Ponder the inevitable paradox. If you have to charge the same price to anyone who shows up, especially if they can wait until they get sick and then show up, then you need to structure your plan to be useful to healthy people. It provides some bare bones care in a narrow network. But health insurance is supposed to be for sick people!

This is why Obamacare policies are now so expensive as well as shoddy -- and we still have lots of people who choose to forego health insurance. Among those who make too much to get it for free,

Obamacare attracted a new set of customers responding to the law’s offer of subsidized insurance to pay for their current medical expenses, including costly customers who migrated into the individual market from other coverage. That skewed the individual market toward a risk pool disproportionately consisting of older, less healthy, and costlier-to-insure individuals. The resulting premium increases then prompted a growing exodus of unsubsidized customers.

... we are in what some people would call a “death spiral” in the unsubsidized part of the individual market. Healthy people are dropping out of the market–making the rational decision to remain uninsured until they get sick.

But as the healthy leave, the cost of covering the remaining enrollees becomes that much more expensive. For example:

—Between March 2016 and March 2018, more than 1 of every 5 people (4.5 million) with individual insurance dropped out of the market.

—Among middle-income families who were not eligible for a subsidy, almost one-half (47%) dropped out of the market.

Here is what Obamacare looks like today

...In the exchanges, Laszewski gives the example of a family of four in northern Virginia which is among the 40% of families who do not qualify for a subsidy:

—The family faces a premium of $19,484 plus a $6,500 deductible.

—In essence, the family will have to spend $25,984 before they can collect any meaningful benefits.

No wonder almost 29 million people have decided to avoid health insurance altogether.

As Casey Mullligan has emphasized, this also puts a strong disincentive on earning money that makes you have to pay this premium.

Why don't we have free market guaranteed renewable health insurance? Because it's illegal.

To enable those reforms, Congress should empower the states to carry out needed changes.

Don't hold your breath. The same political winds that John and Devon astutely noticed at Obamacare's outset still blow today. Getting more people insured sounds nice, until you add up the costs. Then the political system naturally provides them a fig leaf card. Most voters are quite happy with their employer-provided health plans though they do wake up in a cold sweat from time to time about what should happen if they lose their jobs. Elections are won on grandiose promises to spread money around, not wonkish deregulation proposals. One hopes for competent governments that can quietly enact such reforms after elections, as for example the current administration has been quietly deregulating all over the place while politics is consumed with impeachment. But something as large as fixing the health care mess requires one to go back and cough up the apple, which will have to be done with congress, in bipartisan fashion and in public. Don't hold your breath. And, in the meantime, don't get sick.