Friday, January 24, 2020

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 ( 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.


  1. I have an alternative to past Republican proposals to "repeal and replace" that would not require any legislative action, leaving PPACA in place. It is a proposal that once had bipartisan support. Send me a note at if you would like to discuss.

  2. "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."

    When was this?

  3. Wonderful post, of course. To cut through all this garbage, it would be best to force [OMG] everyone to contribute to a health insurance plan, with all the efficient characteristics needed, from birth, well, from the first job. And then privately insure at the margin if you don't like the garbage you're getting. Like socialist Europe. I don't see any other way. Am willing to be educated :-)

    1. A recent MIT study concluded USA has around 20 million illegal immigrants, that is bigger than the entire population of all of the Scandinavian countries people often look to. A big problem with American universal care is that, about 60-65% of people want that, which requires the other 35-40% to be forced to subsidize somebody else's lifestyle choices. I say lifestyle choices because obesity is one of the biggest causes of death in America, as well as smoking and alcoholism. The system we have now is worse than these other countries because we are regulating all the good qualities out of private health insurance, and medicare and medicaid don't have many great qualities themselves. 2 central arguments against it. It is a loss of freedom, and the costs will be astronomically higher than we would even calculate, considering there are 20 million undocumented people that will be using the system. The calculable costs aren't much better. The best plan I have seen, was Bernie Sanders' plan. His plan would tack on another 3.6 trillion to the deficit annually. Our current revenue is 3.6 Trillion, and expenses are 4.7 Trillion. We aren't even paying for what we are doing now, how can we afford a near doubling on expenses? The only way the government can pay off this astronomical debt is inflation, and each congress that gets sworn in, is kicking that can down the road.

    2. That's way too many problems in a single sentence. Let me pick a cutie: Smokers die just about the time they are supposed to retire. They do not collect social security. Yes, they have higher health care costs, but they are nonetheless net financial contributors to society. When the paternalists have stamped out smoking, they will be sorry! :-)

  4. "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."

    I live with this reality as a Type I Diabetic, a genetic condition. It's been difficult and anxiety inducing in the past to deal with the cost of insurance and medications. I used to be on name brand insulins, but now I am on generics. Cheaper but does the same stuff. This is a good thing.

    When I had Kaiser, I was paying $400ish a month and spending about 200 a month in insulin (better than $1200 a month!). But, upside: In 1996, I was able to get health insurance with a pre-existing condition through Kaiser because I had established a small business and was able to bypass the 3, 6, or 12 month waiting period before I was covered. I got covered immediately. I am grateful this was available to me and others.

    "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."

    Yep! I have a few friends, who are healthy, who saw their insurance costs - wait for it - *quadruple.* No joke. Yes, this is upsetting. Eats up disposable income that could have been used for saving or investment. While the individual mandate was designed to expand the risk pool and prevent adverse selection through generous subsidies, in a strange sort of irony, adverse selection *might* rear its ugly head again. . .maybe. Pareto Efficiencies versus Pareto Improvements seem to (or will!) have a role in adverse selection as a result of the individual mandate. But now that the penalty has been set to zero, what's the enforcement mechanism now to expand the risk pool and mitigate adverse selection now, hmm?

    Maybe I'll talk about this in another post more in-depth when it's time, but here's a preview:

    Idaho and the expansion of Medicaid for those who have fallen through the cracks and who don't qualify for benefits because they're not elderly, a mother with children, or a child. They didn't qualify under the old rules and didn't have the financial resources to get covered. Without health, it is hard to be productive in any capacity to earn an income or start a business.

    Well, the Boise, ID area has seen a large migration of people from - wait for it - Southern California. Surprised? ;)

    (But Boise, along with Salt Lake City and Nashville are emerging as economies of agglomeration in tech - they are trying to mirror the success of Silicon Valley)

    Great stuff as usual. Cost structures matter and I haven't seen many politicians try to address this. They're more concerned with the moral and normative arguments for and against who should be financially responsible for the costs. Bernie Sanders has tried to address both in the past. I think Warren has, too - but Warren has some authenticity issues (self-inflicted wounds), so it is difficult to take her seriously, unfortunately. Monopsony will solve the cost structure problems? Maybe.

    Everyone wants their cake and to eat it, too, it seems. Ha. Unrealistic. There will always be tradeoffs.

    I remember reading *somewhere* about how the first bite isn't as satisfying as the last. ;)


  5. I have never seen any politician or any MSM analyze health insurance to the level & scope ot this blog, and I don't expect to. They are all stuck at "the number of insured", which is irrelevant. The root cause of the health insurance issue must be the required profit margin of the insurance companies. At the most basic level, universal health care is the wrong field for insurance companies. Individual insurance is only affordable to wealthier folks who can spend $26k/yr. Subsidizing high-deductible policies to low-income folks who can't pay the deductibles increases the "number of insured" but they don't get any value from their insurance; it's just an expensive gesture.

    One improvement would be universal tax-deductible HSAs. Why must you be enrolled in a high deductible insurance plan to be eligible to contribute to an HSA ?? I'd get more value from a $500/mo. contribution to my personal HSA than a $500/mo. insurance premium paid to excellus (Live Fearless... MY ASS). This would stimulate the cash market.


  6. First, it is beneficial to have health insurance. For the most part our group plans are good but maybe for those who are self-employed or transitional, the market needs to facilitate a grouping scheme (by profession e.g.).The larger the group, the lower the premium rate per person. Also we need facilitate selling across state lines. Now the GOP had spoke of this but I don't see them drawing up any bills. No excuse. In addition, I hate to say it but i do favor having some mandates or screenings in the plans so we can maybe track down some diseases sooner rather than later. Because later is always too expensive. E.g. colonoscopies start at maybe age 50. Why not a pancreas screen or lymphoma screen? We just have too much sickness & not enough cures. Now I understand you have to figure the cost of the organ ct scan into the premium. But then if you have a large group, it is distributed over a greater number.

  7. It is impossible to buy insurance for a preexisting condition. As long as both sides use this language (or the euphemism coverage) there will be no progress. The options are either free or reduced healthcare for people who get sick when not insured, or to let those people who are not insured go broke and die. Since society will never accept the second option then we have to pick the first option. And if we pick the first option then Frank nailed it - if you are alive you pay in to the national insurance plan.

  8. An unusual approach to health coverage. As a young trader, I calculated that PV of insurance premia exceeded the PV of a payout. I invested those premiums in a diversified market portfolio starting some forty years ago. It has compounded nicely and I haven't had to use it. Currently I'm covered under my wife's plan. I had a total hip replacement in April of 2019. The insurance company was billed a total of $47500. They setted for $24,000. I asked the surgeon who did the procedure what the bill would be if I were uninsured or self insured. His answer; between five and seven thousand and he'd workout a payment plan.

  9. Let's assume that the individual insurance market has 20 million persons. Further assume that 5 to ten percent of these persons have serious pre-existing conditions and are totally uninsurable.

    My research into the history of high risk pools suggests that such persons cost about $30,000 a year to insure.

    So, we have 1.5 million persons at $30,000 a year or $45 billion in expenses.

    These persons are often early retired and partly disabled and lower income.

    So, the question is, where do we cover them?

    1. Create Obamacare. This blows up the individual market as we have seen. If we added $45 billion in reinsurance that would have helped, but the ACA only had $6 billion in reinsurance for 3 years.

    2. Create high risk pools. I do not think that Congress would provide the funding, to help 1.5 million persons who are not a voting bloc.

    3. Add these people to Medicare. We did this with dialysis patients and the disabled. We should have done this again.

  10. Dr. Keith Smith at the Surgery Center of Oklahoma started the Free Market Medical Association after he posted his surgery prices online in 2009. He signed up the largest county in Oklahoma and saved them millions. There are chapters all over the country. Employers can sign up directly with providers and save. His websites are and He has a blog and the Free Market Medical Association conference is in April.


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