27.12.13

IF YOU LIKE YOUR INSURANCE PLAN, YOU CAN KEEP IT(*)

The campaign promise neglected to mention that only insurance that meets some sort of minimum standard of coverage can be put on sale.   Henry Aaron of Brookings suggested that ruling some policies off the market is akin to banning unsafe food under pure food and drug legislation, or prohibiting the sale of dangerous toys to children.  A number of articles appeared at about the same time, either extending or questioning the analogy.  In The New Republic, Jonathan Cohn argues that outlawing sub-prime policies is desirable:
If you buy your own insurance now, it probably doesn't live up to these standards. For starters, it probably isn’t as comprehensive as you think. It may not cover prescription drugs, for example, or it might leave out rehabilitative services and mental health. It might expose you to out-of-pocket expenses greater than $6,350 (if you have a single person’s policy) or a $12,700 (if you have a family policy). Until three years ago, when Obamacare’s first regulations went into effect, it was even possible the insurer could yank it retroactively—a process known as “rescission”—if you got sick and the carrier scrubbed your medical records for some previous sign of illness, maybe even one you didn’t know you had.

In addition, unless you live in a handful of states, the premiums you are paying come from insurers who knew, going in, they wouldn’t have to cover people who represent high medical risks. If the policy is affordable, that’s because the insurer figured you were pretty healthy and unlikely to have big medical bills. If you’ve had the policy for a while, and prices haven’t gone way up, that’s because the insurer is still making money from this arrangement—which means, overall, the people in this plan aren’t very sick. Until now, insurers have been able to hike premiums on plans that start to lose healthy customers, and they keep doing so until they become unaffordable—leaving those remaining subscribers unable to find new policies at affordable rates.
Read on, though,and discover the limitations of making policy by anecdote.
But there are real people who must pay more and, in some cases, put up with less. Some of them are people walking around with junk insurance, the kind are practically worthless because they pay out so little. Some of them are young people, particularly young men, whom insurers have coveted and wooed with absurdly low premiums—and make too much money to qualify for substantial subsidies. And some of them arereasonably affluent, healthy people with generous, open-ended policies that are hard to find even through employers. Insurers kept selling them because they could restrict enrollment to healthy people. Absent that ability, insurers are canceling them or raising premiums so high only the truly rich can pay for them.

Those people are the ones everybody is hearing about now, partly because they are a compelling, sometimes well-connected group—and partly because, absent a well-functioning website, stories of people benefitting from the law’s changes aren’t competing for attention. It’s impossible to know how big this group is.
That's how it always seems to be with the implementation of public policy. The people adversely affected by a change are the most vocal, and detailed analysis of the tradeoffs, and the gains and losses, take a long time to produce, to publish, to debate, let alone to be put to use in changing policies. (And in some cases, the change may be seriously mis-timed: that's a common argument critics of the financial sector make about repealing Glass-Steagall just in time for the popping of a major bubble).

Mr Cohn goes on to suggest, however, that the old rules allowed insurers to evade their common-carrier obligation to serve.
But the principle of broad risk-sharing — of the healthy subsidizing the sick, of the young subsidizing the old, and everybody paying for services like pediatrics and maternity care—is one built into the insurance most Americans already have. Employers, after all, don’t charge employees different premiums because of their age or gender. What’s more, the people with good, affordable coverage in the old non-group market were the beneficiaries of a system that marginalized many more. They were paying relatively cheap rates for insurance only because insurers trusted they were unlikely to get sick. Of course, some of them did get sick. And when it happened, many made an unpleasant discovery: The policies they carried left them exposed to huge bills. Giving up these plans isn’t merely an act of altruism. It’s also an act of enlightened self-interest.
Yes, provided the new Government Approved or Government Issue policies indeed offer improved coverage to purchasers. Megan McArdle suggests that reality is less pleasant.
People who bought exchange policies realize that the restricted networks insurers created to keep the premium costs low cut out the best hospitals and doctors. A newly insured child with cancer cannot get into a top pediatric hospital because her insurance has zero coverage for out-of-network emergency care.
The heart of the matter, though, is that efficient risk-sharing involves cross-subsidies. Low-risk people pay a price that exceeds the expected cost of their care in order that high-risk people get to pay a price less than the expected cost of their care. Perhaps over a life-cycle it all averages out, but The Washington Post's Ezra Klein notes the obvious incentive to opt out.
Put simply, the Landrieu bill solves one of Obamacare's political problems at the cost of worsening its most serious policy problem: Adverse selection. Right now, the difficulty of signing up is deterring all but the most grimly determined enrollees. The most determined enrollees are, by and large, sicker and older. So the Web site's problems are leading to a sicker, older risk pool. [Louisiana senator Mary] Landrieu's bill will lead to a sicker, older risk pool.

It's useful to think of this in terms of who, on the margin, should be paying higher premiums: The people who've benefited from the various kinds of discrimination that undergird the current system, or the people who've been victimized by that discrimination? Bills like Landrieu's lower premiums for people who have benefited from the system at the cost of raising them for the people who've been locked out of the current system.
Yes, and is it better to be served even at a higher price, than not to be served at all, at any price?

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