Obamacare 5 years later. Crow, anyone?

[bonzombiekitty]

I have relatives in the UK, and friends in Canada. They are so deluded that they think they have good health care systems.


It's so hard to get good, accurate, information. They keep telling me that everything is good. What's wrong with them? Some of them have had operations, and my aunt(UK) has had four years of cancer treatment even though she was told it would be terminal after at most two years. They have no complaints. I just don't understand their stupidity.

I mean, my sister moved to UK and finds the health care system so horrible that she works as a regional public health administrator for the NHS, is really angry at the current UK government that is trying to change the system to be more US-like. She and her friends think it's so horrible that they cannot understand why the US system is such an absolute mess nor how US citizens can put up with it. And when I went to comedy show with a couple thousand people, when the well known, popular, comedian made a comment about how they fought for the NHS and it stinks that the government is trying to gut it, the people in the audience indicated how horrible the system is by erupting in applause.

I get the distinct impression that people will latch onto one issue in the UK's system and act like it's a defining failure of the system. Case in point: As stated above, my sister moved to the UK. At one point she had a doctor that she really liked but then she moved across town, which put her in a different catchment served by a different doctor that she didn't like that much. She tried to keep seeing her original doctor but had a very tough time being able to do so. I don't remember the specifics. She was pretty annoyed by it all.

My parents use this one instance to go on about how bad the UK health system is. Never mind that if you were to ask my sister herself, she'd tell you that while, yeah, that was a pain and the system isn't perfect, the UK system is waaaaaaaaaaaay better than the US system.

 

[Francesca R]

[ . . . ] my sister [ . . . ] is really angry at the current UK government that is trying to change the system to be more US-like.

That's strange since neither the current nor any previous government has attempted to change the insurance system to be more US like. In fact they have pretty much all promised to not do that, and to preserve universal access, no underwriting, and a single provider of funding.

And when I went to comedy show with a couple thousand people, when the well known, popular, comedian made a comment about how they fought for the NHS and it stinks that the government is trying to gut it

That's hardly the case either, unless increasing the health budget every year above inflation (which has happened almost every year since 1948 and also since 2010--though not as fast as previously) is consistent with "gutting"

Never mind that if you were to ask my sister herself, she'd tell you that while, yeah, that was a pain and the system isn't perfect, the UK system is waaaaaaaaaaaay better than the US system.

I think the vast majority of Brits think it is. And there's nothing like a darned foreigner pointing out imperfections, particularly from the states, to get them to instantly switch from NHS critic to champion.

 

[Nihilianth]

I think the vast majority of Brits think it is. And there's nothing like a darned foreigner pointing out imperfections, particularly from the states, to get them to instantly switch from NHS critic to champion.

Kinda like how Fox News and the nut bars of the Tea Party got me to instantly switch from a right-leaning moderate, to an out-and-out full-blown progressive socialist liberal!

 

[Architect]

That sounds very low. It could be the amount of the tax paid on the benefit, which would mean the policy cost would be over double that? If not it is a remarkably low price.

Employer provided private cover does really--it's just that employers don't usually give the option to take the premium as pay instead. (It would still be worthwhile to opt out if one didn't even think the cover was worth the tax on itself)

We calculated the tax was equivalent to a 400 quid pay rise, but I can pretend no expertise on whether that translates into eight hundred. But even then, for a family of four with no excess and pre-existing conditions covered its not expensive.

Major multi national defence manufacturer. No option to take the cash instead.

 

[Architect]

there is defense subsidization too, including maintaining the safety of shipping across the oceans that the whole world benefits from), or that we shouldn't keep providing those implicit subsidies..

That's an interesting point and if you have some hard figures I'd like to discuss it (on another thread, to avoid a derail). There may even be some element of truth in it, although i suspect it'll not be straightforward.

 

[Francesca R]

We calculated the tax was equivalent to a 400 quid pay rise, shut I can pretend no expertise on whether that translates into eight hundred. But even then, for a family of four with no excess and pre-existing conditions covered its not expensive.

You couldn't get that cover for that price in the private market. If it's that low then the company has a lot of bargaining clout (which big ones do)

No option to take the cash instead.

There never usually is. On the other hand if one is a partner/principal, there are no benefits in kind so it's a straight up choice between buy the thing or keep the money. Puts the cost of private health insurance in a different (proper if you ask me) perspective. (And I wasn't looking at £400 even though it was just covering me)

 

[Architect]

You couldn't get that cover for that price in the private market. If it's that low then the company has a lot of bargaining clout (which big ones do)

Yes, they're very big.

 

[sunmaster14]

That's an interesting point and if you have some hard figures I'd like to discuss it (on another thread, to avoid a derail). There may even be some element of truth in it, although i suspect it'll not be straightforward.

If you want to start a thread somewhere and point me to it, I'll participate. As evidence I'll just cite the number of aircraft carriers in the world, by country.

The US has 10 Nimitz-class supercarriers in service. Each of those of course comes with a support group which includes other very advanced and powerful ships and possibly attack submarines. No other country has anything remotely close in capacity to even one supercarrier. China has recently added one, but it is less than 2/3 the size of a Nimitz class supercarrier and does not use nuclear power. France has one too, but it is less than half the size of a Nimitz class supercarrier.

US supremacy on the high seas is absolute. Nobody even bothers to challenge our naval power, except perhaps China, which seems to have gone the route of developing anti-carrier ballistic missiles to counter the threat.

 

[Emily's Cat]

No, they don't. The insurance company does. "Lucky" people lose on their individual bets with the insurance company, and "unlucky" people win. "Lucky" people don't actually pay more if there were more "unlucky" people than expected. The insurance company just loses money.

This is true, if the risks are pooled. That is, if a group of people with a broad array of expected risks are all grouped together for the purpose of making the premium. EG3K's approach essentially unpools the risks, leaving people very much exposed to their actual costs.

Let's take a simple example, of 10 people. Let's say the average overall cost per month is $500. But that comes from 2 people with costs of $1000 per month, and 8 people with costs of $375.

When those risks are pooled, 8 people pay more than their actual costs, but the gain protection against the possibility of something unexpectedly bad happening. 2 people pay much less than their actual costs, because they're subsidized by the healthy people in the pool.

Under EG's approach, the 8 people would be in their own pool. The insurance company would end up charging them a somewhat higher premium, because there's a non-zero probability that they would vary from past performance and end up with very high claims... and there's nobody to offset those costs. The 2 people with high claims would pay the entirety of their costs, because we expect them to continue having high claims.

If you keep breaking it apart, as EG suggests, so that everyone is paying their own individual risk... Then you basically end up with NO insurance. Each person is just paying their own costs... plus a little more to the insurer.

 

[sunmaster14]

This is true, if the risks are pooled. That is, if a group of people with a broad array of expected risks are all grouped together for the purpose of making the premium. EG3K's approach essentially unpools the risks, leaving people very much exposed to their actual costs.

Let's take a simple example, of 10 people. Let's say the average overall cost per month is $500. But that comes from 2 people with costs of $1000 per month, and 8 people with costs of $375.

When those risks are pooled, 8 people pay more than their actual costs, but the gain protection against the possibility of something unexpectedly bad happening. 2 people pay much less than their actual costs, because they're subsidized by the healthy people in the pool.

Under EG's approach, the 8 people would be in their own pool. The insurance company would end up charging them a somewhat higher premium, because there's a non-zero probability that they would vary from past performance and end up with very high claims... and there's nobody to offset those costs. The 2 people with high claims would pay the entirety of their costs, because we expect them to continue having high claims.

If you keep breaking it apart, as EG suggests, so that everyone is paying their own individual risk... Then you basically end up with NO insurance. Each person is just paying their own costs... plus a little more to the insurer.

Maybe I'm just missing something, but I don't agree. EG is suggesting that each person pay whatever his expected costs are, where I use the word "expected" in its mathematical sense. So in your example, the 8 relatively low risk people would pay $375 in premiums, and the 2 relatively sick people would pay $1,000 in premiums. They can still be pooled together. The fact that they pay different premiums is neither here nor there. The risks of any one person incurring major health care expenses is uncorrelated with all of the other people, regardless of how healthy or sick they are. So the insurance company still benefits from reduced claims volatility, relative to total premiums, by pooling the risks.

 

[Emily's Cat]

Maybe I'm just missing something, but I don't agree. EG is suggesting that each person pay whatever his expected costs are, where I use the word "expected" in its mathematical sense. So in your example, the 8 relatively low risk people would pay $375 in premiums, and the 2 relatively sick people would pay $1,000 in premiums. They can still be pooled together. The fact that they pay different premiums is neither here nor there. The risks of any one person incurring major health care expenses is uncorrelated with all of the other people, regardless of how healthy or sick they are. So the insurance company still benefits from reduced claims volatility, relative to total premiums, by pooling the risks.

That would be a jargon issue , and I apologize for not being more clear.

In the context of insurance... "pooling" means that the risks are aggregated prior to development of the premium. In some cases, there are pooled factors that represent tranches of very broadly defined risks, such as in age rates. The factors are based on the average level of cost for an average person within that age band. But the actual distribution of risks by each age is very, very large. A 20 year old with diabetes actually has a higher risk score (and a higher cost) than a 65 year old who is completely healthy... but on average, 65 year olds cost around 3 times as much as 20 year olds.

 

[sunmaster14]

That would be a jargon issue , and I apologize for not being more clear.

In the context of insurance... "pooling" means that the risks are aggregated prior to development of the premium. In some cases, there are pooled factors that represent tranches of very broadly defined risks, such as in age rates. The factors are based on the average level of cost for an average person within that age band. But the actual distribution of risks by each age is very, very large. A 20 year old with diabetes actually has a higher risk score (and a higher cost) than a 65 year old who is completely healthy... but on average, 65 year olds cost around 3 times as much as 20 year olds.

Gotcha. Ok, but in theory there is nothing preventing health insurance companies from underwriting each person's risk, as they do with car insurance, home insurance, and even life insurance as far as I can tell. I guess they went to this pooling idea because of all of the employer provided group insurance plans.

 

[Aepervius]

If you want to start a thread somewhere and point me to it, I'll participate. As evidence I'll just cite the number of aircraft carriers in the world, by country.

The US has 10 Nimitz-class supercarriers in service. Each of those of course comes with a support group which includes other very advanced and powerful ships and possibly attack submarines. No other country has anything remotely close in capacity to even one supercarrier. China has recently added one, but it is less than 2/3 the size of a Nimitz class supercarrier and does not use nuclear power. France has one too, but it is less than half the size of a Nimitz class supercarrier.

US supremacy on the high seas is absolute. Nobody even bothers to challenge our naval power, except perhaps China, which seems to have gone the route of developing anti-carrier ballistic missiles to counter the threat.

Nobody bother because it is at this point lost money, frankly. Unless you want to turn on imperialist and conquer the world, it is pretty much money thrown at the industrial complex and job given to people to dig holes.

As somebody said, the US has fish to the east, fish to the west, the great Canadian emptiness to the north and not much to the south. Which is also in all practicality why you were quite remote from all theater of war in both WW.

 

[Emily's Cat]

Gotcha. Ok, but in theory there is nothing preventing health insurance companies from underwriting each person's risk, as they do with car insurance, home insurance, and even life insurance as far as I can tell. I guess they went to this pooling idea because of all of the employer provided group insurance plans.

In theory... no... not technically. But there are some practical reasons for not doing so.

When it comes to car insurance, the range of costs are fairly well bounded. The approximate value of the vehicle is well known, KBB has it down to a pretty good science. The distributions for frequency and severity are fairly well known, and the correlation with age, gender, location, and a few other items are pretty well set.

As it is, however, only a very small portion of your auto insurance is actually based on YOUR risks. It's based on pooled information about cars like yours, your location, and people your age and gender. It's a "manual" calculation - that doesn't mean it's done by hand, it means they use a rating manual (a codified and filed set of all of their rating rules and adjustment factors) to determine the starting premium. It will take an average starting premium, then adjust for your age, marital status, type of car, value of car, etc. It's a pretty rigid formula.

If you personally have accidents, then it will be taken into consideration in your future rates - it becomes a modifier to your rates.

In health insurance, the distribution of frequency and severity is extremely broad. There's not really a max value to what your claims *might* be. With a car, the blue book value is the max, and claims can range from $500 (assuming a smallish deductible) to the value of the car. With health insurance, your claims might range from $0 to $10,000,000.

Determining a predicted risk score for an individual is really difficult. And if you happen to be one of those at the $10M end of the scale... well... that's a hefty premium if it's truly risk-rated.

At the end of the day, health care costs are simply more variable and less predictable than many other kinds of insured events. This makes it difficult to risk-rate in any reasonable fashion. Groups are aggregate-risk rated, in that the premiums for employer groups are often based on the past experience of that specific employer, and reflect the inherent underlying risk of the covered employee pool.

 

[Christian Klippel]

(there is defense subsidization too, including maintaining the safety of shipping across the oceans that the whole world benefits from)

LOL. Because without the americans, the world would fall to shambles, right?

 

[Francesca R]

Maybe I'm just missing something, but I don't agree. EG is suggesting that each person pay whatever his expected costs are, where I use the word "expected" in its mathematical sense.

Well it's unclear because ElfGrinder3000 has in this thread advocated individual equity (like here, here, here, here), but has incorrectly in my view claimed that individual equity is insurance, and an absence of individual equity (Obamacare) is not.

Individual equity is really a defined contribution portfolio of savings, in which someone saves an amount consistent with their expected liability, and they either get that right or wrong and the pot is not pooled with any other one, and if one draws down the entire amount that's the end of cover and if there is money left unused it eventually gets returned.

In fact this is not really insurance it is at the opposite end of the spectrum from what I consider insurance, in which there is zero individual equity and only contingent claims on the pot. So in my view Obamacase is insurance and pure individual equity accounts is not. And I am surprised that someone who claims to be an actuary thinks the opposite.

There's nothing wrong with insurance pricing for differential individual policy holders' risks, and most insurance does this, but it's really separate from individual equity. And health expense risks can be priced not too badly (with some adjustment for "adverse selection"). And risks with much higher variance than health costs are priced in insurance markets all the time.

But statutory health insurance does not seek to do that as much as it seeks to cover everyone up to some threshold regardless of their risk, without individually charging them for that risk. This is called "social adequacy" and it involves compulsion. Probably rather necessarily so because if it was voluntary one would see a much more pronounced adverse selection effect where those who regarded it as an individual bad deal would opt out, which would lead to more of the remaining people concluding it was a bad deal, and so on.

These are the conclusions that every country with a universal health insurance system has more or less completely agreed on.

 

[sunmaster14]

In theory... no... not technically. But there are some practical reasons for not doing so.

When it comes to car insurance, the range of costs are fairly well bounded. The approximate value of the vehicle is well known, KBB has it down to a pretty good science. The distributions for frequency and severity are fairly well known, and the correlation with age, gender, location, and a few other items are pretty well set.

As it is, however, only a very small portion of your auto insurance is actually based on YOUR risks. It's based on pooled information about cars like yours, your location, and people your age and gender. It's a "manual" calculation - that doesn't mean it's done by hand, it means they use a rating manual (a codified and filed set of all of their rating rules and adjustment factors) to determine the starting premium. It will take an average starting premium, then adjust for your age, marital status, type of car, value of car, etc. It's a pretty rigid formula.

If a rigid formula captures 90% of the underwriting risk, and then adjustments can be made for actual driving record, then it seems efficient to use a rigid formula. It seems like something similar could be done for health insurance. They probably use a rigid formula for life insurance too, taking into account the test results from a simple checkup.

If you personally have accidents, then it will be taken into consideration in your future rates - it becomes a modifier to your rates.

In health insurance, the distribution of frequency and severity is extremely broad. There's not really a max value to what your claims *might* be. With a car, the blue book value is the max, and claims can range from $500 (assuming a smallish deductible) to the value of the car. With health insurance, your claims might range from $0 to $10,000,000.

With liability for damage to other vehicles and people (up to and including death), the maximum claim is much, much higher than the blue book value of the car. Of course, the maximum claim for liability is capped, but insurance companies used to have a cap for health insurance claims too. Life insurance or umbrella insurance, can be bought in virtually any amount of course. So the maximum payout is not really the issue.

Determining a predicted risk score for an individual is really difficult. And if you happen to be one of those at the $10M end of the scale... well... that's a hefty premium if it's truly risk-rated.

At the end of the day, health care costs are simply more variable and less predictable than many other kinds of insured events. This makes it difficult to risk-rate in any reasonable fashion.

I don't agree. You can get insurance for all kinds of risks these days. Underwriting health insurance can't be any more complicated than underwriting life insurance, or product liability insurance, or airplane crash insurance, or flood insurance, or earthquake insurance, or insurance for valuables like art. Pianists have insured their hands, and singers have insured their vocal cords. Health care costs are actually pretty well understood, given all of the data that is available.

 

[sunmaster14]

Well it's unclear because ElfGrinder3000 has in this thread advocated individual equity (like here, here, here, here), but has incorrectly in my view claimed that individual equity is insurance, and an absence of individual equity (Obamacare) is not.

Individual equity is really a defined contribution portfolio of savings, in which someone saves an amount consistent with their expected liability, and they either get that right or wrong and the pot is not pooled with any other one, and if one draws down the entire amount that's the end of cover and if there is money left unused it eventually gets returned.

In fact this is not really insurance it is at the opposite end of the spectrum from what I consider insurance, in which there is zero individual equity and only contingent claims on the pot. So in my view Obamacase is insurance and pure individual equity accounts is not. And I am surprised that someone who claims to be an actuary thinks the opposite.

It didn't make sense to me either, but I figured he was using a term of art. Kind of like how Emily's Cat refers to risk-pooling as throwing similar risk people into a pool and charging everybody the same premium. I had always thought risk pooling was the insurance equivalent of portfolio diversification.

There's nothing wrong with insurance pricing for differential individual policy holders' risks, and most insurance does this, but it's really separate from individual equity. And health expense risks can be priced not too badly (with some adjustment for "adverse selection"). And risks with much higher variance than health costs are priced in insurance markets all the time.

Right.

But statutory health insurance does not seek to do that as much as it seeks to cover everyone up to some threshold regardless of their risk, without individually charging them for that risk. This is called "social adequacy" and it involves compulsion. Probably rather necessarily so because if it was voluntary one would see a much more pronounced adverse selection effect where those who regarded it as an individual bad deal would opt out, which would lead to more of the remaining people concluding it was a bad deal, and so on.

These are the conclusions that every country with a universal health insurance system has more or less completely agreed on.

Ok, well I don't think those systems work as well as a free market based system would, in which poor people are subsidized by the government with dollars rather than free health care services. And I think one of the reasons that universal health insurance seems to be working in other countries relative to the US is that those systems are benefiting from the health care largess of the US.

 

[Francesca R]

I had always thought risk pooling was the insurance equivalent of portfolio diversification.

It is, with the addition of the policy holders sharing the risk (they don't all hold a fixed number of units each)

 

[Francesca R]

I don't agree. You can get insurance for all kinds of risks these days. Underwriting health insurance can't be any more complicated than underwriting life insurance, or product liability insurance, or airplane crash insurance, or flood insurance, or earthquake insurance, or insurance for valuables like art. Pianists have insured their hands, and singers have insured their vocal cords. Health care costs are actually pretty well understood, given all of the data that is available.

I agree (with you) on this bit.