Stossel Solves the Health Crisis with Capitalism

[Francesca R]

Nope, the business of the insurance company is to make money.

Which is why, in common with most profit-seeking businesses, they don't generally get the luxury of not caring what prices they charge.

 

[Toke]

What are they adding to the system?
Apart from cost.

Could anybody tell me what benefit there is to having insurance companies involved in healthcare at all.

 

[3point14]

Could anybody tell me what benefit there is to having insurance companies involved in healthcare at all.

They keep costs down. Apparently.

And mean that no-one has to contribute to anyone else's healthcare. Apparently.

And they set us (well, not me, I don't have one) free. Apparently.

 

[TriangleMan]

Nope, the business of the insurance company is to make money. For as long it gets it's premiums and pays out less to the insured it's fine. At the point when people won't pay the premiums THEN they have to worry. If the insurance companies were really after best value for the customer then perhaps prices would come down, at the moment the only way premiums seem to be moving is up.

Sorry if I am misinterpreting this but you appear to say that as long as the insurance company is profitable it is not really concerned with how much something costs? If that is your understanding, it is incorrect. When analyzing insurance company financials there are two (of many) important ratios -- the loss ratio and the expense ratio. It is not enough for analysts and investors that the combination of these two ratios is less than 100%, these ratios are compared to the competition as well as year-on-year. If your expense ratio is 30% and the competition is averaging 22% then there is still cause for concern even if overall you're still paying out less than the premium you collect.

 

[Rolfe]

The point, Rolfe, is that when everything is "free", there is no incentive to seek the best value, but to grab everything you can. It was a pretty simple, obvious, and apt analogy. It's very basic economics. Sorry it was beyond you.

But everything is not free. Everything is paid for. Even in a universal-access centrally-funded system. It is up to the purchaser to take steps to ensure good value when purchasing, no matter what the system.

I do not entirely understand why the US insurance companies would abrogate this responsibility and allow the patient to select a more expensive option than they needed. Any insurance claim I have ever made, the insurance company made damn sure I didn't go mad. Even "new-for-old" household contents cover only allows replacement by an equivalent item. You aren't turned loose in the furniture store with free rein to pick the most expensive new chair to replace the cheap-and-cheerful model the dog chewed.

When the NHS purchases on behalf of the patients, it is very concerned to shop for the cheapest effective option. Doctors have to work to an overall budget, and have prescribing guidelines to ensure that the cheapest option is dispensed. A diabetic is not given a script for any glucose meter, willy-nilly. (There has in fact been a historical tendency for the "NHS option" to be so basic that patients are motivated to spend their own money to get something a bit better - some time ago the NHS wouldn't pay for the very fine insulin needles, and patients on insulin either had to put up with standard 25g needles, or buy their own. No kid in school would be seen dead in "NHS glasses" - the free plastic frames provided by the system - any parent who doesn't want to be accused of terminal uncoolness has to buy designer frames. And so on. The system provides for your basic needs, any frills you pay for.) Drug prescribing is for the generic preparation, allowing the pharmacist to select the cheapest formulation of that drug available at the time the prescription is filled. And so on.

Nobody in our universal-access system is grabbing everything they can, because nobody is in a position to do that. There's more than one way of skinning this particular cat.

It's very practical. Our government is profoundly inept. We do not want a medical system with the organization of FEMA, the safety of AMTRACK, the cost containment of the Pentagon and the compassion of the IRS.

Oh, here we go again. Americans are uniquely incapable of running the proverbial piss-up in a brewery, and thus must be assumed to be incapable of managing what every other developed first-world country manages to achieve to a reasonable level of success.

Deductibles make insurance cheaper. High deductibles make it much cheaper. The idea is that most people would be able to accumulate money in their plan, and buy insurance with increasingly higher deductibles.

As for freedom, we could let the employee opt out of the plan completely, and if they were stupid enough to do that and were hit with an expensive illness they'd learn that stupidly is expensive, and in many cases is a capital crime.

Smart people budget for their expenses. This plan makes it much easier for them to do so.

A better insurance plan is still an insurance plan, and does nothing to address the fundamental problems of an insurance-based system - principally people falling through the cracks and finding themselves uninsured and uninsurable, and people being unable to afford the premiums.

So we either force low-paid workers to segregate $1000 dollars of their salary every year, or else we abandon them to their fate? The penalty for taking a risk and using that tied-up money for more immediate necessities is death? Nice society you have here.

Consider that the huge US prescription bill put through by Bush prohibited the government from shopping for the best price. That's what happens when financial decisions are made by congress weasels who are wholly owned subsidiaries of Big Pharma (and just about every other big sector of business.) Individuals are under no such compunction.

What makes you think the government is immune from such decisions? The morning after pill, which has been used in Europe safely and effectively for years, was blocked by a single fundy in the FDA. One guy kept it out of the hands of the public for years because he believed it would make his imaginary sky-daddy pout. There is still a vocal minority, one that had way too much power in this country for way too long, and who may get it back again, who would do exactly that – they want to prohibit abortions, and some want to prohibit birth control.

So, again the problem is that Americans are uniquely incapable of organising the piss-up in the brewery. Or of electing politicians who can do that. Even with a wide variety of working systems in other countries to learn from and improve on. Dearie, dearie me.

The other day I pealed apart one of the test strips for my glucose meter to see what was inside it. Virtually nothing – a few stamped circuits. I tried to find the cost of production, but nobody in the business will discuss it. One finical analyst estimates its 8-12 cents, but that seems very high, given the economies of scale and the fact that these things are stamped out by the billions.

They sell for about a buck each. A 900% markup, at least. Type II guys like me use 2-3 a day. Type I diabetics may use as many as a dozen. How do pharmaceutical companies get away with such outrageous overcharging? By having insurance pay for it. Very, very few of us pay for our strips directly. They're covered by either private insurance or government insurance, so we pay our co-pay (or, in many cases, pay nothing) and don't think about it. But…if a substantial number of us were paying out of our pockets, if most of us bought them with our own money, through a health account, we'd shop for the best price. A company would be able to sell them quite profitably for fifty cents each. And another company would say "We could still make a huge profit if we capture the market with a twenty-five cent strip." Another entrepreneur would find a way to make them for a penny and sell them for a dime. The price would plummet to the point where it becomes trivial. That's how the free market works.

But there is no free market for the strips, so they remain priced at a buck each. There is no incentive for anyone to make them cheaper, because there is no incentive for the tens of millions of diabetics to shop for a cheaper product.

You'd maybe have to ask MRC_Hans about the details of that - he works in that industry. I do know that the cost of these things has come down enormously over the past 20 years.

You say that there's no incentive for US diabetics to shop for cheaper strips. This seems to be a peculiarity of the US system. As I said, the purchaser in Britain, the NHS, is extremely keen to get the best deal. The things are also on sale here OTC, with a variety of different products for patients to choose from, all with rather different prices.

Not only that, but these meters are widely used by vets - I don't think there's a vet practice anywhere that doesn't have at least one, and some owners of diabetic dogs and cats have them too. That's how I know about them - I buy and use the products within an entirely market/competition driven system. I am extremely motivated to buy the cheapest I can get (so long as it's accurate, of course). And so is every vet and animal owner in the land.

There's plenty opprtunity for a supplier to capture a big chunk of the market by cutting their price in half. I can see no reason why it doesn't happen. There are a number of competing companies in the market, with competing products. There are purchasers who are very keen to get the best deal. And yet, the strips still seem to come out around 50p a throw.

This looks either like price-fixing, or that the cost of manufacture really is high enough to prohibit any significant reduction under that price.

And that's just one example. When the doctor says "Here's a $100/month solution for your acid reflux," instead of thinking "that's just a ten dollar co-pay" we'd have an incentive to say "Can we try the $5/month OTC solution first?" The pharmaceutical company would suddenly have an incentive to lower their price substantially in order to compete.

Yup, sounds as if your system is broke. Certainly, in our system, the doctor has a great deal of pressure on him to try the $5 a month stuff first. If, in his clinical judgement, you really do need the $100 stuff, he is free to prescribe it. But wodges of guidelines on cost-effective prescribing, and the knowledge that his business will be penalised if he goes over his overall monthly prescription budget, tends to concentrate the mind wonderfully.

ETS: Yes, his business. This is a different way of doing things, but it's still an essentially capitalist way of doing things.

As I said, there's more than one way of achieving your objective. And call be an old sentimentalist, but I prefer the one that doesn't force poorly-paid workers to sit and look at thousands of dollars of theirs in a bank account they can't touch, segregated away for an eventuality that may never happen, or risk dying because they took a risk.

Rolfe.

 

[Rolfe]

What are they [insurance companies] adding to the system?
Apart from cost.

I've asked Francesca this before, but I didn't really understand her answer. Something about providing more choice.

Where there is a public universal-access system in place, then the role of insurance companies in providing the option to go private and access resources outside that system is clear. It's an option, it's available to anyone who wants to pay for it, fine. Not arguing. Done it myslef in the past.

What I don't understand is what insurance companies add to a universal-access system. I know that standard universal-access healthcare in a number of European countries is provided through insurance companies, and these systems appear to be no more expensive per skull than ones which don't. So clearly it must be possible to run a profitable insurance company and still not inflate costs unacceptably, though I'm still a but hazy how it's done.

I still don't understand what advantage there might be in choosing to go down that route. Certainly I find I have the choice to access any part of the NHS that happens to suit me, and I can't see how having an insurance company between me and the NHS would improve my choices.

Rolfe.

 

[Rolfe]

Occasional?? Try 600 billion dollars worth of occasional.

Not in our system. You know, the universal-access publicly-funded one.

Rolfe.

 

[Rolfe]

I used to work with a guy who had all kinds of medical problems from a car crash he was in. He was able to get insurance through our employer even with all of the ongoing medical care he would need throughout his life.

So he succeeded in getting coverage. Good. However, was that guaranteed? Supposing times were hard, and he didn't succeed in finding employment? What's he supposed to do?

Suppose his medical problems cause him a little bit of trouble in his work - more time absent for medical appointments, physical restrictions in the workplace, that sort of things. Is some one like that going to find it easy to get such a job, even if he's well qualified?

Supposing everything is peachy, your friend is a good employee and making money and has a nice lifestyle. Then, God forbid, the company hits a bad patch. Your friend, along with many others, loses his job.

Then what?

Rolfe.

 

[Francesca R]

I've asked Francesca this before

It was here. I'm not really interested in going over it again so you can keep your one-line summaries as you wish.

 

[Professor Yaffle]

There would never be an insurance company between you and the NHS. Countries in which the government runs the health service (UK, Italy, Spain) don't have the insurance model.

 

[Rolfe]

You would think there is an incentive for insurance companies -- because they are the ones paying for it -- to shop for a cheaper product. Or at the very least not fully cover ridiculously overpriced stuff. You haven't explained why there isn't.

It makes no sense at all for an insurance company to allow people to "just grab what they want".

It doesn't seem to be a part of your [Toke's] knowledge that [mitigating their liability] is exactly what insurance companies do.

The point, Rolfe, is that when everything is "free", there is no incentive to seek the best value, but to grab everything you can. It was a pretty simple, obvious, and apt analogy. It's very basic economics. Sorry it was beyond you. [....]

How do pharmaceutical companies get away with such outrageous overcharging? By having insurance pay for it. Very, very few of us pay for our strips directly. They're covered by either private insurance or government insurance, so we pay our co-pay (or, in many cases, pay nothing) and don't think about it. [....] there is no free market for the strips, so they remain priced at a buck each. There is no incentive for anyone to make them cheaper, because there is no incentive for the tens of millions of diabetics to shop for a cheaper product.

And that's just one example. When the doctor says "Here's a $100/month solution for your acid reflux," instead of thinking "that's just a ten dollar co-pay" we'd have an incentive to say "Can we try the $5/month OTC solution first?" The pharmaceutical company would suddenly have an incentive to lower their price substantially in order to compete.

Look, guys, which is it? I'm very familiar with insurance companies mitigating their liability. When I was burgled, it was obviously worth their while to send one of their employees to visit me and quibble over every detail of my claim, than simply to pay it.

I find the concept of a health insurance company happily paying out millions it doesn't have to, by allowing the clients to "grab everything they can", extremely difficult to swallow. But poster after poster from the US seems to be telling us that is the case.

There was an earlier post which arrempted to explain this, but it's a long way back now. Can anyone enlighten us here?

First you make it illegal for pharmaceutical companies and manufacturers of medical devices to give bonuses and gifts to doctors who prescribe their products to their patients.

Second, insurance companies will need to accept that anything prescribed by a doctor is a necessity, and they will have to pay for it. If they are not sure why a patient needs the $40 insulin meter instead of the $15 one, they can call the doctor to explain it. If the patient wants a $80 their doctor can tell them "you don't need it. I'm not going to prescribe it, so your insurance won't cover it."

Why isn't Earthborn's scenario standard practice?

Rolfe.

 

[Toke]

Thanks for the link.

I did read it in the original tread but must have written it off as mostly speculation on how to get your ideology of markets to fit UHC.

 

[Ivor the Engineer]

<snip>

In short, what an insurance model does (relative to a tax-based one) is better align the incentives of patients and providers to further the interests of equal access to treatment, long term health, low cost, and as free as feasible from political considerations.

<snip>

I count 5 assertions with no evidence or explanation to back them up.

Why would a profit-driven insurance company better align the interests of patients and providers than a single payer system?

Why would a profit-driven insurance company provide more equal access to treatment than a single payer system?

How would a profit-driven insurance company further long-term health of society better than a single payer system?

Why would a profit-driven insurance company provide lower-cost care than a single payer system?

How is a profit-driven insurance company more free from political considerations than a single payer system and why would this be better for patients?

 

[Rolfe]

There would never be an insurance company between you and the NHS. Countries in which the government runs the health service (UK, Italy, Spain) don't have the insurance model.

This is from Francesca's earlier post she just linked to.

[....] the UK is different from much of Europe and Japan. France, Germany, Holland and Switzerland have universal provision but insurance-based cover. Some research indicates that this is one step ahead of the UK NHS and with that I do agree. The UK (also Australian) model remains considerably superior to the quasi-voluntary and non-universal insurance based cover in the USA.

I find it persuasive that the inferior incentive structure of "cash free" probably causes bigger efficiency losses from this system than the cost of administering insurance. Plus, it replaces that admin with different admin anyway (there is still billing and pricing and chasing of money).

I probably understand this better having read it a few more times. The fact is that she's right about other European countries with universal-access healthcare utilising insurance-based systems and not paying over the odds for it. So it must be possible even if I find it intuitively unlikely.

In fact this approach would surely be easier for the USA than going to a totally centrally-funded system. It would be an easier transition, and it would utilise the resources already available. The article linked to earlier about different models of healthcare provision being path-dependent highlighted this point.

So it probably is too simplistic simply to say, shoot the insurance companies. Nevertheless, as things are at present, the US insurance companies appear to be skimming off an enormous proportion of healthcare spending, and conspiring to keep prices up. All the suggestions from US posters about how to improve this seem to me to be guaranteed to make things worse.

Rolfe.

 

[TriangleMan]

What I don't understand is what insurance companies add to a universal-access system.

One thing that I thought of was health coverage in more than one jurisdiction. A universal-access system doesn't tend to extend beyond the borders of the country. The policy I have through an insurance company provides health care coverage wherever I am. (well maybe not North Korea but you get my drift)

 

[DaN K. StAnLeY]

So he succeeded in getting coverage. Good. However, was that guaranteed? Supposing times were hard, and he didn't succeed in finding employment? What's he supposed to do?

Suppose his medical problems cause him a little bit of trouble in his work - more time absent for medical appointments, physical restrictions in the workplace, that sort of things. Is some one like that going to find it easy to get such a job, even if he's well qualified?

Supposing everything is peachy, your friend is a good employee and making money and has a nice lifestyle. Then, God forbid, the company hits a bad patch. Your friend, along with many others, loses his job.

Then what?

Rolfe.

and suppose this, and suppose that......

He could get on SSI, or get another job with HC benefits. Again, maybe there should be other ways for insurance to be available. Banks are starting to offer insurance coverage, my college is offering HC coverage to students.

 

[MarkCorrigan]

Ok, someone who supports insurance based healthcare please tell me what I would do.

I would get on my parents premium. Great news, I get my first round of operations on insurance. I'm going to need more, so, and forgive me if I am wrong, could the insurance company not hike up the cost a massive amount when my parents come to renew the cover? Given that I'll still be on this plan for another 18 years, wouldn't the company, knowing I would need further care, ramp up the price? Would this still be affordable for my parents?

Next, assuming they can't or my parents can pay, I turn 18 but go to university. Ok, I'm fine for my time over the course but I'm graduating this summer, I need a job. The economy is in a downturn and I know I can't afford a premium on my own, so what if I can't get a job? Or can only get a basic one that doesn't have insurance? What happens?

I mean, it's unlikely I'll need emergency care, because my heart condition isn't like that, but I WILL need another operation in 5-10 years and I WILL need tests run on my in a year or so. What do I do if I don't have insurance? I can't afford the tests but they are needed. I certainly can't afford my operation, so what options are open to me?

Even assuming that Medicaid is available, so I won't die, how do I avoid ending up losing everything I have before then? Or going on a yo-yo style trip up and down with my finances. This will plague me for the rest of my life....how do I live with it?

 

[DaN K. StAnLeY]

I find the concept of a health insurance company happily paying out millions it doesn't have to, by allowing the clients to "grab everything they can", extremely difficult to swallow. But poster after poster from the US seems to be telling us that is the case.

An auto insurance company gave me $3,000 to replace a tail light ($250 at the dealership). The reason they do it is because if they don't and get sued, it's over.

 

[Blue Mountain]

I'm not 100% on this, but I used to work with a guy who had all kinds of medical problems from a car crash he was in.

Do you know if he was employed with this same company at the time of the crash? If so, good, because he didn't have a pre-existing condition at the time of hire. If not, he was lucky to have found this job.

He was able to get insurance through our employer even with all of the ongoing medical care he would need throughout his life.

Is he going to be employed at this company for the rest of his life? He could lose his job through any number of unfortunate circumstances.

I'm not sure if this is how it works for every employer though.

There's the rub. Under a UHC system you don't have to guess. It's just known that he's covered, potential employers don't need to worry about adding a potentially expensive patient to their plan.

 

[Rolfe]

One thing that I thought of was health coverage in more than one jurisdiction. A universal-access system doesn't tend to extend beyond the borders of the country. The policy I have through an insurance company provides health care coverage wherever I am. (well maybe not North Korea but you get my drift)

My coverage is not restricted to my own jurisdiction.

If you are a UK resident, you are entitled to medical treatment that becomes necessary, at reduced cost or sometimes free, when temporarily visiting a European Union (EU) country, Iceland, Liechtenstein, Norway or Switzerland. Only treatment provided under the state scheme is covered. However, to obtain treatment you will need to take a European Health Insurance Card (EHIC) with you.

Took me about five minutes to get mine through that web site. It lives inside my passport. No reason such a scheme shouldn't be extended to any country with universal-access healthcare.

However, health insurance for visiting foreign countries is cheap. When I went to Spain, not only did I have the card, but I had insurance cover because it was wrapped up in my general travel insurance. Which was provided gratis by my travel agent. My elderly mother (92) bought her own insurance to supplement her card, and it cost her about £45 (that included cover to have her luggage stolen and her flight cancelled and all the usual stuff as well as healthcare insurance).

The only place you really have to be careful about when travelling there is the USA. If you have any pre-existing risk factors the premiums will be very high indeed to go there. Even I, healthy and with no previous, had to pay about £55 for a week.

I wonder why that is?

Rolfe.