Switzerland Anyone? (Health Care Reform)

[kevinquinnyo]

Cleon,

You are arguing that if all employers no longer had to bear the cost of insurance premiums for employers, that they would simply keep all of the money?

Or do you think they would reinvest that money into capital expenditures?

Aren't human resources and the investing in them, an example of a capital expenditure?

Basically, if you think that wages would not go up, you're stating one of two things.

1) The owners and investors of all of these companies would consume all of the excess money for personal use, and reinvest none of it, ie - a new yacht, more vacations,

2) The owners and investors of these companies would elect to reinvest the extra money into capital expenditures, ie - fleet vehicles, tools, consultant firms, marketing, etc, but for some reason, NOT human resources, by increasing wages and attracting the best and brightest employees.

Do either of those sound plausible?

Or do you agree that wages would likely go up immediately as a result?

 

[Cleon]

Or do you agree that wages would likely go up immediately as a result?

Whatever they decide to do with the money, this is not a likely outcome.

 

[kevinquinnyo]

Whatever they decide to do with the money, this is not a likely outcome.

I've heard this exact same argument about the gas industry.

It's the cartel/collusion fallacy all over again.

To assume that all of the companies in the country, let alone the ones in a particular sector with many competing firms, would be able to keep prices high despite lower cost to produce, is just impossible.

Here's an example that is unrelated, but the concept is actually exactly the same as the increased wage argument.

Let's make it very simple. Let's say that there is a revolution in the way a widget is made, and every widget company invests in this new technology. It allows 10 times as many widgets to be produced a day, for half the cost.

Would you expect the price of a widget, across the entire sector of the widget industry to go up, go down, or remain the same?

If there are 3 companies that make widgets, it would be better for these three companies to all keep the price of a widget the same, regardless of the lower cost of production for a widget.

Right?

Except for the fact that, if one company owner got the wild idea that if she just lowers the price of a widget by 5%, she can steal the market share away from the other two companies. And then of course the other two companies will retaliate by lowering their prices, and so on, and lo and behold, the market reaches a very affordable price equilibrium for widgets.


So, if you agree with this basic concept of capitalism and economics, you should agree that the wage increase is essentially the same thing.

In order for all three companies to engage in collusion by keeping the money saved from not having to pay for insurance, and not reinvesting it, no other company could defect. If one company got the wild idea to raise wages slightly to steal away talent, and keep their existing employees, every other company would follow suit, immediately, or be forced out of the market.

 

[Cleon]

I've heard this exact same argument about the gas industry.

It's the cartel/collusion fallacy all over again.

No collusion necessary. If company A no longer has expense X, there's no reason they'd "immediately" increase salaries, any more than they'd "immediately" lower prices. If company B no longer has the same expense, there's no reason they'd do any different.

Believing otherwise is an exercise in faith.

To assume that all of the companies in the country, let alone the ones in a particular sector with many competing firms, would be able to keep prices high despite lower cost to produce, is just impossible.

Recording industry.

In order for all three companies to engage in collusion by keeping the money saved from not having to pay for insurance, and not reinvesting it, no other company could defect. If one company got the wild idea to raise wages slightly to steal away talent, and keep their existing employees, every other company would follow suit, immediately, or be forced out of the market.

Any example of this actually happening? No? Didn't think so.

 

[WildCat]

Cleon, have you ever received a raise?

 

[kevinquinnyo]

Believing otherwise is an exercise in faith.

I see. So a massive preponderance of evidence, observation, and literally centuries of economic study = faith.

 

[psychictv]

7. With all the above in place, there would no longer be a need for Medicaid, S-CHIP, and the myriad other federal, state, and local health care initiatives offered nationwide. Overnight, billions and billions of dollars in unnecessary administrative costs are excised from budgets at all levels of government. The entire health care system just got radically more efficient, with a much higher percentage of health care dollars going towards patient care rather than to administering thousands of pages of complex and overlapping rules and regulations.

This is where it all falls apart. The administrative costs of Medicare are lower than the administrative costs of private insurers.

When the Congressional Budget Office examined this issue, it found that administrative costs -- including advertising and profits -- accounted for 12 percent of the average insurer's dollar. But that hid substantial variation among insurers. Among employer-based plans, the largest firms had the lowest costs. Plans covering companies with at least 1,000 employees had a mere 7 percent in administrative costs. Those covering companies with fewer than 25 employees spent 26 percent of premiums on administration. And the individual market was a mess: 30 percent.

This tells us a couple of things. First, size matters. The most important predictor of administrative costs is not whether the plan is public or private, but whether it is large.

http://voices.washingtonpost.com/ezra-klein/2009/07/administrative_costs_in_health.html

So this proposal would actually increase administrative costs and make the system far less efficient, because you would be forcing people out of large, efficient pools based on their employer, and into inefficient individual plans.

You could achieve the same results as points 1-6, as well as reducing costs and increasing efficiency by simply creating a single payer system.

 

[Francesca R]

No, it's irrelevant to the point that American businesses are hurt by having to pay for employee health care.

Correct, or at least--they are rendered less efficient than they would be if health insurance was nothing to do with them (unless they wanted it to be). It might seem right that employer health insurance contributions should be wholly reimbursed to employees if the requirement to pay them on employees' behalf is lifted, but that is not necessarily true. If it was, it would imply that employee compensation was the sole source of funding for it, whereas it is much more likely to be borne by employees and customers and shareholders as well. If that is the case, then employees are not currently paying the full cost of their insurance in the form of lower compensation, and they should not expect a "full refund".

As Dr.Kitten highlighted, the "free" market cannot provide health care adequately, because of failures such as adverse selection.

It sometimes gets forgotten that universal medical care systems are not simply "for everybody", they are also compulsory, which is how adverse selection is mostly avoided.

 

[WildCat]

This is where it all falls apart. The administrative costs of Medicare are lower than the administrative costs of private insurers.


http://voices.washingtonpost.com/ezra-klein/2009/07/administrative_costs_in_health.html

So this proposal would actually increase administrative costs and make the system far less efficient, because you would be forcing people out of large, efficient pools based on their employer, and into inefficient individual plans.

You could achieve the same results as points 1-6, as well as reducing costs and increasing efficiency by simply creating a single payer system.

You have missed the entire point. There would be none of the administrative costs you describe, because the goal is to decouple health insurance from employment entirely. Businesses adminsitrative costs would drop to zero, because they could concentrate on making widgets instead of devoting personnel administering health insurance benefits.

And in the plan described above there is no "individual insurance plan" - everyone is in the same pool, there is no rating of individuals.

And large groups would have no advantage at all over individuals, because group plans tailored to specific companies would not exist. They'd have to buy the same plans available to any other group or individual wishing to purchase it, and at the same price.

eta: and your post illustrates yet another reason to decouple health insurance from employment - larger companies, due to economies of scale, have advantages not available to smaller companies and this gives them a comnpetitive advantage over smaller companies, which stifles innovation.

 

[Lurker]

Let's make it very simple. Let's say that there is a revolution in the way a widget is made, and every widget company invests in this new technology. It allows 10 times as many widgets to be produced a day, for half the cost.

Would you expect the price of a widget, across the entire sector of the widget industry to go up, go down, or remain the same?

If there are 3 companies that make widgets, it would be better for these three companies to all keep the price of a widget the same, regardless of the lower cost of production for a widget.

Right?

Except for the fact that, if one company owner got the wild idea that if she just lowers the price of a widget by 5%, she can steal the market share away from the other two companies. And then of course the other two companies will retaliate by lowering their prices, and so on, and lo and behold, the market reaches a very affordable price equilibrium for widgets.


So, if you agree with this basic concept of capitalism and economics, you should agree that the wage increase is essentially the same thing.

In order for all three companies to engage in collusion by keeping the money saved from not having to pay for insurance, and not reinvesting it, no other company could defect. If one company got the wild idea to raise wages slightly to steal away talent, and keep their existing employees, every other company would follow suit, immediately, or be forced out of the market.

Why use made up examples when we can employ actual events. When CDs came out to replace LPs the actual cost to manufacture a CD was less than it cost to make a LP. Unfortunately for consumers, the price of the CD was significantly higher than the cost of a LP despite the lower manufacturing cost. Over time we saw the price of CDs diminish but it took many years before it dropped below (inflation adjusted) the price of an LP.

And this is why I say it would take time for salaries to rise to compensate for the company's savings in health coverage. You can say that competition will force company's to offer higher salaries but, like the real world example of CDs and not the made up example of widgets, it will take time and in the meantime the employees will have to bear the cost alone.

 

[WildCat]

Why use made up examples when we can employ actual events. When CDs came out to replace LPs the actual cost to manufacture a CD was less than it cost to make a LP. Unfortunately for consumers, the price of the CD was significantly higher than the cost of a LP despite the lower manufacturing cost. Over time we saw the price of CDs diminish but it took many years before it dropped below (inflation adjusted) the price of an LP.

And this is why I say it would take time for salaries to rise to compensate for the company's savings in health coverage. You can say that competition will force company's to offer higher salaries but, like the real world example of CDs and not the made up example of widgets, it will take time and in the meantime the employees will have to bear the cost alone.

Except in the CD case there were just a few companies manufacturing them and they were colluding with each other. And besides, you can't go and buy, say, the Rolling Stones Steel Wheels CD from another manufacturer if you don't like the price Virgin Records charges.

In a free market (and labor is a market) there will definitely be pressure placed on business owners to compensate if a benefit is taken away. It would be seen by employees as a salary reduction, which rarely happens since employees can and will leave the company for another offering a better salary.

 

[IchabodPlain]

This is where it all falls apart. The administrative costs of Medicare are lower than the administrative costs of private insurers.


http://voices.washingtonpost.com/ezra-klein/2009/07/administrative_costs_in_health.html

So this proposal would actually increase administrative costs and make the system far less efficient, because you would be forcing people out of large, efficient pools based on their employer, and into inefficient individual plans.

You could achieve the same results as points 1-6, as well as reducing costs and increasing efficiency by simply creating a single payer system.

My impressions are that single-payer systems have a plethora of problems. Long wait times - usually associated with over-use of resources, lack of competition and choice, and it's infeasibility in the political climate of the US to name a few.

I notice from your link that there is a negative relationship between company size and administrative costs. This goes back to scale issues which can be dealt with if insurance was compulsory and the market national as the number of enrolled individuals would rise significantly. Compliance to state laws are a driving factor of these administrative costs, making slightly different forms for every state they sell insurance. Medicare doesn't have this problem.

 

[Lurker]

In a free market (and labor is a market) there will definitely be pressure placed on business owners to compensate if a benefit is taken away. It would be seen by employees as a salary reduction, which rarely happens since employees can and will leave the company for another offering a better salary.

Perhaps you are right and we would not see a significant delay between health insurance being cut and salries rising to compensate.

 

[Lurker]

My impressions are that single-payer systems have a plethora of problems. Long wait times - usually associated with over-use of resources, lack of competition and choice, and it's infeasibility in the political climate of the US to name a few.

I'm not sure long wait times is all that real in single payer countries. I thought I saw somewhere a comparison of wait times and the current US system is not that much different than single payer countries. Of course we hear horror stories but that is just anecdotal evidence.

Here in the states if you want to make an appointment to see a specialist it usually will be quite a wait. My wife has asthma and when she looked for a new doctor she had to wait about 2 months for the first appointment.

 

[IchabodPlain]

I'm not sure long wait times is all that real in single payer countries. I thought I saw somewhere a comparison of wait times and the current US system is not that much different than single payer countries. Of course we hear horror stories but that is just anecdotal evidence.

Post #36. The US was one of eight in which wait times were reported as "low" (the Swiss are also in this group). The UK was at the other end of the spectrum of twelve countries which were reported as "a serious health policy issue" (Page 47 from that link).

Further reading: http://www.oecd.org/dataoecd/31/10/17256025.pdf

Here in the states if you want to make an appointment to see a specialist it usually will be quite a wait. My wife has asthma and when she looked for a new doctor she had to wait about 2 months for the first appointment.

Speaking of anecdotal...

 

[psychictv]

Post #36. The US was one of eight in which wait times were reported as "low" (the Swiss are also in this group). The UK was at the other end of the spectrum of twelve countries which were reported as "a serious health policy issue" (Page 47 from that link).

Further reading: http://www.oecd.org/dataoecd/31/10/17256025.pdf

Except that the U.K. doesn't have single payer. And some countries that do have single payer such as France and Austria don't have long wait times according to that paper.

 

[psychictv]

You have missed the entire point. There would be none of the administrative costs you describe, because the goal is to decouple health insurance from employment entirely. Businesses adminsitrative costs would drop to zero, because they could concentrate on making widgets instead of devoting personnel administering health insurance benefits.

I'm talking about the administrative costs of the insurers, not the businesses that buy their services.

And in the plan described above there is no "individual insurance plan" - everyone is in the same pool, there is no rating of individuals.

If there are multiple companies and multiple plans then everyone is not in the same pool. In your system there is no way to pool. Everybody is buying insurance as an individual.

And large groups would have no advantage at all over individuals, because group plans tailored to specific companies would not exist. They'd have to buy the same plans available to any other group or individual wishing to purchase it, and at the same price.

I think the "at the same price" part of your plan has been shown to be unworkable (see post #28). The logical outcome is that no rational company would have multiple plans, they would just have one plan for one set price which distributed the risk across everyone. Which I guess is your point. Things would naturally settle into a single pool. But then different companies plans would probably settle into similar prices as well, so what's the point of having competition or choice at all?

eta: and your post illustrates yet another reason to decouple health insurance from employment - larger companies, due to economies of scale, have advantages not available to smaller companies and this gives them a comnpetitive advantage over smaller companies, which stifles innovation.

Or we could try to find a way to get the largest pool possible. That's called single payer.

 

[Lurker]

Post #36. The US was one of eight in which wait times were reported as "low" (the Swiss are also in this group). The UK was at the other end of the spectrum of twelve countries which were reported as "a serious health policy issue" (Page 47 from that link).

For the much higher cost that Americans pay for their health insurance, it is not as if we stand out in regards to wait time. Why do we pay so much more and get similar outcomes?

Although the United States does not have long wait times for non-emergency
surgical procedures, this does not appear to be the case for primary care doctor visits.
In a survey of five OECD countries in 2004, U.S. respondents were the second-least
able to make a same-day doctor’s appointment when sick and had the most difficulty
getting care on nights and weekends. They were also the most likely to delay or
forgo treatment because of cost.

Regarding my note about visiting a asthma specialist you replied...

Speaking of anecdotal...

I ONLY offered it as anecdote. Kind of an example of how we only hear the anecdotal evidence of waiting time overseas or up in Canada. turning it about and showing we can provide same anecdotal evidence showing long US wait times too.

 

[psychictv]

I notice from your link that there is a negative relationship between company size and administrative costs. This goes back to scale issues which can be dealt with if insurance was compulsory and the market national as the number of enrolled individuals would rise significantly. Compliance to state laws are a driving factor of these administrative costs, making slightly different forms for every state they sell insurance. Medicare doesn't have this problem.

Actually, while there is an obvious correlation between size and cost savings, I think there is also evidence that public plans are indeed more efficient than private. Krugman lays out a great argument here.

If you compare Medicare to Medicare Advantage, you can compare a public system and a private system that both serve the same population of patients, and you'll see that the private system is far more expensive.

 

[WildCat]

I'm talking about the administrative costs of the insurers, not the businesses that buy their services.

The parts you bolded dealt with administrative costs of companies offering health insurance, I thought that's what you were talking about? If you want to talk about administrative costs of insurance companies bear in mind they have to contend with 50 different sets of rules and regulations, Medicare only has one set of rules. My idea is to get the states out of health insurance regulation, so there's only one set of rules to follow instead of 50. This would greatly reduce administrative costs of health insurance, as would rules disallowing medical rating of the insured. The latter would eliminate all the procedures in place for determining pre-existing conditions among other things.

If there are multiple companies and multiple plans then everyone is not in the same pool. In your system there is no way to pool. Everybody is buying insurance as an individual.

First of all, all of the plans must offer at least the minimum coverage as set by the Federal insurance regulator. Everyone who wishes to purchase a particular plan must be allowed to do so, the insurance company cannot refuse. They also pay the same price, no one pays a different premium for the same plan - but the companies themselves set the actual premium. Because minimum coverages are set by the regulators, and insurers cannot deny coverage for pre-existing conditions or any other reason insurers will find that price is a major factor in customers picking their insurance carrier. This forces efficiency into the insurance market, since an insurer setting their price too high will soon find their customers moving on to their competitors instead.

This is radically different from the way individual health insurance is sold now, which are all medically rated. That means your medical records will be evaluated, and based on that exclusions added, premium adjusted for each indivfidual, or you may be rejected for coverage outright.

I think the "at the same price" part of your plan has been shown to be unworkable (see post #28). The logical outcome is that no rational company would have multiple plans, they would just have one plan for one set price which distributed the risk across everyone. Which I guess is your point. Things would naturally settle into a single pool. But then different companies plans would probably settle into similar prices as well, so what's the point of having competition or choice at all?

Of course they would have multiple plans, because some people will want more than the minimum legal insurance coverage. They may want dental plans, for example. They may want a private hospital room when they have to go to the hospital, they may want brand-name drugs rather than generic drugs, they may want in-home nursing care, etc etc. Of course, there would be no Federal subsidy for the excess coverage but many people would opt to pay extra for these things, and in fact this is where insurance companies could increase their profit margins, by selling policies in excess of the mandated coverages.

Or we could try to find a way to get the largest pool possible. That's called single payer.

The pool is the same, I'm introducing competition for those in it. If you're unhappy with the price or services of single-payer, what competitor can you turn to?