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Is it me, or has the Daily Show/Colbert Show devolved into a propaganda tool for the Obama administration? I watched Colbert again lambaste the insurance industry last night, this time focusing on pre-existing conditions. What he – and most Americans – doesn’t know about how the health insurance industry works (or doesn’t, really) in the U.S., could fill a phone book.It’s particularly galling coming from Colbert and Stewart, given the snarky, ‘we’re the smart guys’ posture they take. On this issue, they demonstrate complete ignorance and are fanning populist flames with vicious rhetoric.
Let’s start with some basics. First, how does insurance, in particular health insurance, work? Answer, a pool of people pay a premium to a company that will pay claims for health care services covered under a policy they’ve purchased. The assumption is that some people will use less than they pay for and some people more, and the process that comes up with the pricing and the composition of the pool of insured is based on actuarial analysis which is the study of the probability of events occurring and the cost scenarios that might emerge. This is pretty straightforward yes?
Okay, what about in the real world, how does it work if you are an insurance company in the U.S.? First of all, policies are designed with something less than the entire population of the U.S. as the pool for a given product. Why is this? First the government requires that insurance companies operate state by state, so each policy is designed for a given state boundary. Second, you don’t have to buy health insurance, so it can build a pool of voluntary participants. Okay, so armed with your actuarial analysis, you then submit the proposed policy to your state insurance commissioner. In this submission are all the rules governing underwriting, which are the criteria for acceptance into a given risk pool. This includes the rules about pre-existing conditions. See, if too many sick people are in the pool, then the cost goes up for everyone. The insurer also projects a profit on the policy (pretty low as the health insurance is not a very profitable industry by any measure) and the state insurance commissioner evaluates the policy against all the rules in his state. Eventually, after modification and discussion, it’s approved and voila you have insurance.
My point is twofold. First, their is no magic – if you have too many sick people in a pool the pool doesn’t work. Second, all of these rules are already approved by the government. To somehow insinuate that this is inappropriate, unfair or abusive is to really just nonsense. Now, some states have “must issue” rules – and guess what? Coverage costs go through the roof? You know why? Because too many sick people apply and many healthy don’t – driving up the cost of insurance.
The bottom line is that the current health insurance system works exactly the way the government has made it work – I mean it’s regulated to death already and that’s a big part of the problem. Larger pools would make this much easier to manage, and, as well, some questions need to be asked about whether we need a mandate for coverage to ensure that enough healthy people participate to make it work. When Washington state had it’s “must issue” law in force, but no mandate, it had situations like the pregnant mother who wrote the state commissioner about how happy she was about getting insured while she was pregnant, and that she would sign up for insurance next time she got pregnant – exactly the behavior that drives up costs.
The issue of the mandate is a sticky one for a Libertarian. In a Libertarian world there would be no such need for govt involvement at all because the consequences of not having health insurance would be severe – no care or a serious encumbrance of your future earnings. But in the world we live in, we already mandate that a provider cannot refuse life saving treatment based on ability to pay, so everyone actually already operates with a government mandated catastrophic policy, we just haven’t funded it in a logical way. Do you get this? Therefore, if we are going to have this treatment mandate, then we have to have an insurance mandate. Btw, this mandate was put in place by Reagan – so those of you who love him so, chalk him up as taking a big step to state run health care.
Finally, the biggest problem in health care isn’t the insurance companies, it’s the cost of care. Anyone who actually knows where the money goes knows that the profits of the health care industry are small (3.3% on avg) and that the real problem is the price of and rising demand for care. A market based system has a chance of creating the right incentives, competition and pressures to bring delivery costs down: a government planned and managed system will only guarantee rationing if caps are put on costs, which is the current plan. Btw, none of this thinking is ideological – it’s fact based, but requires thoughtful reflection on how insurance actually works. If only someone would have the guts to speak up against everyone who is bashing the insurance industry, and explain to the policy makers and the American people that there is no magic pixie dust that the government can sprinkle to “give” everyone health care. It has to be paid for somehow and the only question is will we continue to let government continue to screw it up or will we actually give the free market a try? It looks like the former to me, but don’t think that after watching Colbert go on about it that you know a damn thing about the real problems we face.
