Miniver Cheevy

Suppose that, besides being the Enemies of All Mankind, health insurers are actually right.

Some companies noted last week that Congress' plans to mandate that everyone buy health insurance include only weak penalties. The plans also make insurers take on customers who are already sick. If you're young and daring, you pay the low penalty and go insurance-free until your doctor says you've got cancer. You then apply and pay $800-a-month premiums for $10,000-a-month care. Sweet, until the industry inevitably collapses, say insurers.

OK, this is an important point, so important that it has a name: adverse selection. The healthiest are tempted to go without insurance, driving up the cost of insurance for everyone else. Currently, this is screwy on both ends: healthy people gamble on going uninsured, and insurers try to avoid covering the sick. The proposals on the table try to fix both ends, requiring that everyone buy insurance, and requiring insurers to sell the same insurance to anyone who asks. If the mandate doesn't work right, that two-edged solution breaks down.

Is this really a problem? Most states require drivers to have automobile insurance, and while some people cheat on the requirement enough people obey that the system works. The mandate doesn't need to be perfect, it just needs to be good enough. If the mandate policy we enact isn't good enough, we can tweak just that part of the policy to fix it without having to call the whole thing into question.

Is there a reason to think this problem cannot be solved? McIlheran is supposing that the concerns that insurance companies have raised are correct. Is anyone else worried about this, beyond McIlheran and the insurers? Not that I've heard, and I'd think McIlheran would bring it up if they did. But okay, he's asked us to suppose it's true. Let's see what he hangs on this thread ...

Suppose they're right. Insofar as Assurant, one of the nation's bigger writers of individual policies, employs 1,900 in its Milwaukee hometown, that's a lot of Milwaukeeans out of a job. The company also leads in high-deductible plans of the kind Obamacare would ban. I know we're supposed to hate insurers, but must we also want their staff unemployed?

McIlheran is supposing that as a result of the new policy which mandates that everyone buy insurance the result is actually that less people buy insurance.

Note also that McIlheran is saying that reform advocates want to stoke our hatred for insurers, which will make it OK if Assurant fails ... because the reform won't work. This is like saying I want car drivers to drown because I say I want to build a bridge but the ferryboat drivers say the bridge will collapse.

If we're toting up the cost of Obamacare, there's surely a ledger line for the demolition of an industry, even an unpopular one. Insurers' power will be transferred to federal agencies, their earnings to a public option, their workers to the dole. Ah, well: Villains defeated.

OK, we've gone from Assurant going out of business because we've screwed up the mandate policy to the entire health insurance industry dying and ... how did the public option get into this conversation?

Recall that McIlheran has hung this scenario on the flawed-mandate-policy hook. This is a little odd, since the scenario he's talking about has been much discussed from another angle.

Health care policy folks who favor the combination of mandates and stronger insurer regulation often argue that regulation isn't enough, because insurers get good at finding loopholes. You also need insurers competing with one another to offer better service. But in many markets there aren't enough insurers competing with one another, so we should provide an extra insurer available to everyone: the Federal government. This competing government-administered insurance — the public option — wouldn't be free, you'd have to pay premiums just like any other insurance.

Some proponents of this policy argue that the public option would compete so well with the private insurers that it would drive many of them out of business, maybe even all of them. The public option would have an edge over private insurance because it wouldn't need to turn a profit and would be big enough to be able to negotiate good prices with suppliers like drug companies. With Federally-run Medicare demonstrating by many measures that it can deliver lower administrative costs, better health outcomes, and better patient satisfaction than private insurance, this is at least a plausible argument.

Proponents say this is a good thing because the public option wins by virtue of actually being better than private insurance. McIlheran says this is a bad thing because ...

Ah, well: Villains defeated.

This is exactly the spirit of Obamacare. The animating drive is to transfer: mainly money, from those who pay to those who need. The strongest appeal of Democrats' plans is that you needn't worry about coverage because someone, presumably a villain, will pay for it.

“Obamacare” is a plot to destroy the insurance companies, which no one will notice because Democrats have cast the insurers as villains. As part of their plan, the Democrats will pass laws requiring that you buy insurance from these villains. But those laws won't be good enough, so the insurers will go out of business.

Why are Democrats doing this? Because they want to obscure their plan to transfer money by falsely implying that insurance companies will pay for it. Who will pay for this dastardly plan?

Who, exactly?

Ask first who won't pay. Doctors? Maybe not. One reason the Senate's latest plan didn't worsen the deficit by the $1 trillion that congressional accountants earlier reckoned was that its writers hid huge sums in Medicare payments off the books. They did this to buy the support of the American Medical Association. Doctors are right not to want to be shafted. Trust that they'll lobby to make sure of it.

This aside about doctors is a little strange. I presume that McIlheran is just using it as a platform for his unsubstantiated little dig hinting at Medicare corruption. But while we're here, I may as well observe that the lobbying power of the AMA is a problem for health care reform that I'm disappointed to see no one taking seriously.

Insurance companies won't. Their pleas will be heard, bailouts granted. The industry, in fact, seemed to be going along with Obamacare in hopes of finding a utility-like role in a government-dominated system.

Now I have whiplash. Obamacare's mandate that we buy health insurance is a plot to destroy insurers, which insurers are going along with because the government is sure to prop them up. Huh?

So all that blather about the death of the insurance companies was just to set up the casting of insurance companies as villains to hide something. What?

You, however, may have an ATM-like role. The plan assembled by Sen. Max Baucus (D-Mont.) dictates premiums on a sliding scale — 12% of income, about $8,700 a year, for the median Waukesha County family, for instance. We'll all be paying extra to cover people who earn less.

This liberal notices that when McIlheran talks about what we all will do, all of us does not include the people who earn less than the median income. That is to say, half the population. Helping poor people get insurance is stealing from anyone who counts.

Those figures assume, by the way, massive, improbable cuts in costs.

This unsupported assertion is a cheap throwaway to suggest that health insurance reform will cost you money. But the cost of health care is a problem independent of how we provide insurance for it. And as we'll see, now that the supposition that the mandate system will break down has enabled McIlheran to make reform sound scary, he's going to switch to scaring us with the rising costs that don't have anything to do with any reforms that have been proposed.

First, though, he wants to argue that the problem with health insurance reform will be people paying into it too equally.

Who else pays? The healthy: Patsies who obey the law and buy insurance before they're sick. Their premiums will cover those who don't bother until they've incurred huge bills.

Mainly, the young will pay. They tend to use less care. Obamacare depends on this: Young workers' premiums are needed to fill the pool as aging workers drain it. That's how insurance works, they say. They mistake insurance, which pools similar risks, with the pooling of known dissimilar costs, which is called a raw deal.

The arrangement is like another “compact between generations,” Medicare, in which young workers pay with the expectation of collecting later. But Medicare, which works fine for now, will be insolvent by 2017, say its trustees. The young will pay for that now and later.

The real winners in Obamacare aren't the elderly. They're already covered, though Baucus' plan cuts Medicare massively. It is, rather, the pre-retirement demographic, not old enough for Medicare, insured but worried, and costly to cover.

Such people usually are in their peak earning years. They've had time to save up, pay off the mortgage. They are typically far better off than the young who will subsidize them. Yet Congress would transfer huge sums from low-wealth twentysomethings to higher-wealth boomers.

McIlheran is saying outright that old and sick people should pay more for insurance. By his reasoning that insurance is about pooling “similar risks,” then people who are diagnosed with cancer that costs an average of ^$50,000 to treat should pay ^$50,000/year in insurance premiums, protecting them from the risk that their treatment will end up costing ^$75,000 in their particular case. This is obviously not what we want from our health insurance.

He also wants it both ways with Medicare. He just presumes that Medicare is working away when he sets aside the needs of the elderly to characterize the middle-aged as “big winners.” But he also wants to argue that having the young support the needs of the old is bad, because Medicare is bad, because Medicare is insolvent. This is false logic: Medicare's financial woes aren't because it's insurance for the old paid for by the young, they're because of rising medical costs which, as I mentioned earlier, are going to be a problem we have to solve however we structure paying for it.

This whole trope about poor twentysomethings paying for wealthier boomers' health care being screwy does point toward what I think most of us do want—health insurance premiums commensurate with what people can actually afford to pay. But criticizing the Bauchus bill, he suggested that it was wrong that the wealthy should pay more than the poor. He doesn't provide a clear answer for how he thinks it would be fair for people to pay for health care, just multiple contradictory reasons why he thinks that reform will be unfair.

And the young will pay still more. Congress' plans portend huge deficits, even before the evaporation of reformers' fantasies about cutting costs. This will be funded by unprecedented debt. The costs will be paid later, by citizens now so young as to not yet be born.

They'll pay in much higher taxes. They'll pay in withered job opportunities when payroll levies and value added taxes are heaped on as costs spiral. They'll pay as Congress looks for more villains to blame for this debacle and picks some other industry to demolish.

Cats and dogs living together! Mass hysteria! Again, McIlheran is blaming reform for rising health care costs. That problem doesn't go away if we reject the health insurance reform under discussion this year.

Fortunately, cutting costs is not a fantasy. The rest of the industrialized world successfully gives health insurance to all citizens without going broke, and they do it with less government spending per capita than we already do in the US! So it can be done, and probably can be done better still ... while reducing the risk that ordinary people experience in our current, broken health insurance system.