America’s Health Care System: A Moral Hazard

Amid all of the hubbub about Obamacare working, signing up new people, and more people being allowed access to the health care system, it does not hurt now and then to say something that is true. Here goes:

Countries with socialized medicine have far lower costs, 100% coverage, and better outcomes.

America’s Health Insurance Providers (AHIP) gave us Obamacare to ward off single payer. That program, if implemented even in a small-scale, would work and drive them out of business one state at a time, Canadian style. There were rumblings in places like Vermont and California. 2008 was the time for action. Obama was AHIP’s point man, along with Max Baucus. These two very corrupt politicians managed to stave off true health care reform for a generation, perhaps longer.

It worked in Canada

This is all that happened in Canada. It was not their federal government that booted the private insurance companies, but rather the provinces, one at a time after they saw Saskatchewan’s success with single payer. AHIP read the writing on the wall and gave us a plan that uses government power to force us to buy insurance policies from private corporations.

There has been limited success. ACA, now called Obamacare, by means of massive subsidies to AHIP members allows more people to buy insurance who could not before. But it cannot work over time for the simple reason that it has not changed the basic equation: Health insurers have perverse incentives. Every dollar in benefits comes off their bottom line. It is a house divided. They must answer first to Wall Street.

Postwar US: Health Care goes awry

The history of health care in the US, post war, is a clinic in market foolishness. First, the system was married to employers. That meant that access to health care was roadblocked. Employers do the initial screening for AHIP, tending to hire younger healthier people and jettison the older ones. That is a general rule, and the system does have many holes.

But by the mid-1960’s most senior citizens and most poor people had no health insurance. It had to be that way. Seniors are the people most likely to need health care, and so were the first to be avoided by insurance companies. Poor people could not afford coverage. AHIP dumped the problem on government. Medicare for seniors came about not because of need so much as resignation. AHIP did not want these clients, and so did not stop a government solution, which worked, by the way. But AHIP bargained hard: Medicare covers only 80% of health care costs and seniors are forced to deal with private insurers for the other 20%.

Faustian bargain: Medicare supplemental insurance

Medicare supplemental insurance is a huge profit center for private insurers. The policies are expensive, often costing more than Medicare premiums for the other 80%, and only covering approved costs – that is, if Medicare does not cover something, neither does the supplement.

AHIP solution for poor people: Go away, leave us alone

Medicaid was the government solution for poor people, and again, AHIP did not block it as these people were not its client base anyway. Medicaid is 100% coverage. There is no supplemental program, so AHIP is agnostic about it, and allowed its expansion to be part of ACA. (Perhaps they knew the Supreme Court would jettison that part of ACA. It’s not like they cannot intuit things or don’t talk among themselves.)

The preexisting condition regime

Something else happened in our post-war clinic that was highly instructive. There is a term in insurance called a “preexisting condition,” and it applies to all insurance. You cannot buy homeowners’ insurance after you have a fire, or an automobile policy after an accident. In the same manner, suppose people were to wait until they were sick to buy health insurance. Suppose a smoker waits until he gets lung cancer, and then applies for coverage.

It was a legitimate concern among insurers, and when such concerns affect their bottom line, they are called “moral hazards” by this immoral industry. However, insurers perverted the term “preexisting condition” to mean something entirely different. Under their regime, it came to mean “something that might cost us money.” We did not actually need to have an illness, but only scare them to thinking we might some time in the future. Millions of people were turned away by insurance companies, whose true motto was “Go away and die, leave us alone.”

Adverse selection

Then came the true moral hazard, the one that harmed millions of us: the race to the bottom. The insurance term is “adverse selection.” If one company refused to insure people with a certain ailment, the other companies would be magnets for people with that ailment. So by necessity, all insurance companies had to abide by the same set of rules. They kept a database of people with certain conditions, and guarded the doors at every entrance so that none got through. It was massive collusion. Worse, if any of us lied to them about our health condition, they reserved the right to pull the plug.

People were desperate. The first screen used to keep people out of the system was employers, who tend to avoid sick people. But clever people realized that if they could get on group policies, which cannot discriminate, they could enter the health care system via the back door. Thus, small businesses doing favors for people began to allow sick people into the system via fake employment, or part-time employment. The insurance companies, too smart to let this go, soon priced small business policies out of reach for small employers, and again sick people were frozen from the system.

Market magic

Stand back and take stock now of what was going on. The system was perverted by market incentives. We were playing games of hide and seek, the insurance companies having roped off the health care system and sick people pulling tricks on them to try to get in.

Dave Budge had an expression for people who gamed the system in this manner. He called it “insurance fraud.” Indeed it was. But the real criminals were the insurance companies who took control of our health care system and excluded sick people. Only in a perverted system are criminals protected from regular people by laws. (Swedelink.)

More market magic in store for us

Obamacare was meant to fix an unworkable system by elimination of the preexisting condition, a necessity. But the price, a private mandate, was extremely high. And we still have the problem of fences and gates to the system. AHIP is not done – they are now using the $6,250 max-out-of-pocket to discourage people from seeing doctors. They are refining their definition of networks, making it unsafe to travel to other states if one has health care needs. They will use other means to discourage us from seeking care. They must.

Wendell Potter, who turned out to be an AHIP mole, was for a time a forthright spokesperson for true reform. He talked about a program called “Medicare Advantage,” designed to pull people out of the Medicare system and back into the private one. It was not working when introduced in the Clinton/Gingrich regime, so AHIP again went to DC for help, and got massive subsidies to allow it to lure people into buying its policies.

Even that was not enough. Potter said that the insurance companies set up meetings to try to get the healthy Medicare participants to bolt. They did this by such devices as making sure that the meetings were held later at night and in places where people had to drive so that older people and those who could not drive would not attend. They held the meetings on the second floor of buildings without elevators so that people who could not climb stairs (heart conditions) would not attend.

Conclusion: AHIP is temporarily fed, but will return to the table

They are clever and dishonest, and they still run the system. The game is still afoot. They have their subsidies now. They are rolling in dough, stock prices are soaring, and so AHIP is sated. We will have a brief period of respite as they absorb the gains. But the market will again take hold, and they will find new ways to avoid providing insurance and excluding people from the system.

They must. The system demands it. A house divided cannot stand. Investors and people in need of health care are natural enemies. The solution, to boot the investors, works everywhere else on the planet. But this is a crazy and stupid country, so it has not been done here.

AHIP is a moral hazard affecting all our bottom lines.

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