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ACA repeal wheels in motion vs The Twilight Zone and railroad switch yards.....
That is an excellent overview. Much of it discusses political realities. I'd like to call attention to Lesson 1, and briefly Lessons 6 and 7, as they are more about the ACA itself.
Lessons 6 and 7 talk about bending the cost curve. They say something I've posted here - that to the extent the ACA contains cost-cutting measures, they're buried in the single payer (mostly Medicare) aspects of ACA.
"Medicare was given a board empowered to make sweeping, unpopular reforms to keep costs down." (Encouraging people to buy cheaper plans doesn't automatically force down provider costs; it just means that people pay a bigger portion of the existing costs.)
"Other developed countries use price controls in medicine. ... The United States does set medical prices for the 50 million elderly Americans who rely on Medicare."
Lesson 1: Sebelius is quoted as saying that the ACA "requires the healthy people who had a sweet deal in the past to pay higher rates.” I disagree. Healthy people did not have a sweet deal, they had an actuarially fair deal. That is, they were not paying less than they got back in insurance value. They just weren't getting gouged.
The ACA changed that by subsidizing one part of the population (older, sicker) on the backs of another part of the population (the healthier). It is true that as a society we need to pay for much of the cost of caring for higher risk people. But it does not seem that charging healthy people more than their fair share is the best way to do that.
It is, however, more politically palatable than taking tax dollars to do the same thing. The latter (e.g. using assigned risk pools) is out in the open, and so it never gets adequate public support to make it work.
Apparently even the shell game where the healthy subsidize others has its limits. This is not the first article where I've read that ACA experts feel the 3:1 (old vs. young) cap on pricing is too narrow. Something to keep in mind when you read that the AHCA would expand the cap to 5:1. One can debate how big that expansion should be, but as its stands now, many ACA supporters feel that currently it is too actuarially unfair.
This is one of the tweaks that IMHO should have been made years ago, if only we had a Congress that was interested in making health care work. Ah, but now I'm veering off into the political.
"This is not the first article where I've read that ACA experts feel the 3:1 (old vs. young) cap on pricing is too narrow. Something to keep in mind when you read that the AHCA would expand the cap to 5:1. One can debate how big that expansion should be, but as its stands now, many ACA supporters feel that currently it is too actuarially unfair."
>> Healthy people did not have a sweet deal, they had an actuarially fair deal.
What does that mean?
>> They just weren't getting gouged.
??
>> The ACA changed that by subsidizing one part of the population (older, sicker) on the backs of another part of the population (the healthier).
How insurance works. You of all people here know this --- subtly and supply, it has seemed.
>> But it does not seem that charging healthy people more than their fair share is the best way to do that.
Define fair share.
This seems extremely strange coming from you. You do not begrudge paying property taxes to pay for schoolteachers whom you and yours do not make use of, I bet. I bet you do not begrudge paying for gyn coverage for all those not of your gender. (I am making assumption here, sorry.)
What should be the proper multiplier, in your calculation of actuarial fairness, gouging, subsidization, of my kids' premiums for mine pre-Medicare (a half-dozen joint surgeries since age 60 alone, so a costly insured am I)?
Actuarially fair. "From a consumer's point of view, an insurance contract is actuarially fair if the premiums paid are equal to the expected value of the compensation received."
I would begrudge property taxes being used for schools if the only people being taxed were those living in even numbered homes. That's what is happening here - some people are being singled out for taxation based on their membership in a group, not based on income or wealth.
Being forced to buy overpriced insurance or pay a penalty is a tax - the Supreme Court said so when it said the ACA was legal.
We have a choice. We can tax everyone to make healthcare affordable for all. Or we can single out one group of people and tax just those people for this common objective. The ACA does both.
It provides tax subsidies and cost sharing subsidies from the general fund to make buying insurance affordable and to make using that insurance affordable, respectively. But it also singles out one group of people for taxation - healthy, younger people with individual insurance. It does this by forcing them to pay for overpriced insurance (or it taxes them directly if they decline to buy). This effectively subsidizes the insurance companies, enabling them to offer you an artificially low premium.
The best answer to your question is not a magic multiplier. It is to subsidize your reduced premium entirely out of fairly (universally) applied taxes, rather than with a hidden tax on only your kids and similar healthy people with individual health insurance.
The next best answer is that the value of the insurance plus the cost of the penalty must exceed the (overpriced, actuarially unfair) price of the insurance for your kids. Otherwise their rational decision is to pay the penalty and forgo the insurance. That means either hike the penalty or reduce the price of the insurance, i.e. make their insurance premium a smaller fraction (less than the current 1/3) of your premium.
This seems weak analogizing: 'begrudge property taxes being used for schools if the only people being taxed were those living in even numbered homes. That's what is happening here',
as if in this market caprice is similar to age + health.
Actuarial fairness entails different, subtler discussion and parsing wrt healthcare, as its social function is different. Flood insurance theory might be interesting to discuss --- what a proper take is on what it means to be all in this together, and universal taxation therefore. But homeowners can always choose other locations, it is argued. With illness, which is sometimes choices-related, other times not --- maybe in the future there will be more analysis of contributory behaviors.
This chapter seems to me to contain, at a high level, some of the subtle parsing needed:
This seems weak analogizing: 'begrudge property taxes being used for schools if the only people being taxed were those living in even numbered homes. That's what is happening here',
as if in this market caprice is similar to age + health.
One can argue that age is not capricious. I had thought about presenting an economic argument that younger people subsidizing older people could be viewed as fair. But I didn't want to distract from the main point, to wit, health is largely capricious. Hairs can be split; lifestyle affects health. But to a fair degree it is random, as you say yourself in your next paragraph:
Actuarial fairness entails different, subtler discussion and parsing wrt healthcare, as its social function is different. Flood insurance theory might be interesting to discuss --- what a proper take is on what it means to be all in this together, and universal taxation therefore. But homeowners can always choose other locations, it is argued. With illness, which is sometimes choices-related, other times not --- maybe in the future there will be more analysis of contributory behaviors.
This chapter seems to me to contain, at a high level, some of the subtle parsing needed:
'perspective is persuasive only if the central function of health insurance is risk management.'
Two quick comments should suffice here: - Unlike the text cited, I used "actuarial fairness" in the narrow sense of fair value. If you prefer, you can substitute the book's term "actuarially accurate" in what I wrote without any loss of meaning. Note that I wrote about rational economic decisions.
- Here's a slightly longer excerpt containing your quote: "denying coverage to those at high risk seems completely unproblematic ('you cannot buy fire insurance once the engines are on the way'). But this perspective is persuasive only if the central function of health insurance is risk management. [However,] health insurance has a different social function ..."
This is exactly what the ACA does. It prohibits you from buying health insurance once the ambulance is on the way. Sure there's a good reason it does this, but that is based on the central function of the metal policies as risk management. The ACA overlays the social function of universal care on top of the insurance.
"Glad my homeowner premiums x n years is not equivalent to the replacement cost of my house."
Again, not sure what the point is. That you're glad you're only paying an actuarially fair (whoops, actuarially accurate) amount for your insurance? Since on average, a person doesn't have to replace his home over n years, the average premium over that period of time should be less than the replacement cost. That's what actuarial fairness means.
In a nutshell, I do not find it proper that the healthy pauper subsidize the sickly prince. Neither, apparently, do the writers of the AHCA, who decided they couldn't stomach the idea of giving subsidizes to high earners.
But that's what happens when the policies sold to the healthy young are overpriced in order to set your policy price below cost (even before you get any subsidizes based on income).
>> the average premium over that period of time should be less than the replacement cost. That's what actuarial fairness means. >> "From a consumer's point of view, an insurance contract is actuarially fair if the premiums paid are equal to the expected value of the compensation received."
Elaborate on 'equal to' here, if you would. Actuarially or otherwise.
If you do not see the connections of the other links, or even if you do, you really need to write more, and elsewhere. You ever seem to know things, and be able to link things, that others do not, or cannot, even many experts. Limiting your synthetic, and potentially advisory, abilities to this forum is a major waste, to my view.
Sickly princes, huh. Healthy paupers too. You cannot be overlooking means-testing, so not getting this either.
Long post. Please bear with me, I'm trying to lay thoughts out in a more expository manner. First, shorter part, addresses some definitional questions. Second part goes into objectives, design, problems.
Got to dash before taking time to trim. Will try editing for length later. Posting now for masochistic readers. =====================
Equal: Two numbers (premiums paid, expectation value of compensation received) are equal if their difference is zero. In the real world, nothing is that neat, so we allow for a margin of error. The tolerance that people give depends on the situation, so let's look at that.
When you file a claim, assuming it's valid (e.g. not fraudulent, not outside the terms of the policy), you get paid. The amount is usually less than your loss, because of deductibles, caps, co-pays, co-insurance. But it is some number.
Each year, you can add up those numbers for your "compensation received". You may have gotten a lot this year (you had a heart attack, your house burned down, etc.). If your house did burn down, you got back more than you paid in. (That was your statement, and it was accurate.)
Other people with similar houses and policies didn't see their houses burn. They didn't "win the lottery"; they paid more in premiums than they got back. The expectation value of the payouts would be the average of all these similarly situated policy holders.
Actuarially fair would be if the annual premiums of these policy holders equaled (give or take - there's the tolerance) the average (expected) amount of the payouts. Of course we never see this, because there's overhead in running the insurance company, and unless it's a mutual insurance company, the insurer also takes money out for profits.
I've used "actuarially fair" or "actuarially accurate" as a short hand term for this pricing. You don't expect to get back, on average, 100% of your premiums because of the overhead, but something near that.
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Here's where the actuarial part comes in, and it's something you alluded to. I said that these were similarly situated policy holders. What does that mean? How do we know they're similar? That's the actuary's job. If we know nothing about the policy holders, then essentially by definition they're all similarly situated. We just blindly add up all the expected losses from all the policy holders (e.g. from past years' figures), and divide by the number of people to get the expected loss per person.
In virtually all situations, we do know more than that. There's medical history, family history, etc. Actuaries can take all this data and produce detailed probability curves of claims for each person. More broadly (and I suspect typically), they group people together based on how similar their data are, and just produce an expected loss for each group of people. There's that margin of error again (approximately equal, similar, etc.)
As a society, we can choose to turn a blind eye to this information, and charge everyone the same amount. That's community rating. (The link is 2008, good for explanation, but not necessarily current law.) AFAIK, only New York has true community rating.
There's something to be said for this. It's focused on fairness of prices - you don't get penalized for preexisting conditions, and you don't get a bonus for having the good luck of being healthy. It starts from the principle of treating everyone the same; the insurance pricing follows. The price is set at the average insurance payout for the entire population (plus overhead and profits).
It's well known that this creates a death spiral. The prices charged healthy people are so disproportionate to what they expect to get back on claims that it's obviously not a good deal for them from a cost/benefit perspective. (I'll try to avoid using the word "unfair" here.)
So what do we do? We give up on our principle of fair pricing (everyone gets charged the same), and "adjust" the prices for different groups. Not to match the cost of each group for the insurer (i.e. not to be actuarially accurate), but to make the bad deal for the healthy people a little less bad.
At this point, we're into the supposedChurchill allegory about the woman accepting £5M to sleep with him. Once you give up on your principle of treating everyone the same, you're just haggling over how much less healthy people should be able to pay.
This is what the ACA (and to a lesser extent, the AHCA) does. The ACA "adjusts" the community rating for different groups. But it's not enough. Healthy people have to get pushed into buying this (cost/benefit) bad deal with a mandate. But the pricing is so far out of whack with the actuarially accurate price that this still isn't enough to get them to buy in.
What could be done is set the price for healthy people low enough that they felt they were getting a good (cost/benefit) deal. I've been rethinking Obama's original position, that if you make health care affordable, people will buy in without the mandate. IMHO he was half right. Health care should be priced so that it is a good deal. Unfortunately, people are very bad at recognizing the intrinsic value of insurance. See, e.g. the annuity puzzle (especially 2nd problem described in link - perception of insurance as gambling). So even if insurance is priced to be actuarially accurate, it seems people still need a nudge.
What happens to the pricing of insurance for sicker people if we don't charge the healthy people more? The same thing that happens now. People get subsidies based on their income to bring the price down. Because the unsubsidized price will now be higher (since it's not getting subsidizes from healthy policy holders), it will be necessary to increase the subsidizes to the sicker people.
Here are the plusses, expressed as "current", and "accurate" (i.e. actuarially accurate pricing):
Sicker people: currently, their policies are underpriced (based on cost/benefit), regardless of income level. If priced accurately, the wealthy will pay their full cost, the affluent will pay an amount with a small subsidy to keep the price out of the stratosphere, and John Q. Public will get an increased subsidy to keep prices more or less as they are now.
Healthier people: currently, their policies are overpriced. Even if they get subsidies, they're still paying something, which means that they're contributing to maintain the artificially low prices for the sicker people. If they don't get subsidies, they're getting a bad (cost/benefit) deal, and disinclined to participate. If priced accurately, people with subsidies may wind up paying less (and won't pay more), subsidies could even drop (because the unsubsidized prices drop). Those without subsidies would be getting a good (cost/benefit) deal, and be more inclined to participate. Regardless of the economics, that's a good thing, because it means that more people would be covered.
Paying for the insurance: Currently, prices are set artificially low (cost/benefit) for sick people, and artificially high for healthy ones. This means that healthy people are subsidizing sicker people (hidden subsidy). In addition, the general populace pays for subsidies to policy holders to pay for part of their premiums (whether they are artificially high or artificially low).
If priced accurately, healthy people will not be subsidizing sicker people. The tax subsidizes required for sicker people will increase, but only if they are not wealthy. Thus part the cost of subsidizing sicker people will shift from healthy policy holders to the general populace.
==================
This doesn't happen because it would put everything out in the open. We'd no longer be saying that we need healthy people in the system to make insurance work (we don't; that's just one way of subsidizing sicker people). Rather, we'd have the costs right there as line items in the federal budget, and people wouldn't like that. This is why risk pools don't work. It's not that they can't work numerically, it's that they can't work politically.
The ACA was carefully designed to get enough political support to pass. That's something the Republican Congress is just beginning to learn. The ACA compromised a lot of principles, and it still couldn't make the numbers work. That's why, take your pick, the mandate was set too low, or the age compression (3:1) was too much. That can be fixed by allowing lower rates on healthy people and increasing subsidies for the sicker ones, now that people seem to accept having a health care program, and show some interest in making it work.
Sure. Mostly self-evident, seems to me. However, I have never read so much delving of healthcare in terms of actuarial accuracy and fairness, and certainly not this sort of delving. It probably would strike experts (and even lay readers) in all the other countries that do it better as close to bizarre. I don't understand what 'artificial' means re insurance here, though, and you might get real dispute as well from good HC econs smarter than I (= all of them) about ACA not making the numbers work, and not only PK.
More important, you could enrich your analyses with the introduction of moral education and moral factors: - one's obligation to society not to incur self-caused expense now that we have this 30yo ER mandate; - calculations one makes about betting (the old 'what is it worth to insure against catastrophe?'), since insurance chiefly entails a sort of bet; - when others are involved, or depend on one, one's obligations to them (as with life and disability insurance, say); - what it means to be civic, part of a group, possible shared obligations to those older; - and, naturally, there is much more than 'what is it worth it to you to be covered for these unlikely but potentially very bad events?'
Of course there are way worse ways to discuss --- the revived modern bunk concerning 'freedom', how dare the state prevent my choice, how dare I have to pay for yada yada; what is Ryan's latest crap, about greater freedom and access and preventing the government from shoving coverage down our throats, woohoo.
Still don't have the time for a good edit, and since OJ finds my post readable, and DRM finds it mostly obvious (so I'd assume not worth the read regardless of length), I'll defer editing.
Maybe you haven't read about actuarial fairness, but it's just a riff on actuarial cost, an expression that is found all over the place. Actuarial fairness is simply shorthand for premiums equaling actuarial cost.
Even PK finally came around to acknowledging that the numbers don't work - that the penalties are "too weak, so that too many healthy people opt out." It's in his March 7th blog that you already cited somewhere.
Others were ahead of PK by months or years, e.g.:
“Even the most ardent proponents of the law would say that it has structural and technical problems that need to be addressed,” ... said [Sara Rosenbaum, a professor of health law and policy at George Washington University]. “The subsidies were not generous enough. The penalties for not getting insurance were not stiff enough. And we don’t have enough young healthy people in the exchanges.”
Check out the links it contains. They're a series of articles written by an economist, who also observed the same structural flaw (penalties too low). He's even got a couple of sentences about the argument I alluded to concerning possible fairness in overcharging the young. 'Course he used actuarial cost to explain it.
Once again a curious citation, since it concludes: "So I would posit utility has little to do with insurance premium setting."
Thus it's not that a cost/benefit analysis of premium pricing preempts utility from being included in the discussion. Rather, it's that there are no utility considerations to discuss.
That's an interesting question. My gut says very important. One factoid: the largest employer in several states is a health care company.
Delaware: Christiana Care Health System Idaho: St. Luke’s Health System Indiana (sort of): Indiana University and its associated medical center Iowa (likewise sort of): University of Iowa campuses, hospitals, and clinics Michigan (likewise): University of Michigan System, w/ three campuses and health system Minnesota: Mayo Clinic New Hampshire: Dartmouth-Hitchcock Medical Center North Dakota: Sanford Health Oregon: Providence Health & Services Pennsylvania: University of Pittsburgh Medical Center Rhode Island: Lifespan system of hospitals South Dakota: Avera Health Utah: Intermountain Healthcare Vermont (sort of): University of Vermont and associated medical center Fletcher Allen Health Care http://247wallst.com/special-report/2015/03/19/the-largest-employer-in-each-state-2/2/
Likely more if we ignore Walmart, which tops the list in a lot of states.
Even more if you discard public employers (typically state universities), e.g. Northwell Health is the largest in NYS, except for SUNY. And that's only the 14th largest healthcare system.
Hi @Anna I recall within the past month a verbal by someone on the tube that healthcare was 20% of GDP. With healthcare being noted as 17.8% of GDP from CMS, I will only add that I don't know how far the arms of data extend; but presume direct involvement/employment in this field. I have not read the data sheets in the link below and some of the "headcount" may be explained there. A side note: As you may be aware in your own area or areas of which you are aware, the ancillary employee base is extensive when supporting an "industry". As a Michigan observer for many years, I can state that the numbers used for years, "that high wage jobs support another 4 to 5 jobs that are not necessarily of the same wage level are supported". With the crash of the auto industry in Michigan (which began many years before the great melt) I witnessed the beginning of the end for many support businesses related to the high paying jobs of the auto industry. The restaurants, gas stations, retail stores of many faces........the trickle down effect. Many of us are able to see these affects today from the death of large scale industry in many communities. This link from CMS indicates a report date of Dec., 2016; although I don't know which data or if all data is of this date.
Hi @msf Can't recall if I posted the graphic of largest employers by state or whomever posted here within the past few months. Agree with your list......... Many of the healthcare positions at major hospitals in Michigan have a very decent pay scale. Within this group, I am pointed more towards the RN staffing and related skilled work positions at hospitals and/or the surgical (outpatient centers) centers (at least in Michigan) that have been established mostly by groups of physicians. Being somewhat familiar with the University of Michigan (Ann Arbor) health system; I will express that the employment base of this facility supports many other community businesses. This is in addition, for Ann Arbor, to the University of Michigan as its own massive educational system. --- largest employer by state, graphic map https://www.reddit.com/r/Infographics/comments/5m9o6t/largest_employers_in_every_state_map_oc/ --- largest employer by state, Google search list https://www.google.com/#q=largest+employers+by+state+graphic&* Take care, Catch
Ignore for awhile. I'm looking at what the CMS data base says about the question below.
What percent of the health care industry is just the insurance industry and excess personnel doing just the billing and related things. Could the economy or job market recover from the elimination of insurance middlemen? It's easy to support single payer transition but how is the closing down of the insurance and workers produced by the existence of insurance achieved? I have always hesitated to go beyond wishful thinking about the model used at this point in the US because I can't imagine the transition of the economic part of the model.
@msf I wrote utility, not utility theory. No matter, you can pick at that too. I suspect we are (again) in some sort of violent agreement. While I know what actuarial cost is and don't see why you would conclude otherwise, my key suggestion was that you enrich your actuarial arguments by getting away from having the discussion become like a classroom comparison of the last-decades sharp decline in term insurance premiums and the mispricing of LTC, say. More into prescriptive areas. As in what do you think the multiplier should be b/w young and old? Or how do you think HC should go otherwise, and why?
A fine piece of work that says more bluntly what I've been trying to guide the discussion toward.
The smarter comments are even blunter: \\ My husband & I have carried health insurance for 49 years. Now that we are retired and face the frailties of old age, we are being told we are a burden on the system and should pay more for our insurance than the younger people. \\ My house is not on fire. It has never been on fire. State condo law requires me to carry a homeowners' policy that includes fire coverage. Somewhere, today some unfortunate fellow, covered by my same policy, is going to ... \\ Oh, you didn't hear? We live in a community. Part of living in a community is understanding that in essence everything is communal. If you do not want to take care of others, as part of our community, you should leave.
Vanguard says that it sells its funds "at cost". But what would you say if Vanguard sold some funds a bit above cost in order to price other funds below cost? Vanguard actually does this, to stay competitive. (There's a Bogle speech or interview where he said as much, and I've cited it before, but it's hard to find and I'm not finding it now.)
One might say that the expense ratio was tweaked, that it was not set at its canonical or natural price. In other words, a bit artificial.
That's a pretty neutral word. Judgemental words might include rigged or deceptive.
Vanguard used to throw everyone (or at least all retail customers) together and charge them the same expense ratio. Later, it started using information it had about how much it cost to service different investors. It grouped shareholders roughly speaking into high maintenance and low maintenance classes, and it adjusted expense ratios accordingly. It called the high maintenance investors Investors, and it called low maintenance investors Admirals.
Community rating (all in one pool), or prices based on how much you cost.
Only two things are certain, taxes & death. That brings me to a death tax ! One last chance for the tax man to get his due & help balance the gap of health care costs. Derf
Oh, that. Basing premiums on how much you will cost. The way floodplain insurance should be. Should healthcare costing be so set, naturally? I've never seen that argument really put forth seriously wrt healthcare. (Maybe by Rand Paul or some such.) For some, it sort of goes against the idea of insurance in the first place. If the answer is no, then how should it be set? Other than community rating? That's the useful argument being had.
"Basing premiums on how much you will cost. The way floodplain insurance should be."
So you're not objecting to pricing insurance based on actuarial cost in principle.
"Should healthcare costing be so set, naturally? I've never seen that argument really put forth seriously wrt healthcare. (Maybe by Rand Paul or some such.) For some, it sort of goes against the idea of insurance in the first place."
Pricing insurance based on cost violates the principle of insurance in general for some, but not for you. You're identifying health care as something needing special treatment. Don't conflate healthcare with health insurance.
"If the answer is no, then how should it be set? Other than community rating? That's the useful argument being had."
What is "it"? What individuals actually pay for healthcare (the subject of the second paragraph)? That's a bottom line figure that includes public subsidies, charity, Medicare, Medicaid, employer subsidies, etc.? Or is "it" just rack rate premiums for health insurance?
ACA allows adjustments not only for age, but for life style (smoking). So it's already abandoned community rating. As Churchill reputedly said, you're just haggling over the price. Clearly too, as you've asked if 3x isn't the right multiplier for different age groups, then what should the price factor be?
If you haven't seen arguments favoring medical underwriting, perhaps that's because until recently that was pretty much the norm. Pre-ACA, most of the concern about the practice focused not on pricing, but on denials of coverage (18%).
Proposals to revert to such a system can't be marginalized (to "Rand Paul or some such"). There were lots of Republicans talking about lots of proposals. For example, Paul Ryan et al. came up with "A Better Way". "Team Ryan wants to bring back medical underwriting."
As an investor, does it bother you that Vanguard is charging above cost for a fund you might own? Are you happy with Fidelity using money you pay for, say FLPSX to subsidize other funds that it prices as loss leaders?
P.S. @Ted - it's easy enough to relate pricing of health insurance to pricing of funds (esp. Vanguard), so this isn't as far afield as it might appear. This analogy is something I should have brought up long ago. People here may be more likely to recognize when they're getting gouged on fund ERs than on, well, going to ERs. And we understand fee waivers better than insurance tax credits, even though they're both forms of subsidies.
Given the suggestion that there weren't serious arguments raised in favor of medical underwriting, I went back to look at objections raised when the ACA was being debated. Sure enough, lots to be found. Here's one summary I found of the discourse:
"Some left wing Democrats in the US would [like] to expand Medicare or create something like that. ... Right wing (Republican) proponents would prefer a less ambitious law that uses government subsidies mainly to help only those people who are not insurable, leaving the rest of the market to function as normal. This would also allow insurers to continue medical underwriting practices ... The [ACA] act was designed to avoid these extremes of right and left ..."
The ACA was promoted as a way of shifting healthcare costs for the uninsured. It would shift those costs from paying patients to taxpayers in general. Before the ACA, providers would hike rates to cover their losses incurred in serving non-paying patients (generally sicker, uninsurable). Insurers in turn passed those higher costs through to their policy holders (generally healthier, insurable) in the form of higher premiums.
By providing tax subsidies, the ACA gets more people on insurance. That reduces the problem of policy holders paying service providers to care for the uninsured. But the indirect, surreptitious subsidy remains. The original (healthier) policy holders are paying higher premiums (often higher than before the ACA, even after adjusting for differences in coverage) in order to subsidize the premiums of the (sicker) newly insured.
If it was a bad idea to have healthier people subsidize care for sicker people (via elevated premiums) pre-ACA, isn't it still a bad idea to do this under ACA? Has the ACA delivered on its promise of shifting the cost of subsidies away from healthier policy holders, or has it aggravated the situation? Even if it has helped, could it shift the remaining subsidy cost?
I am not as strict as you. Many people are not, actually. I am not unhappy with how Fido does its fees, within limits. I think subsidization by the healthy and wealthy is a fine idea for health insurance. Floodplain insurance is not the same; not sure how you could be asking me that as a serious question. All for actuarial costing, sometimes. Paying for healthcare is not one of them. Still not clear how you think things should go. But as I say, I am not as strict in this matter, in order to reach certain goals. ACA needs tweaking and adjustments, and that has been written up extensively. Not gonna happen now, looks like.
Of course you don't think some flood insurance policy holders should subsidize others. All I did was observe that this means you don't find insurance intrinsically incompatible with actuarial costing.
Thus we (or at least you) can ignore the statement that "For some, it sort of goes against the idea of insurance in the first place." It doesn't; the idea of insurance is compatible with actuarial costing.
It still seems the problems you have are with the pricing of health care, not insurance.
Most people support the idea of universal health care at a price each individual can afford. Even the Donald supports that idea. Can you connect the dots from there to the cost of insurance to show that this is impossible using actuarial costing?
I start with two basic principles/objectives:
1) All people should get adequate health care at a price not exceeding what they can afford (for the wealthy, it will almost by definition be at a price less than they can afford).
2) No natural person or group of natural people should be singled out to support the system. Only businesses and/or the public at large may be taxed for subsidies.
That leaves a lot of flexibility while still precluding some policy holders from being overcharged in order to bring down (subsidize) the cost of others' policies.
These basic principles allow for health care systems that don't even need insurance to work. Gavin Newsom implemented a great system. Healthy San Francisco. Not insurance - not portable. Just health care. It worked in part by taxing companies. I wish him luck making it work at the state level.
I think you agree with #1, but are pretty strongly opposed to #2. What other principles do you feel are essential, or is everything ad hoc for you so long as the numbers add up?
Why do you want to single me out to support the system, simply because I work for myself and thus buy my own insurance? Surely someone like Tillinghast can afford to pitch in a few bucks as well. But he gets a pass, because he works for a large employer that can buy medically underwritten insurance.
>> Of course you don't think some flood insurance policyholders should subsidize others.
Well, of course I do. I mean, we already do. How insurance works to an extent. You know that premiums can be inexact, I am sure. The idea of insurance is compatible with proper costing. Healthcare is way slipperier than that. But you know this. Ideals of exactitude, not gonna apply as desired.
#2 seems silly overstatement to me. What did you think about the draft, back in the day?
Singled out? I should have realized long ago that you were self-employed. I myself have been, more than once. It was stomach-turning pricing family insurance (with little kids) even in 1989. You have my deep understanding, I think. I just was having trouble following someone so savvy focusing so relentlessly on actuarial accuracy in this particular area, as if it were term life or liability or car insurance.
My own solution would be nationwide medicare or something like it, as every smart country on earth does it. Through, you know, taxation, Tillinghast paying a great deal extra for you and me. Subsidy. Taxes. Extra because wealthy. Nothing to do with his Fido policies.
Comments
Lessons 6 and 7 talk about bending the cost curve. They say something I've posted here - that to the extent the ACA contains cost-cutting measures, they're buried in the single payer (mostly Medicare) aspects of ACA.
"Medicare was given a board empowered to make sweeping, unpopular reforms to keep costs down." (Encouraging people to buy cheaper plans doesn't automatically force down provider costs; it just means that people pay a bigger portion of the existing costs.)
"Other developed countries use price controls in medicine. ... The United States does set medical prices for the 50 million elderly Americans who rely on Medicare."
Lesson 1: Sebelius is quoted as saying that the ACA "requires the healthy people who had a sweet deal in the past to pay higher rates.” I disagree. Healthy people did not have a sweet deal, they had an actuarially fair deal. That is, they were not paying less than they got back in insurance value. They just weren't getting gouged.
The ACA changed that by subsidizing one part of the population (older, sicker) on the backs of another part of the population (the healthier). It is true that as a society we need to pay for much of the cost of caring for higher risk people. But it does not seem that charging healthy people more than their fair share is the best way to do that.
It is, however, more politically palatable than taking tax dollars to do the same thing. The latter (e.g. using assigned risk pools) is out in the open, and so it never gets adequate public support to make it work.
Apparently even the shell game where the healthy subsidize others has its limits. This is not the first article where I've read that ACA experts feel the 3:1 (old vs. young) cap on pricing is too narrow. Something to keep in mind when you read that the AHCA would expand the cap to 5:1. One can debate how big that expansion should be, but as its stands now, many ACA supporters feel that currently it is too actuarially unfair.
This is one of the tweaks that IMHO should have been made years ago, if only we had a Congress that was interested in making health care work. Ah, but now I'm veering off into the political.
@msf: Yes, I picked up on that also.
"if only we had a Congress that was interested in making health care work. Ah, but now I'm veering off into the political"
@msf: No, now you're veering off into pure fantasy.
What does that mean?
>> They just weren't getting gouged.
??
>> The ACA changed that by subsidizing one part of the population (older, sicker) on the backs of another part of the population (the healthier).
How insurance works. You of all people here know this --- subtly and supply, it has seemed.
>> But it does not seem that charging healthy people more than their fair share is the best way to do that.
Define fair share.
This seems extremely strange coming from you. You do not begrudge paying property taxes to pay for schoolteachers whom you and yours do not make use of, I bet. I bet you do not begrudge paying for gyn coverage for all those not of your gender. (I am making assumption here, sorry.)
What should be the proper multiplier, in your calculation of actuarial fairness, gouging, subsidization, of my kids' premiums for mine pre-Medicare (a half-dozen joint surgeries since age 60 alone, so a costly insured am I)?
I would begrudge property taxes being used for schools if the only people being taxed were those living in even numbered homes. That's what is happening here - some people are being singled out for taxation based on their membership in a group, not based on income or wealth.
Being forced to buy overpriced insurance or pay a penalty is a tax - the Supreme Court said so when it said the ACA was legal.
We have a choice. We can tax everyone to make healthcare affordable for all. Or we can single out one group of people and tax just those people for this common objective. The ACA does both.
It provides tax subsidies and cost sharing subsidies from the general fund to make buying insurance affordable and to make using that insurance affordable, respectively. But it also singles out one group of people for taxation - healthy, younger people with individual insurance. It does this by forcing them to pay for overpriced insurance (or it taxes them directly if they decline to buy). This effectively subsidizes the insurance companies, enabling them to offer you an artificially low premium.
The best answer to your question is not a magic multiplier. It is to subsidize your reduced premium entirely out of fairly (universally) applied taxes, rather than with a hidden tax on only your kids and similar healthy people with individual health insurance.
The next best answer is that the value of the insurance plus the cost of the penalty must exceed the (overpriced, actuarially unfair) price of the insurance for your kids. Otherwise their rational decision is to pay the penalty and forgo the insurance. That means either hike the penalty or reduce the price of the insurance, i.e. make their insurance premium a smaller fraction (less than the current 1/3) of your premium.
This seems weak analogizing:
'begrudge property taxes being used for schools if the only people being taxed were those living in even numbered homes. That's what is happening here',
as if in this market caprice is similar to age + health.
Actuarial fairness entails different, subtler discussion and parsing wrt healthcare, as its social function is different. Flood insurance theory might be interesting to discuss --- what a proper take is on what it means to be all in this together, and universal taxation therefore. But homeowners can always choose other locations, it is argued. With illness, which is sometimes choices-related, other times not --- maybe in the future there will be more analysis of contributory behaviors.
This chapter seems to me to contain, at a high level, some of the subtle parsing needed:
http://publishing.cdlib.org/ucpressebooks/view?docId=ft8x0nb630&chunk.id=d0e3291&toc.depth=100&brand=ucpress
'perspective is persuasive only if the central function of health insurance is risk management.'
Fortunately people sometimes behave morally, not only rationally. Ryan to the contrary.
A nicer summary:
http://nymag.com/daily/intelligencer/2017/03/price-says-states-should-decide-on-vaccines.html
Glad my homeowner premiums x n years is not equivalent to the replacement cost of my house.
Too anecdotal?:
http://www.thedailybeast.com/articles/2017/03/16/how-trumpcare-will-crush-millennials-and-their-boomer-parents.html
- Unlike the text cited, I used "actuarial fairness" in the narrow sense of fair value. If you prefer, you can substitute the book's term "actuarially accurate" in what I wrote without any loss of meaning. Note that I wrote about rational economic decisions.
- Here's a slightly longer excerpt containing your quote: "denying coverage to those at high risk seems completely unproblematic ('you cannot buy fire insurance once the engines are on the way'). But this perspective is persuasive only if the central function of health insurance is risk management. [However,] health insurance has a different social function ..."
This is exactly what the ACA does. It prohibits you from buying health insurance once the ambulance is on the way. Sure there's a good reason it does this, but that is based on the central function of the metal policies as risk management. The ACA overlays the social function of universal care on top of the insurance.
http://nymag.com/daily/intelligencer/2017/03/price-says-states-should-decide-on-vaccines.html
I've no idea what this is doing here. Price is agreeing that the government should be involved in health care. He said: “I believe it’s a perfectly appropriate role for the government". The only issue he's raising is which government it is that should be involved.
"Glad my homeowner premiums x n years is not equivalent to the replacement cost of my house."
Again, not sure what the point is. That you're glad you're only paying an actuarially fair (whoops, actuarially accurate) amount for your insurance? Since on average, a person doesn't have to replace his home over n years, the average premium over that period of time should be less than the replacement cost. That's what actuarial fairness means.
http://www.thedailybeast.com/articles/2017/03/16/how-trumpcare-will-crush-millennials-and-their-boomer-parents.html
And yet again, not sure what this is doing here.
In a nutshell, I do not find it proper that the healthy pauper subsidize the sickly prince. Neither, apparently, do the writers of the AHCA, who decided they couldn't stomach the idea of giving subsidizes to high earners.
But that's what happens when the policies sold to the healthy young are overpriced in order to set your policy price below cost (even before you get any subsidizes based on income).
>> "From a consumer's point of view, an insurance contract is actuarially fair if the premiums paid are equal to the expected value of the compensation received."
Elaborate on 'equal to' here, if you would. Actuarially or otherwise.
If you do not see the connections of the other links, or even if you do, you really need to write more, and elsewhere. You ever seem to know things, and be able to link things, that others do not, or cannot, even many experts. Limiting your synthetic, and potentially advisory, abilities to this forum is a major waste, to my view.
Sickly princes, huh. Healthy paupers too. You cannot be overlooking means-testing, so not getting this either.
Got to dash before taking time to trim. Will try editing for length later. Posting now for masochistic readers.
=====================
Equal: Two numbers (premiums paid, expectation value of compensation received) are equal if their difference is zero. In the real world, nothing is that neat, so we allow for a margin of error. The tolerance that people give depends on the situation, so let's look at that.
When you file a claim, assuming it's valid (e.g. not fraudulent, not outside the terms of the policy), you get paid. The amount is usually less than your loss, because of deductibles, caps, co-pays, co-insurance. But it is some number.
Each year, you can add up those numbers for your "compensation received". You may have gotten a lot this year (you had a heart attack, your house burned down, etc.). If your house did burn down, you got back more than you paid in. (That was your statement, and it was accurate.)
Other people with similar houses and policies didn't see their houses burn. They didn't "win the lottery"; they paid more in premiums than they got back. The expectation value of the payouts would be the average of all these similarly situated policy holders.
Actuarially fair would be if the annual premiums of these policy holders equaled (give or take - there's the tolerance) the average (expected) amount of the payouts. Of course we never see this, because there's overhead in running the insurance company, and unless it's a mutual insurance company, the insurer also takes money out for profits.
I've used "actuarially fair" or "actuarially accurate" as a short hand term for this pricing. You don't expect to get back, on average, 100% of your premiums because of the overhead, but something near that.
========================
Here's where the actuarial part comes in, and it's something you alluded to. I said that these were similarly situated policy holders. What does that mean? How do we know they're similar? That's the actuary's job. If we know nothing about the policy holders, then essentially by definition they're all similarly situated. We just blindly add up all the expected losses from all the policy holders (e.g. from past years' figures), and divide by the number of people to get the expected loss per person.
In virtually all situations, we do know more than that. There's medical history, family history, etc. Actuaries can take all this data and produce detailed probability curves of claims for each person. More broadly (and I suspect typically), they group people together based on how similar their data are, and just produce an expected loss for each group of people. There's that margin of error again (approximately equal, similar, etc.)
As a society, we can choose to turn a blind eye to this information, and charge everyone the same amount. That's community rating. (The link is 2008, good for explanation, but not necessarily current law.) AFAIK, only New York has true community rating.
There's something to be said for this. It's focused on fairness of prices - you don't get penalized for preexisting conditions, and you don't get a bonus for having the good luck of being healthy. It starts from the principle of treating everyone the same; the insurance pricing follows. The price is set at the average insurance payout for the entire population (plus overhead and profits).
It's well known that this creates a death spiral. The prices charged healthy people are so disproportionate to what they expect to get back on claims that it's obviously not a good deal for them from a cost/benefit perspective. (I'll try to avoid using the word "unfair" here.)
So what do we do? We give up on our principle of fair pricing (everyone gets charged the same), and "adjust" the prices for different groups. Not to match the cost of each group for the insurer (i.e. not to be actuarially accurate), but to make the bad deal for the healthy people a little less bad.
At this point, we're into the supposed Churchill allegory about the woman accepting £5M to sleep with him. Once you give up on your principle of treating everyone the same, you're just haggling over how much less healthy people should be able to pay.
This is what the ACA (and to a lesser extent, the AHCA) does. The ACA "adjusts" the community rating for different groups. But it's not enough. Healthy people have to get pushed into buying this (cost/benefit) bad deal with a mandate. But the pricing is so far out of whack with the actuarially accurate price that this still isn't enough to get them to buy in.
What could be done is set the price for healthy people low enough that they felt they were getting a good (cost/benefit) deal. I've been rethinking Obama's original position, that if you make health care affordable, people will buy in without the mandate. IMHO he was half right. Health care should be priced so that it is a good deal. Unfortunately, people are very bad at recognizing the intrinsic value of insurance. See, e.g. the annuity puzzle (especially 2nd problem described in link - perception of insurance as gambling). So even if insurance is priced to be actuarially accurate, it seems people still need a nudge.
What happens to the pricing of insurance for sicker people if we don't charge the healthy people more? The same thing that happens now. People get subsidies based on their income to bring the price down. Because the unsubsidized price will now be higher (since it's not getting subsidizes from healthy policy holders), it will be necessary to increase the subsidizes to the sicker people.
Here are the plusses, expressed as "current", and "accurate" (i.e. actuarially accurate pricing):
Sicker people: currently, their policies are underpriced (based on cost/benefit), regardless of income level. If priced accurately, the wealthy will pay their full cost, the affluent will pay an amount with a small subsidy to keep the price out of the stratosphere, and John Q. Public will get an increased subsidy to keep prices more or less as they are now.
Healthier people: currently, their policies are overpriced. Even if they get subsidies, they're still paying something, which means that they're contributing to maintain the artificially low prices for the sicker people. If they don't get subsidies, they're getting a bad (cost/benefit) deal, and disinclined to participate. If priced accurately, people with subsidies may wind up paying less (and won't pay more), subsidies could even drop (because the unsubsidized prices drop). Those without subsidies would be getting a good (cost/benefit) deal, and be more inclined to participate. Regardless of the economics, that's a good thing, because it means that more people would be covered.
Paying for the insurance: Currently, prices are set artificially low (cost/benefit) for sick people, and artificially high for healthy ones. This means that healthy people are subsidizing sicker people (hidden subsidy). In addition, the general populace pays for subsidies to policy holders to pay for part of their premiums (whether they are artificially high or artificially low).
If priced accurately, healthy people will not be subsidizing sicker people. The tax subsidizes required for sicker people will increase, but only if they are not wealthy. Thus part the cost of subsidizing sicker people will shift from healthy policy holders to the general populace.
==================
This doesn't happen because it would put everything out in the open. We'd no longer be saying that we need healthy people in the system to make insurance work (we don't; that's just one way of subsidizing sicker people). Rather, we'd have the costs right there as line items in the federal budget, and people wouldn't like that. This is why risk pools don't work. It's not that they can't work numerically, it's that they can't work politically.
The ACA was carefully designed to get enough political support to pass. That's something the Republican Congress is just beginning to learn. The ACA compromised a lot of principles, and it still couldn't make the numbers work. That's why, take your pick, the mandate was set too low, or the age compression (3:1) was too much. That can be fixed by allowing lower rates on healthy people and increasing subsidies for the sicker ones, now that people seem to accept having a health care program, and show some interest in making it work.
More important, you could enrich your analyses with the introduction of moral education and moral factors:
- one's obligation to society not to incur self-caused expense now that we have this 30yo ER mandate;
- calculations one makes about betting (the old 'what is it worth to insure against catastrophe?'), since insurance chiefly entails a sort of bet;
- when others are involved, or depend on one, one's obligations to them (as with life and disability insurance, say);
- what it means to be civic, part of a group, possible shared obligations to those older;
- and, naturally, there is much more than 'what is it worth it to you to be covered for these unlikely but potentially very bad events?'
Parsing issues chiefly actuarially also helps prevent, uh, utility from being part of the discussion:
https://www.quora.com/What-is-the-application-of-utility-theory-to-insurance-premium-setting
Of course there are way worse ways to discuss --- the revived modern bunk concerning 'freedom', how dare the state prevent my choice, how dare I have to pay for yada yada; what is Ryan's latest crap, about greater freedom and access and preventing the government from shoving coverage down our throats, woohoo.
http://www.vox.com/policy-and-politics/2017/3/17/14961066/donald-trump-gop-health-bill
Maybe you haven't read about actuarial fairness, but it's just a riff on actuarial cost, an expression that is found all over the place. Actuarial fairness is simply shorthand for premiums equaling actuarial cost.
Even PK finally came around to acknowledging that the numbers don't work - that the penalties are "too weak, so that too many healthy people opt out." It's in his March 7th blog that you already cited somewhere.
Others were ahead of PK by months or years, e.g.:https://www.nytimes.com/2016/10/03/us/politics/obama-health-care-act.html
Most of what I wrote (including discussions of fairness regarding pure community rating and premiums based on actuarial cost) can be found here.
https://economix.blogs.nytimes.com/2013/06/21/premium-shock-and-premium-joy-under-the-affordable-care-act
Check out the links it contains. They're a series of articles written by an economist, who also observed the same structural flaw (penalties too low). He's even got a couple of sentences about the argument I alluded to concerning possible fairness in overcharging the young. 'Course he used actuarial cost to explain it.
"Parsing issues chiefly actuarially also helps prevent, uh, utility from being part of the discussion:
https://www.quora.com/What-is-the-application-of-utility-theory-to-insurance-premium-setting"
Once again a curious citation, since it concludes: "So I would posit utility has little to do with insurance premium setting."
Thus it's not that a cost/benefit analysis of premium pricing preempts utility from being included in the discussion. Rather, it's that there are no utility considerations to discuss.
Delaware: Christiana Care Health System
Idaho: St. Luke’s Health System
Indiana (sort of): Indiana University and its associated medical center
Iowa (likewise sort of): University of Iowa campuses, hospitals, and clinics
Michigan (likewise): University of Michigan System, w/ three campuses and health system
Minnesota: Mayo Clinic
New Hampshire: Dartmouth-Hitchcock Medical Center
North Dakota: Sanford Health
Oregon: Providence Health & Services
Pennsylvania: University of Pittsburgh Medical Center
Rhode Island: Lifespan system of hospitals
South Dakota: Avera Health
Utah: Intermountain Healthcare
Vermont (sort of): University of Vermont and associated medical center Fletcher Allen Health Care
http://247wallst.com/special-report/2015/03/19/the-largest-employer-in-each-state-2/2/
Likely more if we ignore Walmart, which tops the list in a lot of states.
Even more if you discard public employers (typically state universities), e.g. Northwell Health is the largest in NYS, except for SUNY. And that's only the 14th largest healthcare system.
I recall within the past month a verbal by someone on the tube that healthcare was 20% of GDP.
With healthcare being noted as 17.8% of GDP from CMS, I will only add that I don't know how far the arms of data extend; but presume direct involvement/employment in this field. I have not read the data sheets in the link below and some of the "headcount" may be explained there.
A side note: As you may be aware in your own area or areas of which you are aware, the ancillary employee base is extensive when supporting an "industry". As a Michigan observer for many years, I can state that the numbers used for years, "that high wage jobs support another 4 to 5 jobs that are not necessarily of the same wage level are supported". With the crash of the auto industry in Michigan (which began many years before the great melt) I witnessed the beginning of the end for many support businesses related to the high paying jobs of the auto industry. The restaurants, gas stations, retail stores of many faces........the trickle down effect. Many of us are able to see these affects today from the death of large scale industry in many communities.
This link from CMS indicates a report date of Dec., 2016; although I don't know which data or if all data is of this date.
https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nationalhealthaccountshistorical.html
Regards,
Catch
Can't recall if I posted the graphic of largest employers by state or whomever posted here within the past few months.
Agree with your list.........
Many of the healthcare positions at major hospitals in Michigan have a very decent pay scale. Within this group, I am pointed more towards the RN staffing and related skilled work positions at hospitals and/or the surgical (outpatient centers) centers (at least in Michigan) that have been established mostly by groups of physicians.
Being somewhat familiar with the University of Michigan (Ann Arbor) health system; I will express that the employment base of this facility supports many other community businesses. This is in addition, for Ann Arbor, to the University of Michigan as its own massive educational system.
--- largest employer by state, graphic map
https://www.reddit.com/r/Infographics/comments/5m9o6t/largest_employers_in_every_state_map_oc/
--- largest employer by state, Google search list
https://www.google.com/#q=largest+employers+by+state+graphic&*
Take care,
Catch
What percent of the health care industry is just the insurance industry and excess personnel doing just the billing and related things. Could the economy or job market recover from the elimination of insurance middlemen? It's easy to support single payer transition but how is the closing down of the insurance and workers produced by the existence of insurance achieved? I have always hesitated to go beyond wishful thinking about the model used at this point in the US because I can't imagine the transition of the economic part of the model.
I wrote utility, not utility theory. No matter, you can pick at that too.
I suspect we are (again) in some sort of violent agreement. While I know what actuarial cost is and don't see why you would conclude otherwise, my key suggestion was that you enrich your actuarial arguments by getting away from having the discussion become like a classroom comparison of the last-decades sharp decline in term insurance premiums and the mispricing of LTC, say. More into prescriptive areas. As in what do you think the multiplier should be b/w young and old? Or how do you think HC should go otherwise, and why?
This tonight:
https://www.washingtonpost.com/posteverything/wp/2017/03/17/should-healthy-people-have-to-pay-for-chronic-illnesses/
A fine piece of work that says more bluntly what I've been trying to guide the discussion toward.
The smarter comments are even blunter:
\\ My husband & I have carried health insurance for 49 years. Now that we are retired and face the frailties of old age, we are being told we are a burden on the system and should pay more for our insurance than the younger people.
\\ My house is not on fire. It has never been on fire. State condo law requires me to carry a homeowners' policy that includes fire coverage. Somewhere, today some unfortunate fellow, covered by my same policy, is going to ...
\\ Oh, you didn't hear? We live in a community. Part of living in a community is understanding that in essence everything is communal. If you do not want to take care of others, as part of our community, you should leave.
But wait, actuarial cost calcs.
And finally, views of 'freedom':
https://www.nytimes.com/2017/03/18/opinion/the-fake-freedom-of-american-health-care.html
http://www.politico.com/story/2017/03/obamacare-millennials-parents-plans-236204
One might say that the expense ratio was tweaked, that it was not set at its canonical or natural price. In other words, a bit artificial.
That's a pretty neutral word. Judgemental words might include rigged or deceptive.
Vanguard used to throw everyone (or at least all retail customers) together and charge them the same expense ratio. Later, it started using information it had about how much it cost to service different investors. It grouped shareholders roughly speaking into high maintenance and low maintenance classes, and it adjusted expense ratios accordingly. It called the high maintenance investors Investors, and it called low maintenance investors Admirals.
Community rating (all in one pool), or prices based on how much you cost.
Derf
If the answer is no, then how should it be set? Other than community rating? That's the useful argument being had.
Regards,
Ted
http://www.vox.com/policy-and-politics/2017/3/20/14950990/republican-replacement-plan-calculator
So you're not objecting to pricing insurance based on actuarial cost in principle.
"Should healthcare costing be so set, naturally? I've never seen that argument really put forth seriously wrt healthcare. (Maybe by Rand Paul or some such.) For some, it sort of goes against the idea of insurance in the first place."
Pricing insurance based on cost violates the principle of insurance in general for some, but not for you. You're identifying health care as something needing special treatment. Don't conflate healthcare with health insurance.
"If the answer is no, then how should it be set? Other than community rating? That's the useful argument being had."
What is "it"? What individuals actually pay for healthcare (the subject of the second paragraph)? That's a bottom line figure that includes public subsidies, charity, Medicare, Medicaid, employer subsidies, etc.? Or is "it" just rack rate premiums for health insurance?
ACA allows adjustments not only for age, but for life style (smoking). So it's already abandoned community rating. As Churchill reputedly said, you're just haggling over the price. Clearly too, as you've asked if 3x isn't the right multiplier for different age groups, then what should the price factor be?
If you haven't seen arguments favoring medical underwriting, perhaps that's because until recently that was pretty much the norm. Pre-ACA, most of the concern about the practice focused not on pricing, but on denials of coverage (18%).
Proposals to revert to such a system can't be marginalized (to "Rand Paul or some such"). There were lots of Republicans talking about lots of proposals. For example, Paul Ryan et al. came up with "A Better Way". "Team Ryan wants to bring back medical underwriting."
As an investor, does it bother you that Vanguard is charging above cost for a fund you might own? Are you happy with Fidelity using money you pay for, say FLPSX to subsidize other funds that it prices as loss leaders?
P.S. @Ted - it's easy enough to relate pricing of health insurance to pricing of funds (esp. Vanguard), so this isn't as far afield as it might appear. This analogy is something I should have brought up long ago. People here may be more likely to recognize when they're getting gouged on fund ERs than on, well, going to ERs. And we understand fee waivers better than insurance tax credits, even though they're both forms of subsidies.
"Some left wing Democrats in the US would [like] to expand Medicare or create something like that. ... Right wing (Republican) proponents would prefer a less ambitious law that uses government subsidies mainly to help only those people who are not insurable, leaving the rest of the market to function as normal. This would also allow insurers to continue medical underwriting practices ... The [ACA] act was designed to avoid these extremes of right and left ..."
The ACA was promoted as a way of shifting healthcare costs for the uninsured. It would shift those costs from paying patients to taxpayers in general. Before the ACA, providers would hike rates to cover their losses incurred in serving non-paying patients (generally sicker, uninsurable). Insurers in turn passed those higher costs through to their policy holders (generally healthier, insurable) in the form of higher premiums.
The higher premiums had the disadvantages of: (a) being regressive (hitting all insured whether wealthy or scraping by), and (b) being surreptitious.
http://repository.law.umich.edu/cgi/viewcontent.cgi?article=1180&context=law_econ_current
By providing tax subsidies, the ACA gets more people on insurance. That reduces the problem of policy holders paying service providers to care for the uninsured. But the indirect, surreptitious subsidy remains. The original (healthier) policy holders are paying higher premiums (often higher than before the ACA, even after adjusting for differences in coverage) in order to subsidize the premiums of the (sicker) newly insured.
If it was a bad idea to have healthier people subsidize care for sicker people (via elevated premiums) pre-ACA, isn't it still a bad idea to do this under ACA? Has the ACA delivered on its promise of shifting the cost of subsidies away from healthier policy holders, or has it aggravated the situation? Even if it has helped, could it shift the remaining subsidy cost?
Thus we (or at least you) can ignore the statement that "For some, it sort of goes against the idea of insurance in the first place." It doesn't; the idea of insurance is compatible with actuarial costing.
It still seems the problems you have are with the pricing of health care, not insurance.
Most people support the idea of universal health care at a price each individual can afford. Even the Donald supports that idea. Can you connect the dots from there to the cost of insurance to show that this is impossible using actuarial costing?
I start with two basic principles/objectives:
1) All people should get adequate health care at a price not exceeding what they can afford (for the wealthy, it will almost by definition be at a price less than they can afford).
2) No natural person or group of natural people should be singled out to support the system. Only businesses and/or the public at large may be taxed for subsidies.
That leaves a lot of flexibility while still precluding some policy holders from being overcharged in order to bring down (subsidize) the cost of others' policies.
These basic principles allow for health care systems that don't even need insurance to work. Gavin Newsom implemented a great system. Healthy San Francisco. Not insurance - not portable. Just health care. It worked in part by taxing companies. I wish him luck making it work at the state level.
I think you agree with #1, but are pretty strongly opposed to #2. What other principles do you feel are essential, or is everything ad hoc for you so long as the numbers add up?
Why do you want to single me out to support the system, simply because I work for myself and thus buy my own insurance? Surely someone like Tillinghast can afford to pitch in a few bucks as well. But he gets a pass, because he works for a large employer that can buy medically underwritten insurance.
Well, of course I do. I mean, we already do. How insurance works to an extent. You know that premiums can be inexact, I am sure. The idea of insurance is compatible with proper costing. Healthcare is way slipperier than that. But you know this. Ideals of exactitude, not gonna apply as desired.
#2 seems silly overstatement to me. What did you think about the draft, back in the day?
Singled out? I should have realized long ago that you were self-employed. I myself have been, more than once. It was stomach-turning pricing family insurance (with little kids) even in 1989. You have my deep understanding, I think. I just was having trouble following someone so savvy focusing so relentlessly on actuarial accuracy in this particular area, as if it were term life or liability or car insurance.
My own solution would be nationwide medicare or something like it, as every smart country on earth does it. Through, you know, taxation, Tillinghast paying a great deal extra for you and me. Subsidy. Taxes. Extra because wealthy. Nothing to do with his Fido policies.