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March 17, 2006

Links

Theora's got another good takedown of the Kinsey piece. I particularly like this quote:

it appears that Kinsley subscribes to a view of health insurance as a bet: individuals bet on the odds that they will get sick and need $X amount of healthcare, and insurers bet the same amount of money that they will not. When people end up being sicker than the insurer expected, the insurer loses and the people win.

This totally bizarre way of looking at health insurance leads Kinsley to worry about a “problem” that no one with any sense cares about—that under single payer, some people will pay into the system and never get sick, while other people will pay into the system and be really sick. That is, single payer sets up an irrational system where if people stay healthy, they “lose” the bet, and if they get sick, they “win” the bet.

But you should read the whole thing. And so long as I'm doing links, Brendan Nyhan has an interesting response to my post on the structural roots of the "no ideas" meme. I think his invocation of pivotal politics gets you about halfway there. The other half is that our media is action-oriented, and has yet to create effective protocols for reporting or contextualizing ideas that aren't dominating the immediate agenda. The press can only focus on what X -- where X is the president, speaker of the House, or Senate majority leader -- says they can. So when one party owns those positions, that means the other party lacks an X, and thus an entrance point from where their ideas to impact the debate. In politics, if you hold a press conference but no reporters attend, it really doesn't make a sound.

March 17, 2006 | Permalink

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[From Ezra Klein at Ezra Klein] Theora's got another good takedown of the Kinsey piece. I particularly... [Read More]

Tracked on Mar 17, 2006 3:55:48 PM

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In his March 17 op-ed (Before We Go ‘Single Payer’) Michael Kinsley critiques Paul Krugman’s recent clarion... [Read More]

Tracked on Apr 17, 2006 11:49:37 PM

Comments

Wanna know what I think? Read this letter to the Washington Post I just submitted to their editors...

http://marketplace.md/community/blogs/hayekmd/archive/2006/03/17/1706.aspx

`TKM

Posted by: Trapier K. Michael | Mar 17, 2006 3:42:23 PM

Mr. Michael,

I read your letter and was particularly fascinated with this paragraph:

Kinsley, however, is saying something quite unique: the adversity of adverse selection in health insurance is tied to wealth transfers. In other words, adverse selection is a particularly heinous economic problem in health insurance markets because we are blending two policy problems and drinking them at once: “how to pay for medicine” and “who should pay for paying for medicine”.

Posted by: Fred Jones | Mar 17, 2006 4:08:17 PM

I particularly like that you complimented Kinsey on fundamentally misunderstanding adverse selection. If everyone pays what they'll cost, you've just sacrificed the concept of insurance, there's no reason for the middle man. The reason insurance companies don't do that is they wouldn't make profits, the reason citizens don't agitate for it is that they'd go bankrupt. It's ignorance, not "exciting economic thought."

Posted by: Ezra | Mar 17, 2006 4:09:53 PM

Ezra: If everyone pays what they'll cost, you've just sacrificed the concept of insurance, there's no reason for the middle man.

Some things, like this statement, are so undeniably true that they must be rejected or ignored because of the cognitive dissonance with the 'true belief' held by many conservatives. They practice faith-based, born again thinking that has no place for reason and facts.

Posted by: JimPortlandOR | Mar 17, 2006 5:14:32 PM

The point Mr. Michael was making seems to have gone right over Ezra's head. There are, indeed, two questions.......*how* to pay and *who* should pay. Ezra only focuses on the first to the exclustion of the other. Like the question of men's rights, he is willing to throw an unpopular group under the bus if he can serve his more favored group. Then he wonders why his pet issue goes nowhere....

Posted by: Fred Jones | Mar 17, 2006 5:32:12 PM

Fundamentally, insurance is a wealth transfer. It is a transfer of wealth from the healthy to the sick. Most people are willing to make that transfer, on the offchance that they may one day be sick.

"But," says the die-hard free-marketer, "I should be allowed to take that chance!"

Which is fine in theory: no country on earth (that I'm aware of) forces you to, say, insure assets you wholly own. Problem is, you're not taking that chance on your dollar, you're taking it on the public dollar.

Here's why. After you drain your personal savings, programs like Medicaid will begin picking up your bills. Or maybe you'll just rack up giant bills you can't afford to pay, costs the hospital will then need to pass on to other patients in order to make ends meet.

We can have our curent system make (economic) sense by the simple expedient of letting hospitals make sure everybody can pay for treatment before they receive it. All it takes to fix America's health care system was letting people die in waiting rooms...who knew?

Posted by: Kylroy | Mar 17, 2006 5:39:08 PM

Okay, Fred. I'll bite. As comparisons across the first world show, on the whole who should pay for medical care is (by and large) the people of a country as a whole; separating them into smaller chunks allows adverse selection to keep an ever-growing number of sick people from getting care. And how is (again, by and large) through the government, as it is the agency best equipped to to collect and disburse money in a market that affects neraly every single one of it's citizens.

I'm not saying Canada has the right idea by outright stopping citizens from going to the doctor and paying him directly for his service; I see this as a useful second option for the kind of folks who can drop a couple dozen thousand on an organ transplant. But in an unregulated market, the extreme demand and relatively low supply means that sick people will pay the doctors whatever they can afford while healthy people just pray they don't get sick.

Posted by: Kylroy | Mar 17, 2006 5:48:01 PM

Guys...what I am - and I believe Kinsley is - talking about is the classic economic theory of insurance which says that individual people will make actual payments to insurers which exceed the expected cost of the insurable event according to personal income utility curves experiencing diminishing marginal utility of income as income increases.

Now, it's a safe assumption that every rational human is risk averse. So, one would think that there would be gains to trade in the market for insurance such that every individual would have some kind of insurance. Nobel Laureate and Stanford Economist Kenneth Arrow made this comment in his seminal 1963 health economics AER paper.

Theoretically every person should be able to pay something equal to their risk premium according to their personal, individual utility curve and recieve insurance. That's what I'm crediting, perhaps wrongly, to Kinsley.

BUT...we (America) have added onto this type of personal insurance with an insurance against being birthed with unfavorable demand curves (or unfavorable health conditions that induce demand). This is what Kinsely is talking about i think. It's muddied and muddled (just as I've represented it here in this quick post) and I'm not even so sure Kinsely completely understands all the implications of it; but it's there. And, to me, it's the most fascinatingly fresh question in health economics.

Cheers...

Trapier K. Michael
www.marketplace.md

Posted by: Trapier K. Michael | Mar 17, 2006 5:49:07 PM

If everyone pays what they'll cost, you've just sacrificed the concept of insurance, there's no reason for the middle man.

This is true but is not a response to anything Kinsley has said or implied. He's merely saying that different groups of people carry different risk and that their insurance premiums and/or coverage should reflect that fact. For instance, a sixty year old has higher risk than a twenty-five year old. So does a diabetic versus the nondiabetic. Kinsley's argument is that these groups of people, not individuals, should have different contracts and that a one-size fits all single payer concept prohibits doing so.

Insurance can never accurately predict health costs of a single individual. There is always uncertainty.

Posted by: quietstorm | Mar 17, 2006 6:01:26 PM

"Theoretically every person should be able to pay something equal to their risk premium according to their personal, individual utility curve and recieve insurance. That's what I'm crediting, perhaps wrongly, to Kinsley. "

Enter the Adverse Selection Death Spiral.

Example: I calculate what it will cost to cover every individual in America, including all other expenses; it comes to $100 per person, per month.

But then a bunch of young, extremely healthy people say "Hey, I spend way less than $100 a month on healthcare. I'm opting out."

So I recalculate. It's now $125 per person per month. Then some slightly less helathy people say "Well, I spend more than $100 a month, but not $125. I'm opting out."

So I recalculate...

Long story short, it ends up with premiums being sky-high for my people. And the folks who opted out? They're being sliced into ever-thinner slivers by private insurance trying to weed out anyone who'll make a significant claim (and failing that, charging $1500 a month to those who do).

I worked in individual health insurance for almost four years. The motto of that whole market can be summed up as "divide and conquer."

"BUT...we (America) have added onto this type of personal insurance with an insurance against being birthed with unfavorable demand curves."

Okay, so being born, say, diabetic will influence your demand for health care sharply. This person should, according to your model of individual utility curve, be willing to shell out big bucks for insurance. I'm missing how what's being referred to in this paragraph I quoted is different than the previous quote.

Or, I'll try to put it my own way. The problem with applying the insurance model to healthcare is that it's NOT just a case of unknowns and probablilities the way that property insurance is. A diabetic KNOWS they're going to need insulin, the insurance company does too, and pretending that they're placing "bets" on it when they deal is just foolish. Am I on the right track?

Posted by: Kylroy | Mar 17, 2006 6:03:58 PM

Insulin costs next to nothing. What is expensive but less predictable are the heart attacks and strokes and amputations that diabetics are prone to. Now, whether being a diabetic ( it's mostly a genetic disease) should cost you more than not being one is an ethical question. I'd say it should not although I can understand arguments on the other side.

Posted by: quietstorm | Mar 17, 2006 6:15:35 PM

Am I understanding this correctly? Is Kinsley's whole argument an objection to the concept of risk sharing? Isn't that supposed to be the whole basis of insurance? When did Kinsley become a Republican?

Posted by: Rebecca Allen, RN, PhD | Mar 17, 2006 8:16:21 PM

Erza: If everyone pays what they'll cost, you've just sacrificed the concept of insurance, there's no reason for the middle man.

It's not insurance but there may still be a reason for the middle man if the insurance company can get better prices for medical care than you can get.

In any case the idea is everybody pays what they are expected to cost.

Posted by: James B. Shearer | Mar 17, 2006 8:41:54 PM

Rebecca Allen, RN, PhD, of course risk sharing is the basis of insurance. The argument is about how to divide up the losses. Pure insurance divides the losses in proportion to the amount of risk (expected loss) each participant contributes to the pool. This reduces uncertainty but does not change average outcomes. In the case of medical insurance the old and sick would pay much more than the young and healthy as their expected medical expenses are much greater. Alternatively you can divide losses on a per capita basis. This also reduces uncertainty but additionally represents a subsidy from low risk participants to high risk participants. This will create adverse selection problems if actual risks vary widely as they do for medical expenses.

Another problem with medical insurance is that the amount of medical care people consume will increase when it is free so the risk being insured against is not clearly defined. Also it encourages over consumption of medical services (just as an all you can eat restaurant encourages overeating).

Posted by: James B. Shearer | Mar 17, 2006 9:11:07 PM

In today's health insurance market, no one looks at your income when setting your rate. One of my biggest fears is that in a big government single-payer solution, the temptation to convert this into a tax (which it already is since it would be a forced extraction), and then make it progressive will be overwhelming to those who champion socialist dreams...... effectively constructing a wealth transfer program. You guys have already made noise about wanting to make Social Security and Medicare payroll taxes progressive............why not this?

Posted by: Fred Jones | Mar 18, 2006 9:27:54 AM

You know, Fred, the courts have long made a dertermination based on pragmatism rather than fairness, perceived or otherwise. The bill is presented to the party with the ability to pay. No amount of characterizing this with "Animal Farm" comparisons changes one basic fact ; you have to do what works.
Ideology aside, hard choices have to be made. Most of the problems with the current situation have to do with avoiding choices.
The Canadian Medicare system is unfairly maligned here on one point : any doctor can opt out of the public system. The government figures that the fact that nobody chooses to be without publicly funded clientele is not its problem. To clarify, out means out.

Posted by: opit | Mar 18, 2006 1:00:16 PM

You know, Fred, the courts have long made a dertermination based on pragmatism rather than fairness, perceived or otherwise. The bill is presented to the party with the ability to pay.

Damn! Don't you sound jes like Karl Marx!

You have confirmed my hypothesis, comrade. Bottom line is you would if you could, and you will if I let you. And now you know why those who are not of "The Collective" resist this plan. I might add that the liberal discussion on this issue never addresses ways to cut the cost of medical care, just how to get others to pay for it.

Posted by: Fred Jones | Mar 18, 2006 1:44:25 PM

Here's something that no one has mentioned yet. There is no real world category of "healthy people" who don't need health care. None. There might be a very small category of people who are temporarily abled and temporarily healthy but that number is not only very small, it is a shifting set of people. That is: when people are born they are quite young, generally speaking, and require quite a bit of health care monitoring and health care providing until they are adolescents. There is then, potentially, a brief period when they are healthy young people, or perhaps even healthy middle aged people. If they a) never get sick, b) never have an accident, c) never get pregnant they may continue to need relatively little health care. But most people will need quite a bit of healthcare during their lives from birth to death, and increasing amounts of health care over time. The notion that 20-30 somethings can be declared "healthy" for purposes of opting out of the costs of general health care provision (which would also pay for their sisters, brothers, cousins, aunts, grand parents, parents etc... is simply absurd.

Fred Jones may think he wishes to pay solely for his own health care in order to prevent free riders, but fred jones's relatives are actually the tax payers and free riders who he is trying to stiff. And Fred Jones himself will, of course, be begging with a tin cup for health care when he is old enough or sick enough to need it and he will be the last person to remind us of his fool hardy glibertarian views.

aimai

Posted by: aimai | Mar 18, 2006 2:50:28 PM

Fred Jones may think he wishes to pay solely for his own health care in order to prevent free riders...

Thanks for attempting to speak for me, but you are simply not qualified. There is a whole lot of room between not wanting a single-payer big government solution and paying "solely for his own health care" , Missy.

This is the same ambush as every other issue discussed by the left wing. It's change the marriage laws or you hate. It's our healthplan, or you're selfish. It's our domestic socialism way or you aren't for the children, and this time it's a single-payer big government solution to healthcare or you're a hateful bastard that eats babies and THERE IS NO ROOM FOR DISCUSSION.
Well, that's it! Time out for you, my little friend....and keep you nose in the corner until I tell you it's time!

Posted by: Fred Jones | Mar 18, 2006 3:37:54 PM

You rather jumped the gun there, Fred.
Try this on for size. A system has to be designed to function as a whole. Such solutions are ideologically neural.
However, if asking that something has a hope of functioning makes me rabid communist, socialist or whatever.... count me in !

Posted by: opit | Mar 18, 2006 10:49:00 PM

However, if asking that something has a hope of functioning makes me rabid communist, socialist or whatever....

If the system you propose is dependent upon one class to pay, then you do, indeed, need to join the "party", comrade...

Posted by: Fred Jones | Mar 19, 2006 9:37:30 AM

What I love about this whole "I pay just my share" approach is that its proponents scream "communism" while pushing an ideological "solution" that's the healthcare equivalent of Mao's Great Leap Forward.

It's one thing to muse about who "should" pay according to free market theory, but it's quite another thing to be slapped upside the head with the obvious real-world consequences of a health care system in which people are expected to pay for things that the majority of them cannot afford.

If we went with "I pay just my share," almost every hospital in America would shut down.

Hospitals are enormously expensive, with massive fixed costs. Most of their clientele are not healthy people who suddenly became unhealthy-most of their revenue base is made up of very sick and old people who have been ill for a long time. If you don't believe me, just go walk the halls of any hospital.

If we followed Fred's insurance approach, most of the people who currently use hospitals would not be able to afford health insurance. Too sick or too old or too poor. Ergo, they vast majority of them would not be able to pay for care. Hospitals would not be financially viable, but would still have massive fixed costs (and, for many, huge debt service). They'd be declaring bankruptcy as the stretchers full of desperate sick people begging for care lined up outside. It'd be a market failure of epic proportions.

Fundamentally, youcan't build a tertiary care system if the only people paying in are the healthy and the mega-rich. You're also not going to get a lot of medical research or inventions. No hospital could afford an MRI machine if they were just going to use it on 25 year old kids who drove into a tree. It, like almost all the infrastructure in our healthcare system, was paid for by the routine care of the sick as opposed to the occasional care of the healthy.

"Everyone pays for only what they use" is a wonderfully compelling ideology. But, sorry, I'd rather have hospitals than the comfort of ideological purity.

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Posted by: peterwei | Oct 22, 2007 6:50:29 AM

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