Tuesday, July 07, 2009

Real competition? Really?

Paul Krugman's desire for advocacy has become so strong that he apparently has let his economist's training slip. Look at these two excerpts from yesterday's column in the New York Times.

Referring to a Senate committee's action, he notes that its plan for health reform:

achieves near-universal coverage through a combination of regulation and subsidies. Insurance companies would be required to offer the same coverage to everyone, regardless of medical history; on the other side, everyone except the poor and near-poor would be obliged to buy insurance, with the aid of subsidies that would limit premiums as a share of income.

This is good and sensible. But then, he slips off the wagon.

And those who prefer not to buy insurance from the private sector would be able to choose a public plan instead. This would, among other things, bring some real competition to the health insurance market, which is currently a collection of local monopolies and cartels.

"Real competition" is when all participants play by similar rules. As I have noted, that could not and would not be the case with regard to a public plan.

10 comments:

Anonymous said...

I just read a similar synopsis regarding insurance companies being required to provide coverage to everyone, without pre-existing condition exclusions, etc. It seems to me that what they will do is jack up the premiums sky-high for EVERYONE in order to meet these requirements. So my already very high insurance bill will go even higher. This is reform?

What is your idea, Paul, to prevent this? I realize a public plan may not do it, but there has to be something. Look at what the credit card companies are doing ahead of the law that says they can't raise interest rates - jacking up the interest rates before the law takes effect!

nonlocal

Daniel said...

Hi Paul,

I'm one of the foreign research fellows at BI, and I totally agree with your point. Last weekend I heard an "expert" proclaim this kind of nonsense on NPR too. How can you call any kind of government involvement "real competition"?!

Daniel

Brad said...

Paul, I'm visiting Boston and stumbled on your blog after clicking through several Boston-related links. I am impressed by three things: (1) you are clearly writing this yourself; (2) you are posting quite regularly --- not just doing this so you can say you have a blog; (3) the BIDMC chocolate chip cookie recipe!

I hope I don't need hospital services between now and Thursday morning, but if I do, I'll be choosing BIDMC... if only for the cookies!

Nice work.
-Brad McCormick
Chattanooga, TN

Irish Terry said...

I think we all have to acknowledge the fact that political aims often supercede knowledge. Anyone who's been to more than one lecture on economics knows that their will never be competition in healthcare. But that will not stop people like Krugman from using the idea of "market competition" to garner support for a cause. Because just using the word "competition" can give you favor with the voters.

And to answer "nonlocal's" question about premium hikes if everyone is covered...That actually won't happen. Part of the reason that premiums are so high now is that young healthy people choose not to have health insurance. And the people who have insurance are the ones who need to use healthcare services.(aka Adverse Selection). Therefore the insurance companies pay out more for services, and raise premiums. So if you require the healthy people to get insurance they will balance out sick people and keep premiums down.

Fed Up with The Big Insurers said...

Unfortunately the current market of private insurance companies have set up their own set of rules that promote unethical and unfair business practices. They have earned the need to be regulated.

Jerry said...

Paul, I agree with your sentiment that much (all) of the public discussion regarding the need to reform health care financing has not been clear or honest.

Frankly, I don't see much in the way of informed public discussion, period.

But I think your beef with Krugman is misplaced.

Your apparent sentiments and mine are substantially different in at least one important regard - I would prefer to focus on why the for-profit insurance industry needs to be completely excluded from the health care system in this country; and about how best to achieve that goal.

Given the considerable amount of money at stake for these companies, and the lack of political courage on the part of most of our elected representatives, that discussion is not likely to happen.

Still, I'm amazed that most of the people I talk to don't appreciate the most fundamental fact - that for-profit health insurers make their money by playing with their money, and that they can only have money to play with if they find ways to avoid paying for health care on behalf of the insureds.

It's a structural characteristic that makes perfect economic sense from the point of view of the insurers, but has absolutely no moral justification with regards to the sick, injured, and others who need health care.

I respect your attempts, as I've followed them here, to foster awareness and involvement throughout BI/D of how internal practices and processes can be made more efficient and effective.

But those attempts will achieve very marginal improvements, at best. And they don't alter the conditions that will continue to threaten your institution, and others.

I also appreciate the fact that, in your current position, you can't openly advocate for the kind of fundamental change that will really make a difference in this very irrational and broken system.

But, seriously, I think Krugman's advocacy is much more aligned with your long-term best interests. I know it is with mine, and with those of my patients.

Paul Levy said...

As I noted in a comment below:

"The value of insurers is that they bear the actuarial risk of unseen events -- and, yes, get compensated for that if they are good at it. If they do not exist, the taxpayers bear that risk. It is all right for us to bear that risk if we do so knowingly and with a purpose.

"You can have insurers that don't gouge customers and that offer service without discrimination. They can even be non-profit organizations, like we mainly have in MA. And, real competition among insurers can actually create benefits for the public beyond the assumption of actuarial risk."

I don't know why you say this -- "I also appreciate the fact that, in your current position, you can't openly advocate for the kind of fundamental change that will really make a difference in this very irrational and broken system." We just appear to have a different view of what "fundamental change" is.

shadowfax said...

Paul, you write about how government-run plans can "never" compete on a fair basis with private plans, but when you look at the HELP bill, it's hard to deny that the committee has bent over backwards to eliminate or greatly mitigate any advantages the public plan might have (whether this is good or bad policy is another debate). Seriously:

- The public plan is self-financed through premiums.
- The public plan is even responsible for initial capitalization via acquisition of debt.
- The public plan will pay providers a competitive, negotiated reimbursement rate.
- Will be voluntary for providers to participate or not.

I am not sure how much more you can ask for in "fairness." And bear in mind that part of the policy goals (or aspirations) of the public plan is that it *will* be cheaper and through competition force private insurers to become cheaper. This is not a bad thing -- you know as well as I do that health care costs are on an unsustainable upward trajectory.

Paul Levy said...

I don't see that health care costs are rising mainly because of insurers. Government sponsored plans like Medicare and Medicaid have also had comparable increasing costs. (Also, both for-profit and non-profit insurers have seen increases, by the way, so this is not about shareholders' demands.)

But to your point about fairness, you have a public company with access to federally sponsored debt (and its accompanying moral commitment and lower costs) versus private companies facing general market rates for their capitalization.

You have private insurers facing multi-state regulatory requirements about capitalization rules, plan design, benefit rules, and the like versus a federal plan that will set its own rules.

And, please, do you really think my colleagues and I will be able to negotiate anything with this organization? And, do you really think we will be able to choose not to take its subscribers? Neither is likely to be the case.

Jerry said...

Hi, Paul:

Thanks for your response. I've been away.

With regard to your comment, You can have insurers that don't gouge customers and that offer service without discrimination, that strikes me as an excellent theoretical concept with no application in the real world.

Insurers indeed compete with each other, but not so much for subscribers and 'customers' as for investors and coverage on Wall Street. The game is for quarterly profits and increases in market cap, not for figuring out better products and improving customer satisfaction.

The industry is too large, too entrenched, and controls too much money.

As for my comment about how you can't openly advocate for the kind of fundamental change because you run a hospital - I was thinking out loud, and choosing my words.

You and your colleagues can try to make the best of a bad situation, and play the hands you've been dealt. You can, as you describe at BI/D, to make improvements around the edges, and to control those things that appear to be within your control.

But you're part of the game, and you can't advocate for really changing it - either because to do so would be career suicide, or because maybe you're actually part of the problem, knowingly or not.

To be a knowing participant is to be duplicitous. To be an unknowing participant is, at best, delusional. At worst, it's incompetent.

Financing a human service like health care through for-profit entities makes no sense, except short-term economic sense for the benefit of those for-profit entities. Everybody and everything else, including patients and providers, is very low on the list of priorities.

As you just said in your most recent comment in this thread - they have no moral commitment.