Scott Lemieux over at Lawyers, Guns and Money is playing with his food as he mocks Matthew Stoller (OMG, this sounds like a 2008 blog thread now… we just get older and our backs hurt more….) on Stoller’s diagnosis of the pre-ACA insurance market core problem:
The idea that the problem with the pre-ACA status quo was a lack of competition among insurers happens to be the position of Stoller’s good buddy JD Vance. The problem is that it’s ludicrously false — the problem wasn’t a lack of competition per se, it was that “taking your premiums for threadbare insurance and just cancel it on the off chance you get an illness your policy actually covered” was a perfectly legal business model and no amount of competition could require the market to provide affordable insurance that covered anything.
Competition for what? What were the 2008 individual market health insurance company’s incentives?
Why would an insurer want to take on massive new risk?
Let’s make some assumptions that I think are reasonable assumptions for 2008.
1) Insurers like to make money
2) Insurers are in the business of taking on individual level variance and risk and aggregating it to lower levels of group variance and risk.
3) There is a massive information asymmetry between insurers and enrollees
4) Costs for a given diagnosis/cognizable health status have wide variance
5) Contracts are almost always one year
6) Marginal enrollees who have almost no claims probability are the ones who are most likely to move as soon as the premium increases relative to other choices
7) The median American has <$1000 in allowable expenses per year.
8) Other insurers will undercut you
There is a strong incentive to race to the bottom so that the only plans that are offered are plans that provide limited protection against getting hit by a meteor/mid-year cancer diagnosis. Plenty of insurers offer these plans. These plans are probably adequate risk protection at low premiums for healthy men in their 20s to 40s and not bad for healthy women in their late 30s to 40s. Anyone with chronic diseases, a desire to get pregnant or whose knees randomly hurt on Tuesday morning just because becomes really hard to insure. Sure there is an up-rated product with substantial exclusions and carve-outs that will bring in some portion of this market where there are likely predictable and recurring claims. But the market is structured to incentize insurers to run the hell away from plausible risk as the contract takers for a risk adjusted premium are almost always going to be the folks who are on the expensive/more likely to claim side of the sub-distribution.
Now if we were to imagine a universe with very well funded high cost risk pools (like how we make Medicare the backstopping payer for End Stage Renal Disease or ALS and Medicaid for Breast and Cervical Cancer) with multiple year contracts and some type of default system to provide at least universal catastrophic care, then maybe competition in the 2008 individual health insurance market could be the right policy prescription.
But we don’t and never have lived in that world.
TBone
Employer-based coverage is mysteriously left out of the lopsided equation. You remember, I’m sure, the job providers. Or job creators.
Yutsano
I like this universe. Even better if it were paid for by say an insurance pool of 110 million.
Now the only issue is getting to 218+60+1+5.
Steve LaBonne
Health care and housing are two things that have never been provided anywhere at remotely adequate levels by lightly regulated, unsubsidized markets. There is no excuse in the year 2024 CE for having delusions to the contrary.
Fake Irishman
Dumping on Stoller on health insurance is the equivalent of shooting arthritic fish in a barrel.
But let’s talk about hospital and provider consolidation. In trying to improve coordination Has the ACA accelerated that in bad ways? Or would some of the alarming trends we’ve been seeing on that side of things proceeded in the same way or gotten worse without the ACA?
(I have been a big ACA Stan from the start, so this is an honest question)
Anonymous At Work
I feel like playing with my food too. Does Stoller have a comment about UnitedHealthCare’s vertical and horizontal, well, let’s call it “growth”? Does Vance have a comment about the same?
The entire point of antitrust LAWS is promotion of competition. The entire point of antitrust legal decisions is not upsetting CEOs or University of Chicago economics theory. A key assumption in both is uniformity of products. Hence, the term “widgets” getting thrown around. Once you ditch that assumption, you can’t just say “competition” like that’s all that’s needed; you need to ask “Competition for what?” And when you individualize products, like individualize health insurance plans, “Competition for John McCain’s health insurance” might become zero. The market is “competing” to the extent that it is profitable to do so, which can, in fact, be zero.
But yes, I am economics nerd that likes to point out models’ unrealistic assumptions. If the math says one thing and people do the opposite, it’s time to blame the assumptions used to make the math simple rather than say that the people are broken.
wjca
You might consider that the problem with housing levels today is precisely due to regulation: specifically, zoning regulations.
Downpuppy
This is kind of an inside vs outside view of the pre-ACA mess. Inside an insurance company, setting rates & defining policies in a nice office with good computers, may have felt like a calm, rational, legitimate business. Dealing with them as a customer/patient, particularly without a group policy, was the 18th circle of hell.
Steve LaBonne
@wjca: The wrong kind of regulation can definitely make things worse. But affordable housing is never going to be provided by the market in anywhere near the needed amount even if zoning were abolished.