Cost of Insurance "Reform"

To some extent, there are signs Obama may be willing to walk back health care "reform" to just insurance "reform," though the two are highly related.  As a minimum, insurance "reform" is likely to include rules that no one can be denied coverage, community rating, and minimum covered service requirements.

These are really, really expensive.  Megan McArdle on the NY experience:

John Cole takes me to task for not knowing that health insurance premia have tripled in New York State.  Indeed, he's right--I should have checked.

But this is not the "gotcha" the left believes.  I erred so low because I was trying to be charitable to the cause of national health care.  You see, the reason that insurance premia are so high in New York State is that New York State enjoys community rating, guaranteed issue, and a very generous bevy of mandatory services.  The result is that the cost of insurance is very, very high.  What I failed to realize was just how radically out of line New York's rules had pushed its health care costs.  The average premium across the United States has increased about 25% since 2004.  In New York, the rate of inflation has apparently been about 16 times that.  I wasn't "aware" that insurance premiums have doubled and tripled over the last seven years, because for the country as a whole, this isn't true.

McArdle is sometimes irritating in bending over backwards to be fair to folks whose views don't deserve such charity and who would not ever extend the same favor back at her.  So it is kind of fun to see her going a bit postal over the last few days.


  1. DaveK:

    Yes, setting requirements that everyone can get insurance, without limits on preexisting conditions will be expensive. On the other hand, if that goes along with a requirement that everyone participate in an insurance plan, there will be a lot more healthy folks paying into the system. If you add requirements that people be allowed to participate in high-deductible policies, that further lowers costs. Finally, if you make sure that everyone has the cafeteria option for health insurance, and that if they opt for a lower cost policy, their company has to pay them the difference (as taxable income), insurance costs will be further lowered, and individuals will be more empowered and motivated to contain the costs of health care.

    The biggest problem with American health insurance is that most folks have no earthly idea of what the true costs of that insurance are.

    Just my $.02

  2. epobirs:

    Requiring that the insurers cannot turn away anyone for the simple reason they're guaranteed to be a financial sinkhole is merely a tactic to ensure the destruction of the insurance companies and delivers full control to the government.

    The federal government has no business getting involved in this. The only people to who they should have any obligation are those put in harm's way at the behest of the federal government. Namely, military personnel and perhaps a few others. Otherwise this should be left entirely to the states. This at least gives young healthy people the option of moving to a state that won't tax them for the care of the chronically ill at an expense that has no ceiling if rationing isn't a major part of the structure.

    I highly recommend reading this interview with Dean Kamen in Popular Mechanics:
    (HT to Instapundit)

    He makes a very good point about those areas where the feds could make a more positive contribution than meddling in health care. A Manhattan Project to achieve certain goals in regard to the prevention and treatment of diabetes would have huge benefits and productivity gains for essentially the whole planet into the entirety of the human future. It's the difference between handing out free umbrellas for eternity and actually controlling the weather to make it rain only late at night when most people are home.

  3. puhkawn:

    DaveK, I am sure everyone in your state is required to have auto insurance, right? What is the per cent, in your state, that do not bother to meet that requirement? I believe nation wide the average is 16-17%. What makes you believe a health insurance mandate would be any different?

  4. Jeremy:

    In a remarkable twist of logic, his newest post update quotes a comment criticizing her for not realizing that the premiums in New York have gone up only 80% in the last seven years, not the 400%+ that she claimed in her rebuttal. The rebuttal to his original claim that cost had "doubled and tripled". So a clear contradiction to his original position is considered a victory? Fascinating.

  5. DaveK:

    I was trying to make the point that there are ways to mitigate the high cost of universal insurability.

    Besides, there really are things wrong with our health insurance system that really do need to be fixed. For example... you've worked for decades for a company that provides your health insurance policy. Some time in the past you've had a health problem crop up that remains chronic, but requires regular medication and other care, and will probably result in more serious issues down the road. If you lose that job, what on earth are you going to do for continued health insurance coverage? You could possibly continue on COBRA for a while, but that's terribly expensive and isn't permanent. You could try to get a private health insurance policy, but good luck on that... only a few states have a portability mandate. And even if you are lucky enough to get a high-deductible policy, your pre-existing condition is going to be excluded. You're screwed until you exhaust your entire financial resources.

    But just because some things need to be fixed with regard to health insurance is no reason to destroy the entire existing system that, overall, works reasonably well. Let's have a good national debate to figure out what's really wrong, and what's the best way to fix it. And let's have our elected representatives actually deliberate on the issue, instead of creating a legislative monstrosity that even they don't understand, they haven't read, is full of pork and appeasements to special interests, and is jammed down the public's throats.

  6. Mesa Econoguy:

    John Cole takes me to task for not knowing that health insurance premia have tripled in New York State. Indeed, he’s right–I should have checked.

    But this is not the “gotcha” the left believes. I erred so low because I was trying to be charitable to the cause of national health care.

    2 problems:

    1. Health insurance premiums are extremely expensive, and have become moreso;

    2. The major reason for #1 is lawsuits.

    When I interviewed for med school in Westchester Cty, NY in 1994, I was informed that there were 3 OB/GYN practitioners in the greater NY Metro area, due to the $994,000/year malpractice insurance premium required. But let’s ignore that 6000 lb gorilla, since the trial lawyers are firmly planted in the West Wing (again).

    These people have no concept of cause/effect.

    That’s because the left are economically illiterate fuckwads, including & especially Krugman, and whoever this "John Cole" amateur is.

    And remember, compared to Ezra Klein, John Cole, Paul Krugman, and Kevin Dumb, I’m the economics expert. (The subtitle of the “Balloon Juice” blog is most likely correct: Consistently wrong since 2002. I’d push that back a bit further).

  7. Downpuppy:

    Quoting numbers from McArdle as through they were somehow related to reality is a very, very, silly thing to do.

    If you go to the source, you'll find that every number she quotes or makes up is wrong, that she has no idea she's comparing different things, (the Kaiser report makes clear that the average plan is worse each year but doesn't adjust for it) that the New York comparison is beyond wrong, (she has no idea what New York average cost is, or even that group plans & individual are different) and that Megan McArdle can't count to 7.

  8. Mesa Econoguy:

    Oh, gee, yeah, healthcare isn’t expensive at all is it dumbfuck? Awww, she missed on the low side.

    Go talk to some of your fucking trial lawyer asshole constituency about that, shit-for-brains.

  9. Muriel:

    Anybody can take care of their health at any time. No matter what kind of universal coverage may be enacted, prioritization will always be required because there will never be enough money to pay for everything that everyone might want.

  10. morganovich:


    i think you may be missing an issue in your analysis. you are absolutely correct that nothing can be done to cut costs until both providers and patients know what they are. however, price discovery is necessary but not sufficient to bring about cost cutting. consumers of health care also need to care what the price is.

    if you have insurance with a $500 deductible, there is zero difference to you between a $1000 procedure and a $10,000 procedure. if the latter will have you up and around even a day quicker or if it's just available closer to your house, you have every incentive to choose it. faced with paying out of your own pocket, you'd likely choose to drive across town or spend another day in bed.

    the difference in pricing for absolutely identical services (like an MRI) are astounding. a hospital will often charge $1500 for something you could get in a strip mall patient center for $400. often, the strip mall has newer equipment. but, once i'm over my deductible, i'll just go to whichever is closer to my house or has a more convenient appointment time.

    there are only 2 possible outcomes in a market: users face costs and find an equilibrium or rationing. look at the way water allowances are run all over the country for an excellent example of this. no one economizes at a buffet. once you pay your money, you have every incentive to maximize your investment and eat all you can. if too many people eat 12 lobsters from the buffet, the restaurant has to either only set out a few lobsters (rationing), take them off the menu (denial of service), or raise prices.

    healthcare works exactly the same way. (as does absolutely any business/service)

    there is absolutely no way to have all you can eat healthcare without rationing of services and not bankrupt whoever tries to provide it. (and yes, 3 year wait lists are just a form of rationing). it is simply economically impossible.

    also: i hear this argument about "preventative care" making it cheaper overall if everyone is insured. in the abstract, it makes some sense as it's ofter easier/cheaper to treat early/prevent diseases. however, i doubt these savings will really emerge in practice and have never seen any large scale evidence that they do. people are highly imperfect this way. lots of diseases/conditions have no symptoms. young people all assume they are healthy. getting people to go to the doctor when they feel well just doesn't work.

    all this prevention seems to assume that people will all go to the doctor a lot. i both doubt that they will and further doubt that we have the capacity at the moment to handle it if everyone did.


    calling other people's data wrong without providing any evidence is not terribly convincing. perhaps you could share the data upon which you base your conclusions?

  11. Scott:

    DaveK, I think your logic is a bit flawed. How would adding, taking the "uninsured" number generously, 35 Million to the already Insured 265 Million add a "lot" more healthy people paying to the system? Even if all of them are healthy, that's only a 13% increase over the current number of insured. Also, if they are all healthy, who are we to force them to pay for a product they may not wish to buy or use?

    The problem is not the number of people not paying into the system, the system should be able to work correctly with even less than the number that are currently paying into it. Adding more to the current system will only momentarily delay, and magnify, the inevitable collapse of the current health insurance structure.

  12. Scott:

    Wow, morganovich, I'm much impressed by that post. Sums up a lot of what I consider to be the primary problems with our health insurance coverages.

    As a supporting point to the preventative care not actually reducing overall health care costs...

    According to OECD FY 2007 reported numbers on Hospital care we spend about 48% more, per capita, than the next highest country. We spend more than 125% more than the average (countries included, US, Switz, Germany, Canada, Belgium, France, Iceland, Denmark, Finland, Netherlands, Spain, Portugal, New Zealand, Sweden Korea, Slovak Republic, Czech Republic, Hungary, Poland, & Mexico).

    On care provided outside a hospital, which includes- Physician/Clinical services (where most preventative $$ would be spent), Dental, Home Health, Misc Services, Misc Personal Care- we spend 80% more than the next country and 190% more than the average, with the overwhelming majority of those dollars already going the Physician/Clinical services category.

    Of the $7,290 per capita dollars we're reported to have spent in 2007, $2,309 of those dollars went to the Hospitals and $2,523 went to the care provided outside a hospital.

  13. DaveK:


    $500 deductible is not "high deductible" insurance... try looking at $7500 to $10000 deductible. Anybody who thinks they can get inexpensive coverage and still carry a $500 deductible is just fooling themselves. As I said, probably the biggest problem with our current health insurance system is that practically no one has a clue to how expensive their employer-subsidized insurance really is. As things now stand, with too many people thinking their health care is practically "free", there is naturally a high demand for expensive procedures, and no incentive to look at cheaper alternatives.

    Scott: I didn't say that requiring everyone to be insured would be the magic bullet that controls cost. It's only a piece of a complicated puzzle. But if you're going to regulate a standard that everyone can readily get health insurance, you are also going to have to make sure that everyone who can pays into the system. And yes, that probably means forcing everyone to pay into the system. It's not a pretty solution, but I don't see any way you can accept universal coverage without accepting universal "participation."

    With regard to "rationing" of health care, we already have that in one form or another. Some insurance companies are pretty picky about just what they'll pay for and how much they'll pay. But as bad as the insurance companies can be, I've got to say that I am a lot more apprehensive about rationing decisions that might be made by a Government-run single payer system that can't figure out how to run health care in a manner that is both efficient and effective. Medicare-large will be a fiasco that eventually runs our economy back into the financial gutters (that is, if our government ever lets us get out of those gutters again).

  14. frankania:

    What the debate over "health-care" has evolved into is an INSURANCE debate.
    Why don't we have "appearance insurance" that covers haircuts, make-up, clothing, face-lifts, etc.? Because it is simple to pay for each of these in cash, comparing quality and price, and not waste time with bureaucracy and deciding to buy un-needed things with OPM (other peoples' money).

    I pay cash to visit doctors ($2 to $25). I have had 5 operations in the last 20 years and paid in cash, after carefully comparing options and checking the bill for errors. I buy medicine with NO prescription after investigating the side-effects on-line. All of this is competitive private free-enterprise, no govt. program involved.

    By the way, I live in Mexico, where almost nobody has insurance.