Tuesday, January 10, 2012

You're fired!

Energized with their newfound enthusiasm for class warfare (you can always tell an amateur), the Republican candidates were making much of Romney's "gaffe" yesterday in which, speaking of the supposed need for more competition in health insurance, he displayed his solidarity with the working classes by saying, "I like being able to fire people who provide services to me."

You know something really strange is going on when Ron Paul is out there denouncing capitalists who take money from the middle class to enrich themselves.

But what left me marveling was not Romney's cluelessly echoing the very charges against his performance at Bain Capital, but rather his obliviousness to the fact that any firing that goes on in the health insurance business is done by the insurance companies, not consumers. After all, everyone wants to fire their health insurance company, usually while listening to the same Kenny G number for the 132nd time on hold waiting to have someone in Bombay swear they have no record of their claim. That's hardly the point when the insurers hold all the cards.

About a century ago the human race woke up to the fact that insurance is not a business like selling fruitcakes, notions, or drygoods. For one thing, the consumer is buying a pig in a very large poke when he takes out a life or casualty or other policy, paying up front for a benefit he may see only much later if at all. It's a situation absolutely made to order for those who dream of Ponzi schemes. For another, there is a huge disparity in information on the part of buyers and sellers: insurance companies employ rafts of actuaries to figure out how to make a profit; consumers simply have little basis for knowing what a fair price is. Thus in the late 19th and early 20th century, every state began tightly regulating insurers to make sure they did not flim-flam the customers, that they were held to standards of performance, and that they maintained adequate capital reserves to pay off claims that came due.

Any sentient mortal who has ever dealt with a health insurance company, or even more, who has had to buy his own heath insurance as a self-employed person, knows how ludicrous Romney's fairy tale about competition and consumer choice is in this distinctly un-free-market. The whole raison d'etre of the federal health care law was, lest we forget, that the free market has been an utter failure when insurers could turn you down for any reason or no reason; could reject you for having a preexisting condition; could raise your premiums by breathtaking amounts once they had you signed up; could drop you for getting sick; could drag out processing your claims for months or years; could arbitrarily choose not to cover certain needed procedures or conditions.

Buying a health policy outside of a group is more like applying tor a commission as a nuclear sub commander than hiring a guy to rake your leaves: comparison shopping has been virtually impossible; you have had to submit one application at a time, just to find out what whether you could get coverage and what the real price would actually be. And the companies (still) are masters of muddying the waters with extraordinarily complex pseudo-choices that simply obscure how much you're actually going to end up paying in the end and which make any true comparison shopping impossible, with endless variations on deductibles, co-pays, co-insurance, and optional coverage. (But they all have VERY nice colorful photographs on their web sites and brochures depicting attractive people being healthy.)

Even on an individual consumer level, even those who can afford health coverage don't have a prayer in this game.

But of course, the far greater market failure in health insurance is that insurers, left to their own devices and free competition, find that the way to maximize profits is simple: only sell policies to people who don't get sick.

This does not work very well as a system of improving the nation's health, containing health care costs, or encouraging preventive care.