Thursday, November 21, 2013

Insurance Versus Extortion

The huge fellow built like a refrigerator with no neck came into my shop behind a dapper guy carrying a briefcase.  
“What can I do for you, ah, gentlemen?”  I almost choked on that last word.
“I’m gonna help out your business.  I see you have a nice place here.  $60,000 per week, that about right?”  The dapper guy should have had a toothpick in the corner of his mouth.  He didn’t.  That bothered me.
“That’s not public information.”
“Hey, it’s OK, I’m not the public.  I’m gonna sell you insurance to keep your nice place from fires, people coming in here and breaking it up,  Like that, you understand?”  The refrigerator scowled and gave me the evil eye.
“It’ll only cost you $1,000 a week.  Guiseppe here will come call on you to collect.  Say, Mondays?”


“I’m gonna tell you what health insurance you need.  Like an Olympic medal, bronze, gold or platinum, all the same except for the prices.  Say $500 per month with a $3,000 deductible and a $40 copay.  My IRS agents will be here every so often to collect.  You will start January 1st.”


The idea of insurance is to create a financial hedge against a rare, but catastrophic, event by paying a small premium into a pooled fund.  If the actuarial calculations are done right and the pooled fund is managed by a truly independent and trustworthy firm, that firm is entitled to a reasonable profit for their services.  

Independent means that the insurer cannot affect the probability of the loss.

Trustworthy means that the insurer has a history of good performance and is transparent about their financials.

Reasonable profit is defined by free market competition.  If competition is eliminated or regulated, there will be no force to establish a reasonable profit.

Regulation is required to punish criminal acts, such as false claims, misappropriation of the pooled funds, and scam offers.  Regulation should never restrict remedies or markets.

Health insurance beggars the definition of insurance.  It’s not insurance, it’s a debit fund.

Doctor visits are not rare events, they are life cycle events, especially at the beginning and end of that cycle.  By taking over the approval and pricing of common events like doctor visits and flu shots, insurers have initiated an endless cycle of increasing demand for services at higher prices.  Coverage has escalated way beyond the  extraordinary event.  We no longer pay for the simple things out of pocket, we file insurance claims.    The costs of simple services have become outrageously expensive.  We never consider paying them out of pocket anymore.  

We used to, in my lifetime.  I remember.  We had the money and our doctors were our friends.  For comparison, ask any doctor how they love today’s coding, paperwork, and multiple insurer billing systems.  They will tell you they had something different in mind in medical school.

Insurers restrict available remedies, negatively affecting the health of the insured.   They expand “coverages” to things you really don’t need, like educational flyers that pretend to offer medical advice.  As they tie up large networks of hospitals and doctors, they begin to control heath outcomes, a dangerous thing for the insured.  

Why doesn’t the free market eliminate these distortions?  What free market?

Standing between the insured and practitioners,  insurance masks the actual costs of health care and allows extreme distortions of costs, treatments and outcomes.  Insured can’t compare costs or options. We’re only told if the procedure is covered or not.   We lost control of the free market mechanism.  This was noted several times in editorials ranging from the Wall Street Journal to the Proceedings of the American Medical Association.  Forgive me for not listing these references here.  They are easy to find.

States mandate coverages and limit competition through the actions of insurance commissions, malpractice law and hospital regulation.  There is no portability between states, or even between employers.  There is no level playing field between insured and insurers, insured and hospitals, insured and drug companies.  You get sick, you do more or less what they allow, and no one can help.  You lose your employer and your income AND you go on COBRA, well named, as it doubles your cost and halves your coverage while you go through the stress of finding another job.  If you find another job you start all over with a new deductible.

Health insurers are protected by these regulations, touted to protect consumers, that only pervert the free market.  The insurer is no longer independent of the loss.  Competition is heavily restricted.  Mediated by insurers, hospitals and drug companies have little incentives to react to market forces.  In fact, they are so heavily dependent on insurers that they readily agree to aid them in increasing premiums, if it also increases their payments.

Obamacare “fixes” this mess with MORE onerous regulation, penalties to those who do not sign up, and “reimbursement” schedules for those who cannot pay enough for these inflated premiums.  Obamacare divides the carcass of health care among various lobbyists to the extreme detriment of individual choice and destroys the last remnant of free market competition.  It is a bill of attainder for “health insurance”, not a health improvement plan for the people.

Are there any features in the ACA bill worth retaining?

ACA mandates a complex system of medical data sharing for payments and for the collection of health statistics.  At this date, none of this structure has been built, but regional hospitals and clinics have similar systems and the diagnostic codes are slowly being implemented.  This experience data base is supposed to allow “outcome based procedures”, a winnowing of medical procedures down to those that show some arbitrary combination of lower cost and better outcome.  For example, breast exams may be only ever y 2 years instead of every 6 months.  Prostate PSA scores my be ignored until they reach 20 (normal is zero).  All this is supposed to bend the cost curve downward, as Dr. Larry Summers claimed in his original these in US health care.

These are strident examples of collective medicine, where an IPAB board, far removed from the patient, decides what is good for the majority and to hell with the individual.  Collective medicine is the wrong direction, medically.  We have a burgeoning science that optimizes therapies based on an individual’s genome.  Collective medicine is for clones, not individuals with their individual reactions and preferences.  

The system, if it is ever completely implemented, would be imponderable.  The cost and maintenance of such a national system can be measured by the dubious success of the far simpler ACA online system.

Medical science is the repository of the hopes of ill people and the fears of politicians.  US life expectancy has topped out because of improvements in maternal, obstetric and pediatric care, but the life expectancy of a 50 year old man has not changed an iota.  It is so difficult and expensive to get new protocols or drugs or devices into the market that they are being throttled by cost and regulation in the name of “safety”.  After spending an good fraction of a billion dollars to develop a new molecule for market and get approved by the FDA, the only hope to recover these costs is to get a series of exclusive patents and charge outrageous prices for the product.  New products are at the mercy of the FDA for approval and at the mercy of insurers for payment.  Of course, these new drugs and procedures tend to increase insurance costs and, hopefully, prolong the lives of ill people.  Both are bad things from the point of view of insurers.

Obamacare has a provision called the “corridor” that reimburses insurers for their losses during the first 3 years, and takes some of their profits if they make more than expected.  It’s a form of reinsurance.  The latest projections are that this corridor will run one way only - funneling taxpayer money down to the insurers.  Where do you think political pressure will be for new drugs and procedures?  The bill also has a panel of political appointees, the IPAB, none of whom require medical knowledge, to decide these issues.  What direction do you think they will go?  This alone will bring new medical advances to a screeching halt.  There will be negative incentives for them.

There are astounding new discoveries being made in molecular biology as we explore the pathways of human metabolism, protein synthesis and the actions of small RNA segments that regulate gene expression.  I’ve seen predictions that the human life span can be extended to about 140 years of reasonable good health.  Imagine, for a moment, that these technologies actually exist today.  What do you think the IPAB response would be?  Do you think they would EVER be available under Obamacare?  If they exist, and they may exist, they would disrupt every government plan from Social Security to voting demographics and food distribution.  

Government interests do not coincide with yours.  Ever.  Why should you allow them to control your health?

Now you will pay a price you cannot afford or the thugs come in and rip up your health and your wallet.  The great winner is the Federal government.  It has a health dossier on every citizen.  It has the power of the IRS to collect from the unwilling.  It has final and unchallengeable control over medical procedures, doctors and hospitals. It can buy votes by redistributing health.  It has gained a life or death power over nearly every person in the country by the push of a button.  Oh, and the perpetrators are exempt.

Coming blogs will explore better answers to the health care problem. I’ll talk about things that could have been done that will stand in stark contrast to the Obamacare nightmare.

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