Anyone not know what adverse selection is?
The Death Spiral is what destroys insurance.
Adverse selection, moral hazard, death spiral, community rated premiums, all these terms are important in the analysis provided by John Goodman, healthcare insurance expert, linked below.
Remember those terms–then you will understand Obamacare’s problems in the exchanges.
The Moral Hazard is the problem of lack of accountability that produces insensitivity to price and cost.
For example the Moral Hazard is at play when government lending programs adopt crazy policies, like Fannie Mae and Freddie Mac take on bad loans, then the paper is worthless but the “derivatives” circulate in the banking community and the taxpayer gets to do a bailout.
The Death Spiral in insurance comes from community rating and adverse selection driven by loss of market forces and price/cost/access/resource use sensitivity.
In the typical insane government health insurance plan everyone pays the same premium, no underwriting or adjustment for risk and utilization allowed, then the low risk people opt out and the high risk heavy users double down and use the hell out of the insurance that is priced low by fiat.
I ran a federally qualified HMO in the early 80s with community single premium for first dollar coverage, no co pays, no deductibles to temper utilization. I saw the adverse selection/over utilization up close–enough of it that I got to learn all about Bankruptcy or receivership of insurance companies in Louisiana. Bankruptcy law was one of my worst most confusing courses in law school because Federal Bankruptcy law in 1978 was completely revised. I got a close look at bankruptcy which is another example of a federal mechanism to produce the Moral Hazard, sort of like federal employee protections so that those responsible for 9-11, for example, never lost their jobs.
Here John Goodman shows why the Obamacare Exchanges are a looming train wreck and doomed. My prediction is that the whole thing will morph into medicaid on steroids because the Republicans have no taste for a fight and they are, in many cases, statists who wanna be on the planning committee–think Paul Ryan.
Click to access 20140124_WS-Goodman-ObamaCare-Carnival-of-Perverse-Incentives.pdf
The fundamental feature of employer provided health insurance is that it funds a basic need of employees with before tax dollars. The IRS code and collective bargaining allowed the socialization of costs whereby 50 year old employees and 25 year old male employees are funded from community assets. Of interest is that many employers contracted out their custodial work to “focus on their core business.” They were gamimg out of the socialization of costs where a benefit might be a 30% load for low paid employees and a 15% load for higher paid employees.
If we as a nation will not let people die at the door of the hospital because of inability to pay, then some socialization of costs is necessary. Where ever their are community assets – Federal revenue is one example – there will be people gaming the system.
ObamaCare is a huge, complex piece of legislation. Due to space limitations, Mr Goodman’s article cannot reasonably be expected to cover all of the bases.
Because of ObamaCare’s built-in perverse incentives for job-lock employees, for part-time workers, and for the self-employed, the new system will have less bang for the buck than the old system. We Americans currently spend 1/6 of our GDP on healthcare — more than any other developed country. Psychic Larry predicts that this will increase to 1/5 of GDP in the next few years.
Because of increased cost, employers will have a new perverse incentive to ‘fundamentally transform’ their low-skill and low-wage employees from full-time to part-time, and to cancel their group health insurance altogether. Middle class, full-time workers will be subsidizing the healthcare of this new army of under-employed workers.
Almost everyone will be wasting a lot of time, trying to game the system in their favor. In the new healthcare order, there will be both winners and losers. However most people will find themselves falling into the latter category.
The big problem is that’s been promoted and voted down a number of times before. The majority of Americans don’t want it. Many believe the current system is designed to fail specifically to justify European style single-payer healthcare in the future.
One of the real world issues of trying that in the USA is that the UK population is 20% of ours. Canada’s is only 22%. The difference in scale is pretty severe. The cost of the necessary infrastructure and overhead alone would increase the price of medical treatment.
The bottom line for a lot of people is the belief that it is just wrong to force the many to pay for the needs of the few.
The short answer is no sale, no interest, no chance.
The American Healthcare System is expensive for a reason–people wanted it that way, from the Unions to the executive suites, access to the best and most modern.
We turned healthcare into a religious sector. Physicians were high priests, hospitals temples. High tech everywhere and people couldn’t get enough of it, people always worried about their benefits and they next visit and talking about their healthcare experiences and problems. We are a nanny state because we are populated by nannies. We elect nannies. Obamacare was a classic case of having cake and eating it. Promises, promises you can keep——fill in the blank. So it was a sneaky project with the patina of being a hybrid public private effort–kinda like fannie mae and freddie mac. Get it–then you don’t have to worry about the Harry and Louise adds. Take out the big players, insurance comapnies, physician groups, big phamrma, big medical supply, hospitals throughout. Promise promises of cronyism and threats if they didn’t go along.
Who was left to protest or resist? Tea party conservative constitutionalists who said the gov should not expand and control such an important sector.
The Commies won and jammed it through with a prcedural trick then they intimidated the chief justice into being a weenie. Who can blame him–he is ambitious and a DC man, just like McConnell and Boehner and most of the others. Dress em up and they still are ambitious statist politicians worried about their place at the DC trough.
why couldn’t they do it just like any other European universal healthcare plan??