Organization: Penn State University
Date: Sat, 12 Dec 1992 09:17:08 EST
From: <DGS4@psuvm.psu.edu>
Newsgroups: talk.politics.medicine
Subject: Re: HIAA and Reform

In article <1992Dec11.153702.1@ssrl01.slac.stanford.edu>,
tcox@ssrl01.slac.stanford.edu (Tony Cox - (415)926-3105) says:
>
>In article <92344.115628DGS4@psuvm.psu.edu>, DGS4@psuvm.psu.edu writes:
>> In article <1992Dec8.171033.1@ssrl01.slac.stanford.edu>,
>> tcox@ssrl01.slac.stanford.edu (Tony Cox - (415)926-3105) says:
>>
>>>   If you were to choose 2, as I would hope, you may end up
>>>   concluding that a free market is the most effective means of
>>>   providing the diversity required.
>>
>> This presumes, of course, that a free and profitable market for
>> health insurance will continue to exist.  Several major insurers
>> have simply exited the health insurance market and are no longer
>> selling group or individual health insurance.  The average underwriting
>> result in individual health insurance has been negative for
>> the last 13 years. In group health insurance it has been negative 7 of
>> the last 10 years and 11 of the last 14.  The health insurance
>> industry is concluding, as Canadian insurers did, that the private
>> market as it is currently constructed cannot work.
>
>   Continue to exist eh? It doesn't exist now. Off the top of my head,
>   here are four factors which pervert the market from any semblance
>   of being `free'.
>
>   o - Medical Licensing.

I don't want to get into this mess again.  How does this prevent
insurers from offering a profitable product?


>   o - Legal framework preventing disclaiming liability for injury,
>   forcing participants to play the medical malpractice lottery when
>   all they want is health care.

Studies of the malpractice market show that out of 100 actionable incidents
that occur in the hospital, only 10 will ever result in a suit and 80 percent
of those will be settled.  People voluntarily are disclaiming liability for
injury.

>   o - Drug licensing, FDA, etc. etc.

Less than 10 percent of national health expenditures


>   o - Sugar daddy financing, including tax breaks for employer
>   provided health care.

Driving up demand for health insurance;  Without this tax break we would
truly see what a pitiful job private insurers could do in insuring health
care.




>   Dennis, you have used that phrase `private market' again. I'm
>   really not sure what you mean by it. The existing US health care
>   market does have a substantial government funding component -
>   Medicare.

Tony, I know the history of American health insurance.  Go back before
Medicare.  Go back before the IRS ruling on tax deduction.  When have
private health insurers ever shown themselves able to provide a product
which provides significant risk reduction to a large portion of
the population at reasonable cost?


>
>>
>> Most Americans are covered under "self-insured" plans, in any
>> case.  The more appropriate name for "self-insurance" is going bare.
>> While the individual workers' risks are pooled, the employer is bare.
>> A single catastophic event requires radical changes, even termination
>> of the plan (witness McGann, the recent AIDS case in the Supreme Court.)
>> As a result, workers have to wonder whether or not they really have
>> insurance.  They don't.
>
>   Well, clearly, not in this case. I think such schemes are playing
>   on peoples warm feelings when they hear the word "Insurance".
>   People should get in the habit of reading the fine print.

Of course, this is how the majority of Americans have "insurance" these
days. The point is that even with significant tax advantages, most employers
believe that private insurers don't offer a reasonable product.


>> Given the current state of the market for private health insurance, I
>> think the burden of proof is on those who believe that a private health
>> insurance market can work.  It sure is doing a damn good imitation of
>> market failure right now.
>
>   What do you mean by market failure? Seems to me like the market is
>   responding in classic textbook fashion to the constraints placed
>   upon it.
>
>   o - Doctors, through the medical licensing boards, control the
>   qualifications and so indirectly the _number_ of new doctors
>   entering the field. This, and the state granted monopoly that they
>   enjoy, has generated salaries around 6x the average wage. (Cf.
>   Canada 4x and UK 2x, neither free markets BTW, but clearly such
>   practices never _decrease_ salaries).

As I've noted elsewhere, licensing raises physicians income, but, in
theory, cannot be traced to an effect on medical care prices, since
it may also have an effect on the demand curve.  In practice, I would
agree that it has raised prices, thus raising the cost of health insurance.
By how much?  I don't know, but I should wouldn't want to base my
argument on this.

>
>   o - The legal system in the US encourages law suits, and doctors
>   cannot escape liability for presumed `malpractice'. They are
>   therefore virtually compelled to purchase insurance at great
>   expense.

This is the biggest load of crap in the numerous myths in American health care.
The AMA's own numbers show that the average physician's liability expenses
are about 15% of total costs, ranging between 5 and 40 thousand dollars
depending on the specialty.  In recent years premiums have been dropping
by 10 to 15 percent per year.  One of the main reasons for the high cost
of liability insurance is that physicians over-estimate the risk of being
sued by a factor of 5 to 10 times.  Studies of malpractice awards show that
both suits and dollars awarded are concentrated among a handful of doctors
(about 10% of the suits and 30% of the dollars result from actions against
less than 1% of doctors).  As I noted above, 9 times out of ten, when a
doctor or hospital committs an error, no suit is ever filed.  There are a
few specialties in a few areas of the country where malpractice pemiums have
a large impact.  Tracing any significant effect of malpractice into
health care costs is ludicorus.


>   o - Drug laws, and the FDA approval system have vastly inflated the
>   cost of development of new drugs, and lengthened their time to
>   market. A Black market has developed in `unapproved' medical drugs
>   (similar to street drugs). Those close to the Mexican border
>   frequently cross over for cheaper drugs, becoming criminals when
>   they bring the goodies back for their friends.
>
>   o - A financing system which encourages _employers_ to provide HC
>   rather than those who directly benefit has produced plans which
>   in part restrict employment mobility, and caused tax-free dollars to
>   go chasing services causing fiscal irresponsibility.
>
>   Now, you may not _like_ the fact that health care is outrageously
>   expensive, tied to employment, showing increasing signs of black
>   market, etc. etc., but this isn't a _breakdown_ of the market. This
>   is just the market responding to constraints placed upon it.


>
>   To show me that a free market system cannot deliver the goods,
>   first give me a free market. Otherwise you should perhaps drag your
>   ailing straw man somewhere else.


I wasn't aware I was talking straw men.  I was describing the current
conditions in the private health insurance market.  I am curious why you
think a private market will work in health insurance.

When and where has a free market in health insurance ever worked well?










Dennis G. Shea, Penn State
<<DISCLAIMER>>
Ain't nobody's bizness but my own. I'll be happy to accept all
the credit for anything I've written.  It's funny, however, how
employers only acknowledge the profitable ideas.
Newsgroups: talk.politics.medicine