Posted by ken on March 4th, 2004 (All posts by ken)
We are told that, prior to the current enlightened age, one of the ways that evil corporations would rip off their workers was the Company Store. Instead of giving you money, they’d operate a Company Store and give you goods. Problem was, without real money, you couldn’t go to a competing store that might give you a better deal unless you switched jobs. You’d have to put up with whatever inferior, overpriced merchandise they felt like stocking.
Kind of a bummer, right? It’s a good thing that our Corporate Overlords saw the light and quit that nonsense.
Or did they?
The Company Store isn’t gone, it’s just been reduced in scope. Now the Company Store mainly offers health insurance and retirement investments. But, in the areas where the Company Store reigns supreme, the same problems keep cropping up.
You can’t switch health plans without switching jobs. The insurance company’s customers is your employer, not you. The insurance company doesn’t have any reason to keep you happy (it just has to keep you from getting so unhappy you’ll switch jobs in order to get rid of its policy), and it shows every time you have to deal with it.
Oddly enough, while its customer service is busy treating you like the non-customer you are, the plan itself winds up paying for things that make no sense whatsoever from an insurance standpoint. This is because a company insurance plan functions partly as a tax-dodge to spend pre-tax dollars on routine maintenance that it would never make sense to buy actual insurance for. If not for tax rules, you would never buy an insurance policy that covers routine checkups you know with absolute certainty that you’re going to get; you know you’re going to end up paying the full cost of the checkups plus a markup for the insurance company.
Also, since company health plans must offer the same rate to every worker, your company gets hit with the cost differential when it brings in older or less healthy workers. Giving companies a direct financial incentive to engage in age discrimination doesn’t strike me as an especially good idea. Setting things up so that their costs, and their profits, are affected by unhealthy things you do in your off time is also just asking for trouble.
And, since all policies must cover the same things, you get stuck buying coverages you don’t want, and can’t specify coverages you do want. Lawmakers have also taken to piling on coverages that must be included in all group plans, such as birth control pills (!).
And, of course, it would be nice if periods of unemployment had no impact on your health insurance other than by way of your ability to pay the premium. Business creation would be more common if getting off of someone else’s payroll didn’t impact your health plan.
Now we’re told that the only way that we can get employers out of the loop is to bring government into the loop. Apparently, individuals can’t just buy healthcare on their own, someone (either the employer or the government) has to “give” it to them (with their own money, of course).
This is, of course, nonsense. The standard objections to individual insurance purchases are:
1. Young people wouldn’t buy insurance because they’re generally healthy, so everyone else would pay more.
First, young people would indeed forego single-rate health insurance, for the eminently sensible reason that they would be getting ripped off. If everyone pays the same rate, people with a lower risk end up paying the same amount of money for less insurance; such people, understandably, aren’t especially eager to do that.
Free market insurance would group people based on risk factors, and come up with a rate for each group. People with fewer risks would pay less than people with more risks. No one would be getting ripped off. Younger people would be charged significantly less, and be accordingly more likely to sign up. Not only that, with people charged accoring to their risk group, the presence or absence of members of other risk groups would have little or no effect on the rates they pay. You get lumped in with people with roughly the same risk factors as you, and pay according to the insurance company’s expected payout plus a competitively limited markup; the fact that there aren’t any 20 year olds paying a completely different rate doesn’t change either your risk factors or the markup charged. (There are differences based on total number of policyholders, which impact the degree to which efficiencies of scale can operate, but there aren’t significant differences based on the risk profiles of the policyholders.)
2. High risk people couldn’t get insurance.
Without price controls, high risk people would be able to get insurance. They’d simply be charged higher rates. That’s good in that people pay the costs of self-destructive behavior, but bad in that they also pay the costs of being born with health problems. Overall costs would go down, since people would be discouraged from unhealthy habits by having to pay for the increased risk out of their own pocket. As a bonus, those who support various nanny-state prohibitions, sin-taxes, and restrictions on the grounds that people left alone to do their own unhealthy thing drive up healthcare costs for everyone else would no longer have such grounds to support them.
3. Some people wouldn’t be able to afford health insurance.
Some people can’t afford lots of things. That’s what charity is for.
3a. Some middle class people with high risk factors wouldn’t be able to afford health insurance.
Again, that’s what charity is for. The only difference is, today group plans are required to subsidize them at the expense of lower-risk policyholders in the same company, so the subsidy is hidden. Doesn’t mean it’s not there. Same deal applies if we get saddled with National Health Care.
When an employer doesn’t feel like subsidizing your sky-high health coverage costs, then it won’t hire you. Then you’ll not only have sky-high health insurance costs, you’ll also be unemployed. I’d much rather have sky-high health insurance costs and a job, thank you very much. I’d especially rather that my employer has no reason to care one way or the other what my health insurance costs are. If he doesn’t see my health insurance bill, he’s doesn’t have a reason to worry about my leisure activities.
The point is, under any one-rate-fits-all scheme, some people will subsidize other people, but the subsidized people won’t have to admit to themselves that they’re being subsidized since they’re paying the one rate just like everyone else.
4. Everyone will see their costs rise as they get older, and eventually have trouble paying them.
If younger people don’t subsidize older people, then younger people will pay less than they do now. Later on in life, they’ll pay more. Over a lifetime, it’ll even out. There’s a way to deal with that situation – it’s called “savings”.
5. If insurance companies don’t pay for checkups, people won’t get them and costs will rise. They won’t be able to pay for checkups, since their policyholders can then switch policies and some other insurance company would reap the benefit.
Of course free market insurance companies wouldn’t pay for regular checkups. Insurance is to cover the possibility that an expense might happen, not act as a middleman to pay for expenses that will definitely happen. But the insurance company would charge lower rates to people that had gotten their checkups and preventative medicine (usually out of their own pocket); whether the individual sees a net savings out of the deal is determined by whether that preventative medicine actually does pay for itself in lowered expected medical bills. (If it doesn’t, then that preventative medicine does not pay for itself, and failure to get it reduces, rather than boosts, overall costs.)
6. If a genetic test is developed that can show that you’re definitely going to get disease X, you won’t be able to get insurance to cover it anymore.
Yeah, and satellites that pick up that hurricane barreling toward the coast are preventing you from getting homeowners’ insurance. There’s no getting around the fact that “risk” is a function of how much prior knowledge you have. When your known risk shoots upward based on new knowledge, you either eat the cost or you get subsizied. Hiding that subsidy in a group health care plan or a National Health Care plan doesn’t make it go away.
Now if there were a way you could get insurance before taking such a test, and pay the rate based on the risk that’s based on that level of knowledge, you’d be golden. Given sufficient deterrent against insurance fraud, and sufficient demand, this would be offered in a free market.
Of course I don’t see any reason to assume that we’ll develop very many genetic tests that determine that you’ll definitely get some disease or other. Of those, very few will tell you exactly when you’ll get the disease; your chances of getting it during any given policy period will usually still be very much lower than 100%.