Yesterday I linked to a Wall Street Journal commentary on the health insurance premium rate increases in California. The WSJ’s point of view, clearly, is that the rate increases can be traced directly to California’s regulation of what and whom health insurance must cover and what can be charged. This morning Paul Krugman takes up the other side of this issue:
Here’s the story: About 800,000 people in California who buy insurance on the individual market — as opposed to getting it through their employers — are covered by Anthem Blue Cross, a WellPoint subsidiary. These are the people who were recently told to expect dramatic rate increases, in some cases as high as 39 percent.
Why the huge increase? It’s not profiteering, says WellPoint, which claims instead (without using the term) that it’s facing a classic insurance death spiral.
Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on.
That’s true as far as it goes. You can prevent the consequences of policy from falling on individual consumers by hiding the ever-increasing costs in the general fund.
That doesn’t lower the costs or make the situation any more sustainable. It just puts the pea under a different cup.
Medicare, the largest of our government-paid healthcare plans, faces the problems it does because the Congress has neither been willing to deny Medicare recipients the care they want nor healthcare providers the compensation they want. As long as that remains the case, it will remain on an unsustainable trajectory and covering more people will only accelerate the process.
It needs to be noted that the “death spiral” is characteristic of all insurance once the subscribers have full knowledge of how much they are getting screwed.
The average return on the health insurance dollar is something like 50 cents, but for the healthy young man in his twenties it is more like 10 cents. Once he comes to his senses and gets out, the premiums have to rise, with the result that even the dimmer young men will get out, and so on, leaving only the sick, who will not like to pay twice in premiums than they would have to pay in exhorbitant direct costs.
Insurance depends on stupidity and ignorance.
You missed the part that highlights why Krugman is such a tool these days.
He notes the problem: Death Spiral.
He then bashes something completely different: Inter-state competition.
Its a total freaking non-sequitur. If the problem is a death spiral then the solution is not inter-state competition. So attacking that is kind of…well dishonest. I don’t know who would say that inter-state competition would solve the problem of the death spiral.
Now, there is a reason for inter-state competition in that it tends to lower prices. More competition usually means lower prices. That doesn’t mean it will solve the death spiral issue though.
False dichotomy from Kooky Krugman. The other possibility is that it forces the U.S. to move to a uniform set of regulations allowing for more competition not less.
That op-ed is so bad its unbelievable. I know Krugman is smart. You don’t get to where he has gotten, won the awards he has won, while being stupid. So my only other conclusion is he is being deliberately dishonest. Why do you read him Dave? Do you always read stuff by people who deliberately lie to you?
He’s nearly always good for a reaction post. I take my material where I can get it. And he’s one of the relatively few public intellectuals who’s an economist.
Also you can generally depend on the fact that what Dr. Krugman writes today will be taken as revealed truth by progressive bloggers tomorrow. My comments are in the way of a preemptive strike.
Yeah, but you also legitimize him that way as well. Still, I see your point about his lies being a target rich environment, I’m tempted to go after this one myself.
“I know Krugman is smart. You don’t get to where he has gotten, won the awards he has won, while being stupid. So my only other conclusion is he is being deliberately dishonest.”
A point I completely agree with. He’s a coldly calculating liar.
But let’s face it, it sells newspapers, and makes him income.
And perhaps Dave’s accommodation is no different than accommodating my sometimes intentionally hyperbolic, confrontational, over the top, rib poking comments? Droll, pipe-smoking intellectual exchange has its place. But blogs need traffic.
I am thinking that he read Klein’s piece and was trying to incorporate it and did so badly. I was disappointed that you did not respond to this Klein piece (link follows). He touches upon what I actually see in practice.
First, I am not going to lower my fees just because some company comes from N. Dakota. They will not have enough patients. No way they break in to the market. I think what people often really mean, not sure about Verdon, is that they want to do away with state regulations. I think this could be good, if done right. If we do it like was done with the credit card industry, bad. If we have uniform, multiple levels of care across the states, from bare bones catastrophic plans to Cadillac plans, good.
http://voices.washingtonpost.com/ezra-klein/2010/02/selling_insurance_across_state.html
Steve
The problem with Klein’s and even more so for Krugman’s logic is that having 50 seperate markets means that in each market an insurance firm faces less competition wich means higher prices.
Businesses do not like competition. The less of it the better. Why? Look at oligopolies and monopolies, they have higher profits than competitive firms. They obtain these prices by restricting supply and that results in a higher price.
I’m sure that insurance companies would love to follow the process Klein describes for credit cards. Any industry that is moderately to heavily regulated would love to capture the regulatory process and essentially run it so that it benefits from said regulations. This is not a new idea and it was popularized by….wait for it…no keep waiting…George J. Stigler. Stigler was an economist with the University of Chicago and is known for his pro-market views. Please, all of you brain dead progressive liberals read that last sentence agian. Stigler was not pro-business, but pro-market.
This is what irks me so about brain dead liberal progressives like Ezra Kleing and Paul Krugman. They’ve settled into a world view that just can’t seem to grasp this concept. That being pro-market does not mean pro-business.
It is usually either a liberal progressive or a kook who thinks that less competition is the cause for higher prices, less output, etc. The reality is usually just the opposite. Competitive firms have to keep prices as low as possible (and still make a profit). They often have to geared towards innovation. It is only when firms an industry get old and “tired” do you start to see copyright, trademarks, and intellectual property stuff start to take root. That is when innovation goes to Hell (Windows Vista anyone?).
So lets keep the system where we have segmented markets. Where we can have sudden spikes in prices. Where people have fewer options. Yes, its a recipe for such good times.
To see a similar situation look at gasoline. There are regional blend requirements. So gasoline in South Dakota may not be shipped to California if a refinery supplying California has an unexpected outage. Result: a spike in California gasoline prices. We see it regularly and it is usually followed with some dumb ass commission that looks into malfeasance by oil companies, when in reality we need look no further than the stupidy of our own public policies that our oh so wise and benevolent leaders have put in place.
The size of the market is irrelevant, contra Krugman. This is why he is a dishonest lying piece of shit. The California gasoline market is huge too, but the limitations due to regional blends still has a negative impact on consumer welfare. If you read him thinking you are getting solid and honest analysis think again.
From Krugman’s column, I fixed it for him,
Of course, this really wont do it will it. It doesn’t address the rotten incentives of having tax exempt employer provided insurance. The rotten incentives of Medicare that pays for any and all medical expenses the elderly incur.
The problem with these kinds of demands of immediate action is that we get shit like TARP.
Steve-Did you even read Klein’s piece? He has long advocated for selling insurance across state lines. What he is opposing is a specific approach. If we take the approach that we did with credit cards in the past, all health insurance would originate from some state which is willing to give insurers the best deal. As you note, they do not want competition. Opening up sales across state lines is not the issue. They can do that now. What is really being asked for is deregulation.
Now, if we are going to use the coercive power of the federal government to override state laws, let us not end up with the regulations made up by Mississippi or Idaho. Let us really open up the markets with rules that apply to all and favor none.
Steve
steve makes a good point and it’s important to remember that state regulation reform is small potatoes in the grand scheme of things. Selling insurance across state lines isn’t going to suddenly make health insurance any cheaper especially when many providers have virtual monopolies. Provider monopolies are, it seems to me, a much bigger issue for insurers than differing regulation between states.