Insurance Reform vs. Regulation

An interesting--and quite horrifying---article made the rounds yesterday, and I received it as both an email and as a posting on Facebook from several of my friends.

Rape Victim's Choice: Risk AIDS or Health Insurance?

Christina Turner feared that she might have been sexually assaulted after two men slipped her a knockout drug. She thought she was taking proper precautions when her doctor prescribed a month's worth of anti-AIDS medicine.

Only later did she learn that she had made herself all but uninsurable.

Turner had let the men buy her drinks at a bar in Fort Lauderdale. The next thing she knew, she said, she was lying on a roadside with cuts and bruises that indicated she had been raped. She never developed an HIV infection. But months later, when she lost her health insurance and sought new coverage, she ran into a problem.

I implore you to read the whole thing. This is truly horrifying. The article goes on to illustrate how women face the choice of revealing their medical histories, in this case as victims of heinous crimes, and risk not getting an insurance policy due to preexisting conditions. Or they could stay silent about their crimes.

I am reminded of some of the existing by laws at some universities which state that if a woman were to lob a sexual harassment charge at another student, she would have to leave school and discontinue her education until the matter was resolved. I can only guess that these laws were intended to discourage the frivolous and meritless accusations against other student from being slung haphazardly. Furthermore, as Heather MacDonald illustrates in an issue of the City Journal a few years ago, campus activists propagated an unsubstantiated epidemic of date-rapes and sexual harassment at universities and colleges. And we all remember at Duke University a few years back, right? So perhaps some of these by-laws were put in place as a response to some high-profile false accusations.

But the idea that a female accuser has to excuse herself from her education and classes seems like an undue burden to me. Interrupting their educations is not something that a lot from which people can can recover. What if someone had to leave an institution of higher learning for two years while her case was resolved? Can he or she immediately step back into a learning environment, especially at an academically intense university? I wouldn't wish that upon anybody.

So that was a slight tangent. But I believe that there are parallels between the situation at universities and the victims of assault or worse who can't get coverage for things like exams or drugs to treat infections. In both scenarios, women are incentivized to stay silent about a crime.

The notion of insuring "pre-existing conditions" has been percolating through the current health care reform debate. It is an article of faith among the supporters of health care reform that insurance companies ream exhorbitant profits mostly by denying care to those who need it. This would naturally include those who are terminally ill or those who have very serious diseases...and those who need very expensive life-saving drugs for very long periods of time.

First of all, this notion that insurance companies earn "record profits" is tenuous AT BEST. Allow me to reference a post from MarginalRevolution.Com on the profit margins of the insurance industry.

How profitable are health insurance companies?

Here is one report:

Health insurers, in fact, ranked below many other industries in profitability, including other health sectors, according to the latest Fortune magazine rankings. While pharmaceutical companies were the third-most profitable industry last year, with a 19.3 percent profit margin, health insurers ranked 35th, with a 2.2 percent profit margin. Health insurers also ranked lower in profitability than medical products and equipment makers, pharmacies and medical facilities.

Here is a related list on relative profitability. It's true that profits are up a lot in percentage terms since 2000 but that doesn't mean profits are high. Of course it is possible these accounting measures of profit are lies or misleading.

Here are the share prices of Aetna over time and make sure you notice the splits. It's not clear we can infer anything from this data (for instance if the monopoly position were evident from the beginning, equity returns would be quite modest), but if you wish you can peruse Yahoo Finance for evidence. I don't find it. Recent low equity returns may be the downturn at work but the original question is how profitable these companies are in absolute terms.

I'm very willing to "Cry Uncle" on this one because all I've done is some blogger research using Google. But I would genuinely like to know: if you favor a public plan, or if you think insurance companies are holding strong monopoly positions, what is your evidence for their extreme profitability? If you go to the second link you'll see lots of people claiming the companies are very profitable and should be squeezed in some manner. Or do you simply think the companies are not very profitable?

But lets look at preexisting conditions and whether they should be insured. Several states, including New York and Washington, already possess state regulations called "guaranteed issue" which were designed to keep health insurance plans accessible to the very sick, as well as other regulations designed to keep insurance prices both low and equitable. These types of reforms at the state level are precursors to the reform ideas the proponents of ObamaCare are espousing. It would certainly be instructive to see what has happened in those states to the individual insurance market.

"according to a Manhattan Institute study released last month by Stephen T. Parente, a professor of finance at the University of Minnesota and Tarren Bragdon, CEO of the Maine Heritage Policy Center. In 1994, there were just under 752,000 individuals enrolled in individual insurance plans, or about 4.7% of the nonelderly population. This put New York roughly in line with the rest of the U.S. Today, that percentage has dropped to just 0.2% of the state's nonelderly. In contrast, between 1994 and 2007, the total number of people insured in the individual market across the U.S. rose to 5.5% from 4.5%.The decline in the number of people enrolled in individual insurance plans, the authors say, is "attributable largely to a steep increase in premiums" because of the state's regulations. Messrs. Parente and Bragdon estimate that repeal of community rating and guaranteed issue could reduce the price of individual coverage by 42%.

New York's experience with guaranteed issue and community rating is not unique. In 1996, similar reforms in Washington state preceded massive premium spikes in the individual market. Some premiums increased as much as 78% in the first three years of the reforms—or 10 times medical inflation—according to a study presented at the annual meeting of the Association for Health Services Research in 1999. Other results included a 25% drop in enrollment in the individual market, and a reduction in services offered. Within four years, for example, none of the state's major carriers offered individual insurance plans that included maternity coverage.

A 2008 analysis by Kaiser Permanente's Patricia Lynch published by Health Affairs noted that in addition to Washington and New York, the individual insurance markets in Kentucky, Maine, Massachusetts, New Hampshire, New Jersey and Vermont "deteriorated" after the enactment of guaranteed issue. Individual insurance became significantly more expensive and there was no significant decrease in the number of uninsured."

So "guaranteed issue" distorts the insurance market for obvious reasons. People who know that they can always buy insurance plans when they get very sick will clearly wait until the last minute to buy insurance. There is virtually no incentive whatsoever for healthy people to buy insurance when they are not sick. The end result is that many healthy people opt out, leaving a small pool of sick individuals with very high premiums.

HOWEVER.....

In the aforementioned case of victims of rape and assault: Denying them coverage or benefits because they have a "preexisting" condition"? This is MORALLY INDEFENSIBLE!!! When I speak of preexisting health conditions, I speak specifically of the people who have not taken good care of their bodies and health, e.g. smokers, drug abusers, and those who have eaten sugar and deep-fried skittles their whole lives, who then expected to get coverage and cheap benefits for lung cancer treatment, heart disease, diabetes drugs, and the like. I would make a strong case that people are responsible for their own well-beings and ought to douse their health with a little more "forward-thinking" and foot the bill for some of their future health care expenditures.

But victims of rape and assault are, in no way, shape, or form, responsible for their predicaments. To deny them the benefits of care associated with their victimhood, or to quietly nudge them into silence so that they continue to receive care, is completely inhumane. This is where sensible regulation of the insurance industry is needed.

I am skeptical that this would lend evidence to the idea that we need a nationalized health care system. Yes, our health care system is a complete mess...a complicated mish-mash of rules and regulations that do nothing but raise the cost of insurance beyond the reach of people who need it. But the Cafe doesn't think that socializing medicine will increase access to expensive medicines for those who need it.

But I welcome the debate. Thoughts please!!!