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Romney and the Mandate (circa 2009)

From a USAT column by Romney in 2009, the former Massachusetts Governor had some advise for the President of the United States regarding health care reform:

we established incentives for those who were uninsured to buy insurance. Using tax penalties, as we did, or tax credits, as others have proposed, encourages “free riders” to take responsibility for themselves rather than pass their medical costs on to others.

To translate that sentence into the post PPACA world:  he is talking about an individual mandate.  He has arguing against a public option (i.e., government health insurance):

Massachusetts also proved that you don’t need government insurance. Our citizens purchase private, free-market medical insurance. There is no “public option.” With more than 1,300 health insurance companies, a federal government insurance company isn’t necessary.

First, this underscores, yet again, the moderate nature of the current health care reform.  Bad, good, or indifferent, the notion that the PPACA represents some radical left-wing policy is simply incorrect.  As I have repeatedly noted:  the basics of the policy had its origins in conservative circles in the 1990s (see here and here) and really does more to institutionalize the existing health insurance system than it does to alter it (let alone radically change it).

Second, as Romney’s column notes:  there has to be a way to deal with free riders and the costs they can bring to the system (especially considering that emergency room visits have to be paid for by somebody).  If the government itself is not going to directly pay for the insurance of those individuals, who is going to but themselves?  Indeed, is not individual responsibility a supposedly key Republican/conservative value?  (I wrote on this topic here).

Third, yes:  this is a political pitfall for Romney.  This is true both in his contest with Santorum as well as in the general election.

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About Steven L. Taylor
Steven L. Taylor is Professor of Political Science and Dean of the College of Arts and Sciences at Troy University. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. James says:

    These are the kind of problems you have when you’re a presidential candidate who doesn’t really care, as long people vote for you.

    Like or Dislike: Thumb up 6 Thumb down 0

  2. OzarkHillbilly says:

    Indeed, is not individual responsibility a supposedly key Republican/conservative value?

    In a word, Steven, No.

    Never has been, never will be. They just pay it lip service

    Like or Dislike: Thumb up 10 Thumb down 0

  3. OzarkHillbilly says:

    @OzarkHillbilly: And by “conservatives” I mean today’s GOP in it’s entirety.

    Like or Dislike: Thumb up 3 Thumb down 0

  4. superdestroyer says:

    One can call the current plan moderate if it was not designed to fail in order to justify single payer.

    I just wish people would stop referring to it as insurance since their is no aspect to it that involves actuarial calculations.

    The real discussion is about health care financing, who pays, who benefits, who wins,and who loses.

    Like or Dislike: Thumb up 1 Thumb down 3

  5. Stan says:

    @superdestroyer: The ACA is modelled after the systems used in Germany, the Netherlands, and Switzerland. Their systems aren’t failing. The German version has been around for well over a hundred years. On average the people in these countries see doctors more than we do and spend more time in hospitals, and their per capita costs are lower. There is zero chance that any government that could conceivably be elected in any of these countries would scrap their health care systems and replace it by ours. Why should our new health system fail if their systems don’t?

    Like or Dislike: Thumb up 3 Thumb down 0

  6. superdestroyer says:

    @Stan:

    The one, relevant political party, the Democratic Party, really wants single payer because it will make the future order gives, people like Sandra Fluke, much more power than public mandates.

    The current ACA is designed to drive costs up and to be unsustainable. That will give the Democrats the excuse for single payer. Of course, the real push then will be to lower the pay of health care workers because the order gives of tomorrow really resent that physicians, on average, make more than lawyers.

    Like or Dislike: Thumb up 0 Thumb down 8

  7. Tsar Nicholas II says:

    1. Sorry, Chief, but a multi-trillion dollar spending and tax plan for healthcare across the entire nation is not “moderate” even under a Gumby-based definition of that term. Also, you understand, don’t you, that a government/market/insurance plan in one state like Massachusetts is an apple, whereas a similar but more onerous plan for all 50 states is an orange?

    2. Have you ever heard of the terms “medical invoice” and “medical lien?” When Joe Uninsured Loafer gets into a car wreck and goes to the emergency room for a broken skull the hospital will invoice him for their services. If he can’t pay then the hospital will have a lien on any potential recovery from the other driver or that other driver’s insurance carrier. If nobody can pay then the hospital will incur the loss, meaning the hospital in essence will have a SIR for a certain percentage of its uncollectible debts for services rendered. That in turn can be reinsured through private sources.

    In other words, the “free rider problem” is a red herring. Only a very small percentage of the population (~15%) is not insured. Old people have Medicare. Poor people have Medi-caid. Employed people have group coverage and also workers’ comp. for workplace accidents and injuries. Hospitals and doctors have lien rights and lien claims. They can assert those against third parties, against third-party insurance, and in connection with workers’ comp. claims too. Healthcare providers are not giving away any significant percentage of their services. To the extent they have bad debts that works as a tax write off for them.

    This whole meme of uncovered losses for hospitals and doctors in reality is not a major problem. Certainly it’s not sufficient enough of a problem to justify a national government mandate to purchase a product that in many instances neither is wanted nor needed. The AEI folks were smoking crack when they came up with this idea. It’s a huge mistake.

    The personal responsibility thing in this context also is a red herring and a bait-and-switch too. Again, when someone goes for medical care they are responsible, regardless whether they have health insurance. They get invoiced. There will be collection efforts. If another party is involved there will be a lien claim. Ultimately they’ll pay. Or the other party will. Or that other party’s insurance carrier. If nobody pays then it’ll be a red mark on the first party’s credit report. It will lower their FICO score.

    3. On this we can agree. Romneycare is a huge political problem for Romney. How can you attack Obamacare when you implemented its precursor? Does not compute.

    Like or Dislike: Thumb up 0 Thumb down 6

  8. Jr says:

    The entire GOP have been complete hypocrites when it coms to the Individual mandate, so Romney does have company.

    Like or Dislike: Thumb up 1 Thumb down 0

  9. James in LA says:

    @superdestroyer: ” Of course, the real push then will be to lower the pay of health care workers because the order gives of tomorrow really resent that physicians”

    Every single one of your arguments rests on the thesis, “I Resent, Therefore, I Am.” You are the utter embodiment of jealousy and love unrequited, where you get to be always and forever the center of bitter attention, because this is better than no attention at all. Poor you, it must just desperately suck to death to walk in your dreadful shoes.

    Meanwhile, women won, likely for good. So did kids who won’t be ejected from policies “just because.” Ditto the elderly, who managed to weather the financial storm because social security, you know, works. None of your gloom-speak will this undo.

    Resentment is no way to live a life, and you are free to keep on living it as long as you like. My sense is your actual disappointment is just beginning. Your one-party theory lacks imagination because you cannot conceive how anyone different from you could possibly succeed at anything. You wish for the failure of those with whom you disagree.

    Why would anyone bother to take you seriously? The First Amendment, while supporting your Speech, does not guarantee it will be heard, acted upon, or will be considered in any way relevant to t he future. You even know your ways are passing, and you make the free choice to only wallow in it. This is not courageous, among other failings. And it poisons pretty much every argument you make.

    “I banish you. You have been banished.” — John Hodgeman

    Like or Dislike: Thumb up 6 Thumb down 0

  10. superdestroyer says:

    @James in LA:

    I find it odd that actually noticing how progressives put their own beliefs into action is somehow just an act of resentment.

    I am just noticing that progressive activist live their own lives versus what they are saying. I do not expect for most people to care for what I post because I noticed long ago that most people do not like their own hypocrisy pointed out to themselves.

    As the U.S. goes forward as a one party state with progressive order-givers like Sandra Fluke, I would guess that speech will be repressed and strictly regulated because the last thing that the Ivy League, top tiered Law School, Manhattan dwelling activist are doing to want to hear is anything that questions their beliefs in their own superiority.

    Like or Dislike: Thumb up 0 Thumb down 4

  11. James says:

    @superdestroyer:

    The current ACA is designed to drive costs up and to be unsustainable.

    HAHAHAHA. Please do go on about what the Affordable Care Act is “designed” to do.

    @Tsar Nicholas II:

    Only a very small percentage of the population (~15%) is not insured.

    15% is a statistically significant portion of the population. Are you’re ignoring the issue of pre-existing conditions.

    Like or Dislike: Thumb up 4 Thumb down 0

  12. James in LA says:

    @superdestroyer: ” I would guess that speech will be repressed and strictly regulated.”

    More like a secret wish, given your commentary, so your permission to endlessly wallow and complain can continue apace. Sandra Fluke really bothers you, I know. If she were a dude, who would care? No one. As a woman, she is an automatic target so Pavlovian even you, the Great Superdestroyer, Self-Appointed Pointer-Outer Of Hypocrisy cannot resist taking your shots, and making up compete hooey such as “order-giver” and “one-party nation.”

    To stomp home the point you do not want government in your business you have to get government into someone else’s business. No wonder you know hypocrisy so well, living the dream of it as you do.

    Did some “ivy league” school reject you? You do realize ivy is not required to work hard and get traction in America, right?

    Like or Dislike: Thumb up 5 Thumb down 0

  13. James in LA says:

    @Tsar Nicholas II: “It will lower their FICO score.”

    And this, in turn, leads to being shut out of housing, employment, and attempts to get insurance in the future, as credit reports are increasingly used for purposes having nothing whatsoever to do with the lending of money. The people who are more likely to need medical care are the 15% you claim are uninsured.

    15% = c. 50 million Americans, so I am not enrolled in your diminution, “a very small percentage.” They are dismissed at extreme peril.

    Healthcare is a basic human need. As we’ve seen recently, employers need to come out of the equation, and the focus needs to be about universal coverage in a well-regulated market. These are administrative math-type problems that have clear solutions once the “moral objection” crap is drained from it. We can find a system that works for all. We just need to, you know, want to.

    Like or Dislike: Thumb up 4 Thumb down 0

  14. superdestroyer says:

    @James in LA:

    It is the gender studies, Ivy Leagued educated activist who are pushing for “hate speech” code and “anti-byllying” rules.

    Restrictions on speech has become a weapon of the left just like “separate and unequal” and “fairness” have become weapons of the left.

    I find it odd that those who scream the loudest about the 99% are lining up to defend an Ivy League graduate to did NGO work in Manhattan and Los Angeles.

    Ms. Fluke would have a lot more credibility if she had spent her time in Newark or Detroit or Cleveland or El Paso working on feminist issues instead of spending five years in NYC and LA while working on her resume for law school.

    Ms. Fluke is a great example of the hypocrisy of left. I just keep thinking about the impact of living in a country run by feminist activist like Ms. Fluke. Is there any room in a country for my children or any middle class whites?

    Like or Dislike: Thumb up 0 Thumb down 2

  15. Indeed, is not individual responsibility a supposedly key Republican/conservative value?

    Almost. They want the option of personal responsibility, the freedom to do otherwise, and “just deserts” for those who make bad choices.

    (They don’t believe in bad luck, as that would upset the morality tale.)

    Like or Dislike: Thumb up 2 Thumb down 0

  16. Latino_in_Boston says:

    Well, that’s pretty awkward there, Willard. It’s a real shame that in its desperate move to paint Obama as a crazy communist, you got caught in the crossfire.

    As Bill Maher put it the other day referring to what Romney was essentially saying at the debates:

    “How dare you accuse me of helping people or being compassionate! Why, I’ll have you know I’m every bit as much of a cold hearted bastard as any of these other pricks up here with me!”

    Like or Dislike: Thumb up 3 Thumb down 0

  17. It plain to see why Obama is so happy and relaxed right now. He’s going say things like “I agree with Mitt. You know, the old Mitt who said …”

    Like or Dislike: Thumb up 3 Thumb down 0

  18. Brummagem Joe says:

    @Tsar Nicholas II:

    1. Sorry, Chief, but a multi-trillion dollar spending and tax plan for healthcare across the entire nation is not “moderate” even under a Gumby-based definition of that term.

    Obviiously all these governments of left and right around the world who have national healthplans of one sort and another are NOT moderate. Even Canucks are not moderate.

    Also, you understand, don’t you, that a government/market/insurance plan in one state like Massachusetts is an apple, whereas a similar but more onerous plan for all 50 states is an orange?

    Er….no they’re both apples just different sizes.

    Like or Dislike: Thumb up 3 Thumb down 0

  19. Brummagem Joe says:

    @Tsar Nicholas II:

    Only a very small percentage of the population (~15%) is not insured.

    Only 45 million people….ohhh that’s alright then

    Like or Dislike: Thumb up 2 Thumb down 0

  20. Brummagem Joe says:

    Romneycare has immunised Obama against attacks over the ACA. To start with I take with a large pinch of salt claims it’s unpopular because on just about every issue of substance with the act (pre-existing condition, lifetime caps, etc) there’s massive support for them according to polls. And to the extent that this is a campaign issue this is what Obama will fight it on. And the moment the mandate get mentioned he can point to Romney care and its mandate and statements like this. The Republicans are screwed over this as an issue if Romney is the candidate.

    Like or Dislike: Thumb up 3 Thumb down 0

  21. An Interested Party says:

    Is there any room in a country for my children or any middle class whites?

    You could move to Norway or Finland…plenty of white people in those places…oh, but there’s that whole pesky socialism thing, darn it…

    To start with I take with a large pinch of salt claims it’s unpopular because on just about every issue of substance with the act (pre-existing condition, lifetime caps, etc) there’s massive support for them according to polls.

    Exactly right…whether the GOP nominee is either Romney or Santorum, the commercials in the fall will write themselves, listing the individual parts of PPACA and reminding people that all of that will come to an end if Republicans gain power in Washington…

    Like or Dislike: Thumb up 3 Thumb down 0

  22. michael reynolds says:

    @superdestroyer:

    Is there any room in a country for my children or any middle class whites?

    I often wonder this as I am chased through the streets by mobs of angry brown people. What about the white people? Won’t somebody think of the white people? Why must we be reduced to having only 90% the money and 90% of the power? So tragically unfair.

    Like or Dislike: Thumb up 7 Thumb down 0

  23. Stan says:

    @superdestroyer: Sorry, but either the pay of health care workers will have to stabilize or the US will go broke, whether or not the Affordable Care Act is repealed. Look at Ezra Klein’s post today on the cost of medical procedures here and abroad or Google “It’s the prices, stupid” to find one of many studies of the comparative costs of standard treatments – vaginal deliveries, angioplasties, you name it – to see the our prices are far higher than they are in western Europe and Canada. There is simply no reason why an appendectomy should cost twice as much here as elsewhere. Somebody in our system is making too much money, and it will have to stop or at least stabilize. Whether this is done by government fiat or by some other means is up to the political process. But it’s going to happen, because it has to.

    Like or Dislike: Thumb up 2 Thumb down 0

  24. Brummagem Joe says:

    @Stan:

    “It’s the prices, stupid”

    Of course it’s the prices. Our enormously complex patchwork system is inefficient and more costly than it should be but that’s a minor part of the problem as are the rent seeking activities of insurance companies. Klein mentions a $280 cost for a procedure in France whereas in Japan it’s just over $100. Not surprisingly Japan has the lowest cost healthcare system in the developed world and it’s not exactly a backward country. Doctors in the US earn about 2.5 times as much as they do in Europe. Drugs cost 2-3 times as much. Routine procedures cost 2-3 times as much. This is the problem but fixing it is going to gore a lot of oxes. I’ve had this conversation numerous times with a couple of doctors I know quite well and basically they admit it. And what is the Republican response? They’re currently engaged in an attempt to strip out or defund the cost containment portion of the ACA.

    Like or Dislike: Thumb up 1 Thumb down 0

  25. JohnMcC says:

    @Stan: Mr Stan, you are definitely onto something here. And I expect that if you direct your attention to the segment of the health-care budget called “administration” you will begin to get right up to your target. In the New England Journal of Medicine of 8/21/03, researchers claim that annual administrative costs in the USA health care industry was $1,059/capita but in Canada only $307.

    And a plethora of differing insurance companies each with their own overhead and regulations and forms is exactly the policy that will make administration as expensive as possible.

    Like or Dislike: Thumb up 1 Thumb down 0

  26. JohnMcC says:

    @Brummagem Joe:And thank you for including “Big Pharma” in the discussion of costs, my friend.

    I have pointed out to several MDs and Big Poohbahs in the hospitals I’ve worked in over the years (I’m an ICU nurse) that the only way that health care inflation has been halted in countries around the world is by essentially having a huge buyer of health service determine how much they are willing to pay and sticking to it. This of course is the WalMart method. They tell their suppliers how much they are willing to pay for tires, towels and detergent; if those supplier want to sell their goods to WalMart’s customers they find a way to deliver at the price demanded.

    Everyone can draw their own conclusions about the single-payer idea. But those who oppose it will have to deal with the demonstrated inability of the American system to control medical inflation. Or — knowing the so-called-conservatives of the present — create a smoke screen of controversy about individual liberty and religious freedom.

    Like or Dislike: Thumb up 2 Thumb down 0

  27. James says:

    @JohnMcC:

    But those who oppose it will have to deal with the demonstrated inability of the American system to control medical inflation. Or — knowing the so-called-conservatives of the present — create a smoke screen of controversy about individual liberty and religious freedom.

    +1

    Like or Dislike: Thumb up 1 Thumb down 0

  28. Hey Norm says:

    I’m thinking Obama is bummed this came out now. I’m sure they would have preferred to clobber Romney with his own words sometime after the GOP Convention. No matter. It’s clear now that Romney can’t run on his signature accomplishment as Governor and now he can’t use it against Obama either. Romney…what a simple f’er.

    Like or Dislike: Thumb up 0 Thumb down 0

  29. Brummagem Joe says:

    @JohnMcC:

    the only way that health care inflation has been halted in countries around the world is by essentially having a huge buyer of health service determine how much they are willing to pay and sticking to it.

    Absolutely. Price caps (overt or covert) are a feature of every system however it’s administered.

    Like or Dislike: Thumb up 1 Thumb down 0

  30. superdestroyer says:

    @Stan:

    The public sector unions in Wisconsin (and other midwest states) have signal that they will tolerate no long term cut in pay or services. Virtually every progressive has support the unions in their poistion.

    At the same time those same progressives are calling for massive pay cuts for healthcare workers.

    As I have said before, in the near future when the U.S. is a one party state and ran by elite progressives, the best job to have will be a government job. High pay, no chance of being laid off, and can use armed force to extract the money from the population to maintain the costs. The worst job to have is things like healthcare since the government will be forced to lower reimbursements and will just dare people to leave healthcare as a career.

    Like or Dislike: Thumb up 0 Thumb down 0

  31. superdestroyer says:

    @JohnMcC:

    You may have noticed that very few of Wal-marts suppliers actually manufacture anything in the U.S.

    How do you plan on off shoring healthcare. Or is the plan to staff all of the hosptials in the U.S. with third world immigrants who will work for cheap so that their families can come to the U.S. and get on the dole.

    Like or Dislike: Thumb up 0 Thumb down 1

  32. Stan says:

    @JohnMcC: In the article I cited, It’s the Prices, Stupid, the authors come down to three reasons for our high medical costs: a) the highly stratified nature of American society, in which American high earners do much better vis a vis the median wage earner than their European counterparts, b) high administrative costs associated with our reliance on a not very efficient insurance industry, and c), probably most important, the weakness of American insurance companies compared to European funders of medical care when it comes to negotiating the cost of medical services. In a recent NYTimes blog post one of the authors of the article, Uwe Reinhardt, proposes a way of strengthening the bargaining position of our insurance companies. I’ve found that his blog posts, and those of Ezra Klein’s in the Washington Post, are well worth reading when it comes to the nuts and bolts of our medical crisis.

    Like or Dislike: Thumb up 0 Thumb down 0

  33. superdestroyer says:

    @Stan:

    Urban Hospitals have enough problems getting people to work at them. What do you think would happen if you cut the pay in half of everyone working in an inner-city hospital?

    I have argued for a long time that part of healthcare reform is motivated by the resentment of the incomes of physicians. After reading someone like Ezra Klein who majored in political science at UCLA, I guess all I can say is Q.E. D.

    Like or Dislike: Thumb up 0 Thumb down 0

  34. Brummagem Joe says:

    @Stan:

    the weakness of American insurance companies compared to European funders of medical care when it comes to negotiating the cost of medical services.

    There’s a reason for this. In Europe the insurance companies (where they are part of the picture) are really only acting as agents of the government and they are tightly regulated. Here they are largely free agents and can charge whatever the market will bear. They have no real incentive to hold down overall costs even if they are trying to ensure that their own stop loss ratios are held down to protect profitability. In fact the incentive is the other way. If overall insurance premiums rise by 10% total revenue is thereby increased and their absolute net dollar income increases along with it even if profit margins are unchanged although in such a scenario they are likely to rise.

    Like or Dislike: Thumb up 0 Thumb down 0

  35. Stan says:

    @superdestroyer: Nobody is advocating cutting the pay of people who work in inner city hospitals by half or by anything. If you have some source for this, cite it. In other words, put up or shut up. And Ezra Klein didn’t go to UCLA.

    Like or Dislike: Thumb up 0 Thumb down 0

  36. Stan says:

    @Brummagem Joe: I’m not sure if you’re right. Theoretically, insurance companies could compete with each other by bargaining hard with hospitals and doctors to get the lowest possible rates and passing along the savings to their customers, defined here as the human resources departments of companies buying insurance. This might even be happening now, to some extent. But if it does, it isn’t being reported. Apart from blogs, I don’t know of anybody doing much reporting on the health care industry.

    Like or Dislike: Thumb up 0 Thumb down 0

  37. James says:

    @Stan:

    Theoretically, insurance companies could compete with each other by bargaining hard with hospitals and doctors to get the lowest possible rates and passing along the savings to their customers, defined here as the human resources departments of companies buying insurance.

    At the firm-level, they have to pay a market-rate for insurance coverage. The problem is that the market rate itself has little downward force. Insurance companies have little incentive to lower rates because demand for healthcare goods and services is very price inelastic. Consumers can’t comparison shop (or put off purchasing) on bypass surgeries the same way they can dishwashers. This fact cascades through the entire health insurance market, and is a major driver of our healthcare cost inflation effect.

    Like or Dislike: Thumb up 0 Thumb down 0

  38. Stan says:

    @James: Is demand for insurance inelastic when the buyers are companies? If the company is reasonably big it has a knowledgeable human resources department that knows that in the US the price of a medical service depends on the buyer. Wouldn’t companies be happy if they could buy decent insurance for their employees cheaply? Presumably somebody studies these things, but I don’t know who (apart from Uwe Reinhardt and Ezra Klein).

    Like or Dislike: Thumb up 0 Thumb down 0

  39. Brummagem Joe says:

    @Stan:

    I’m not sure if you’re right. Theoretically, insurance companies could compete with each other by bargaining hard with hospitals and doctors to get the lowest possible rates and passing along the savings to their customers, defined here as the human resources departments of companies buying insurance.

    Theoretically perhaps but not actually. As James points out demand for healthcare is inelastic so the downward pressure on prices is fairly slight. Do the sums. A 10% increase in healthcare costs increases the Acme Insurance Company’s revenue from 10 billion dollars to 11 billion and their stop loss ratio stays at 80% so this means they collect 200 million more in gross income and their expense ratios are unchanged thus allowing more to fall through to the bottom line or boost the incomes of managers. The entire thing is collusive.

    Like or Dislike: Thumb up 0 Thumb down 0

  40. Brummagem Joe says:

    @Stan:

    Wouldn’t companies be happy if they could buy decent insurance for their employees cheaply?

    Well they might be but health insurance providers are essentially an oligopoly with little or no reason to sell their product cheaply because of the nature of demand for it, and very good reasons for letting prices rise as my little example illustrated.

    Like or Dislike: Thumb up 0 Thumb down 0

  41. Brummagem Joe says:

    An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists).Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants.

    I’d say this was a reasonable description of the US health insurance industry. In some major states like CA I believe a couple of players have over half the market. The only counter force is Medicare/Medicaid and healthcare providers have enough muscle on the ground and in Washington to keep them in line.

    Like or Dislike: Thumb up 0 Thumb down 0

  42. An Interested Party says:

    I’d say this was a reasonable description of the US health insurance industry.

    Many of these people who are screaming at the top of their lungs about how afraid they are of communism, socialism, etc. realistically have far more to fear from oligopoly…

    Like or Dislike: Thumb up 0 Thumb down 0

  43. James says:

    @Stan: sorry for the delay, we have our primary tomorrow. As for your question:

    Wouldn’t companies be happy if they could buy decent insurance for their employees cheaply?

    I see where you’re leading with this, and in a competitive market just such an event would occur. The major issue is that the health insurance market isn’t competitive, and at the firm-level, individual companies are health insurance price-takers.

    This is important because healthcare cost inflation isn’t being driven by individual insurance companies, but by the industry as a whole. Health insurance purchasers (either individuals or firms) are stuck with either paying higher and higher premiums, or foregoing insurance coverage. Making the latter choice doesn’t mean that individuals forego their consumption of healthcare goods and services though. That’s what I mean when I saw “demand is price inelastic”.

    Larger firms choose to self-insure, which is risky but, as I understand, yields some savings.

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  44. Brummagem Joe says:

    @James:

    Larger firms choose to self-insure, which is risky but, as I understand, yields some savings.

    Actually about half of employee coverage is via employer self insured plans but in most cases the administration of the programs is handled by insurance companies or other third parties on their behalf. It probably reduces the cost marginally because companies don’t have to pay insurance premiums that cover the risk an insurance company is carrying. But then many self insurers purchase additional stop loss insurance against catastrophic losses. At the end of the day it doesn’t act as much of a brake on the prices that healthcare providers are able to charge for their services even if it saves some individual companies a little money.

    Like or Dislike: Thumb up 0 Thumb down 0

  45. James says:

    @Brummagem Joe: Thanks for clarifying. I’ve haven’t done much reading on how self-insurance works.

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