The Socialized Medicine Scheme: Good and Bad Insurance?

The televised health-care/health insurance debate of Thursday 02/25/2010 came complete with many technical insurance issues such as selling insurance across state lines, health savings account plans, and pre-existing condition private welfare plan underwriting. Than there was Mr. Obama's references to "good insurance" and "bad insurance". (1)





What is "good insurance"? What is "bad insurance"? Is "good" and "bad" insurance really an argument to limit choice?


Bad Insurance

Attempted to track down a definition of "bad insurance". Sorry folks, there is no definition for "bad insurance". No such animal exists.

Its possible the phrase "bad insurance" is related to the phrase "jobs saved" hence the definition is a matter of national security and not available for consumption by the general public.

In my thirty plus years in the insurance industry the phrase "bad insurance" has come up a handful of times as a consumer description. Bad insurance is a subjective description of insurance that did not cover a loss event. That the policy was "bad" as the scope of coverage was not broad enough to encompass a loss.

Apparently catastrophic plans, large deductible plans, and large deductible health savings account type plans are "bad insurance" according to Mr. Obama. (2) This is truly odd as no definition exists for "bad insurance" and its not a scope of coverage issue for Mr. Obama its a size of deductible issue.


Good Insurance

Same problem exists for "good insurance", no definition found. Have heard people from time to time state they want "good insurance". Of course you then need to ask them what do you mean by "good insurance"? At which point an individual explanation is put forth explaining what "good insurance" means in the mind of the particular consumer. The range of responses regarding what is good insurance, to particular consumers, range all over the ballpark.

Mr. Obama thinks "good insurance" is a low deductible, low co-pay plan, with low doctor office co-pays and low prescription card co-pays. (3) That is, Mr. Obama thinks Cadillac plans are "good insurance". Those very expensive, very rich benefit plans known as Cadillac plans are good insurance.


Is good insurance and bad insurance really an argument to limit choice?

The attempt by Mr. Obama to categorize insurance plans as good or bad is really an argument of good vs. bad. You see, the underlying political argument is that Cadillac plans are the only good insurance plans and that catastrophic or high deductible plans are the bad insurance plans.

The argument is framed to limit choice by making higher deductible plans the villain. That is, only Mr. Obama's "good insurance" is what people need. People need Cadillac plans. That high cost, rich benefit plans, are good insurance and this is the plan Mr. Obama has chosen for you.

The higher deductible, lower cost plans are bad insurance according to Mr. Obama. That the choice of lowering cost by retaining and managing more risk is "bad insurance".

Note that the good vs. bad insurance argument put forth by Mr. Obama has the element of cost conspicuously absent. That cost is never mentioned and purposely avoided as the debate point is confined to the good vs. bad with the debater's (Obama) conclusion ,that good is better than bad, purposely shaped for the audience regardless of other important variables, cost being a major variable.

Moreover, the "summit" was held regarding health-care cost. Yet Cadillac plans (good insurance) drive up health-care cost due to over utilization of health-care resources while catastrophic/high deductible plans (bad insurance) drive down cost as they help eliminate over utilization of health-care resources.

As with any debate point using the good vs. bad scenario, the bad needs eliminated. The debater in the argument conveniently defines good and bad for his audience. Hence the elimination of the "bad" leaves you with Mr. Obama's definition of what is "good". Hence only Mr. Obama's choice is the good choice. Of course in the end, Mr. Obama is merely arguing to reduce the consumers freedom to choose.


Summary


Bad insurance and good insurance are not technical insurance terms and no definition can be found. In the very few cases where "bad or good" insurance is referenced its a subjective consumer description of how a plan should react to a loss or how a plan should fit their particular needs. The good vs. bad argument is merely a debate point with the attempt to lead the audience into limiting their own freedom to choose.


(1) (2) (3) http://dailybail.com/headlines/grading-the-health-care-summit.html

The Socialized Medicine Scheme: the wrong focus

What is extremely odd about the current argument put forth by proponents for socialized medicine is their focus on health-care insurance.

One could go on for fifty paragraphs about claim frequency, claim severity, expense ratios, claim reserves, etc., etc. but at the end of the day the cost of health insurance reflects the underlying cost to provide health-care.

The ridiculous assumption that fixing or controlling health insurance premiums will cause the underlying cost of health-care to change is insanity.

It really boils down to: the current cost to provide health-care is a reflection of demand and supply for health-care given the current government regulation frame work. The solution is in the cost to deliver health-care which includes demand efficiency by reducing/eliminating over utilization, supply to be expanded as well as supply costs to be simultaneous reduced, and government regulation to be reduced or eliminated.

Once demand and supply for health-care produces a price point, all insurance is doing is insuring “price”. Average price is not really the insurance event. It’s the outlier of average price that is the insurance event. That is, it’s the catastrophic price component, that is calculated into average price, which is the true insurance event.

Hence demand and supply for health-care produces price and the cost of insurance is merely a reflection of price determined by demand and supply for health care.

The Socialized Medicine Scheme: an incomplete argument for the repeal of the McCarran-Ferguson Act

Proponents of the socialized medicine scheme want to repeal the McCarran-Ferguson Act. (1) The argument put forth to the public is: the McCarran-Ferguson Act gives the insurance industry an exemption from anti-trust.



What is the McCarran-Ferguson Act? What is the history of the McCarran-Ferguson Act? Has there been past attempts to repeal the McCarran-Ferguson Act? Is the McCarran-Ferguson Act an exemption for the insurance industry from anti-trust?

What is the McCarran-Ferguson Act?

The McCarran-Ferguson Act is a federal law that was enacted on 03/09/1945. The act had the co-sponsors of democrat Pat McCarran of Nevada and republican Homer Ferguson of Michigan. (2) (3) (4)

The law gives insurers a very narrow exemption to anti trust laws. It allows "the business of insurance" to share loss data, jointly develop insurance forms and allows for the standardization of policy language. It more importantly allows states to regulate and tax insurance. (5) (6) (7)

Moreover, the "business of insurance" is otherwise subject to all other aspects of federal anti-trust. (8) (9) The business of insurance is subject to state level anti trust laws as well. (10)

What is the history of the McCarran-Ferguson Act?

In 1944 the United States Supreme Court ruled insurance was interstate commerce (United States v. South-Eastern Underwrites Ass'n). (11) (12) States then became distressed that they no longer had authority to regulate insurance within their state borders. (13)

McCarran-Ferguson was enacted for the benefit of the many and several states which had, in 1945, regulated and subsequently taxed insurance for nearly 100 years. It gives the many and several states the authority to regulate "the business of insurance". That federal regulation will not interfere with state regulation unless a federal law provides otherwise. (14) (15)

The very limited anti trust exemptions included in the act pertained to insurers. The very narrow exemption promotes lower insurance costs, promotes competition leading to choice, and helps assure solvency.

Basically, loss data is shared among the insurers for the benefit of policy pricing in regards to solvency. (16) The solvency of insurers is very dependent on accurate loss data. Further, small insurers do not have large pools of loss data information. If the small insurer would like to enter a market (increase competition) they need large pools of loss data to determine price and enter a market with solvency in mind. Large insurers also benefit from pooling of loss data in regards to their solvency. Solvency is surely an important consumer protection.

Standardized policy language and policy forms, through cooperation of insurers, was also included in the act. Standardized policy language and policy forms stream lines cost hence benefiting insurers and consumers alike. It also protects consumers, insurer, and the judicial system regarding consequential interpretation of policy language.

Has there ever been attempts to repeal the McCarran-Ferguson Act?

Attempts to repeal the McCarran-Ferguson have occurred every decade since 1960. (17) Obviously, in each case the repeal failed after close study. A somewhat recent attempt to undermine the law was the Insurance Industry Competition Act of 2007. (18)

The most recent attempt to repeal or amend the McCarran-Ferguson act is House Bill 1583 which is entitled The Insurance Competition Act of 2009. This particular legislation was introduced by Rep. Gene Taylor, D-Miss., and Rep. Peter DeFazio, D-Ore. This legislation continues to be debated.

Is the McCarran-Ferguson Act an exemption for the insurance industry from anti trust?

A very incomplete argument is that the McCarran-Ferguson exempts insurers from anti-trust. (19) As mentioned above, insurers are not exempt from federal or state anti-trust. The exemption that exists is particular to the dynamics of the insurance industry and is fashioned in a very narrow style in which to promote lower costs, competition and solvency.

Summary

Proponents of the socialized medicine scheme have fashioned a political argument, for the general public, that insurers are exempt from anti trust. The argument is political in purpose as its intent is to mislead as its argument basis is incomplete and hence incorrect. Its not a empirical argument, its an argument of "notion".

Insurers are only exempt in a narrow fashion due to the dynamics of the industry. The exemption lends itself to promoting lowering costs, promoting competition, and promoting insurer solvency. Further, the McCarran-Ferguson Act has its main thrust as guaranteeing a state right which is regulation and taxation of insurance.

Notes

note1: The McCarran-Ferguson Act applies across almost all lines of insurance. Meaning that insurance such as personal insurance (e.g. auto/property), commercial property and casualty, health, life, inland marine, etc. are included.

note 1a: the following is a link to a video explaining McCarran-Ferguson regarding state rights and the narrow insurance industry exemption: http://www.youtube.com/user/PIANational

note 2: "solvency" mentioned above means the on going ability of an insurer to pay claims.

References:

(1) http://www.asashop.org/news/2009/march2009/pr27.htm

(2) http://www.naifa.org/advocasy/irr/mf.cfm

(3) http://www.ohioinsurance.org/factbook2001/chapter6/chapter_6k.htm

(4) http://en.wikipedia.org/wiki/McCarran%E2%80%93Ferguson_Act

(5)http://www.ohioinsurance.org/factbook2001/chapter6/chapter_6k.htm

(6) http://www.bradenton.com/business/story/2047936.html

(7) http://www.pianet.org/IssuesOfFocus/HotIssues/modernization/2-12-10-2.htm

(8) http://www.pciaa.net/web/sitehome.nsf/lcpublic/210?opendocument

(9) http://www.answers.com/topic/mccarran-ferguson-act-of-1945-1

(10) http://www.namic.org/fedkey/07mfa.asp

(11) http://en.wikipedia.org/wiki/McCarran%E2%80%93Ferguson_Act

(12)http://www.asashop.org/news/2009/march2009/pr27.htm

(13)http://law.jrank.org/pages/8497/McCarran-Ferguson-Act-1945.html

(14)http://www.answers.com/topic/mccarran-ferguson-act-of-1945-1

(15) http://www.naifa.org/advocasy/irr/mf.cfm

(16)http://www.ohioinsurance.org/factbook2001/chapter6/chapter_6k.htm

(17) http://www.naifa.org/advocasy/irr/mf.cfm

(18) http://www.naifa.org/advocasy/irr/mf.cfm

(19) http:///www.healthreformwatch.com/2009/06/21/health-insurance-competition-the-mccarran-ferguson-act/

The Socialized Medicine Scheme and the Crisis-Cult of the Uninsured

One of the main arguments in the socialized medicine scheme is the crisis-cult number of uninsured. That the number of uninsured is 47 million (1)

What is the definition of an "uninsured"? How many are uninsured? What are the components of the statistic "uninsured"? How many people are involuntarily uninsured?




What is the definition of an "uninsured"?

Common sense would indicate that an uninsured is a person without insurance. The definition of the term uninsured is: not covered by insurance. (2) Seems rather straight forward. Wrong.

The differing statistical measurements of those without health insurance in the United States use the following definition for "uninsured": have not had health insurance for one or more periods in the last twelve months. (3) (4) (5) Therefore, when you see a number within a news story regarding the number of uninsured, its not the true number of "uninsured" its rather the number of people that have not had health insurance for one or more times in the last twelve months.

Hence "uninsured", meaning not covered by insurance, is a much different concept than not had health insurance one or more times in the last twelve months.

How many people have been uninsured one or more times in the last twelve months?

That is a very good question without a sound answer. The statistical estimates vary from a high of 83 million to a low of 35 million. (6) (7) (8) (9) (10) In other words the statistic is very unreliable. The favorite number quoted is 47 million by proponents of socialized medicine. (11)

What are the components of the statistic "uninsured"

One must remember, from the discussion above, that "uninsured" does not mean without insurance. However, proponents of socialized medicine conveniently leave out the true definition as "uninsured" is so much more powerful a term when attempting to make their political case for socialized medicine.

Politics are in play concerning the term "uninsured". Politics are at the forefront of the lack of discussion by proponents of socialized medicine regarding what makes up the statistic "uninsured". One example of statistical component omission is the phenomena of voluntary uninsured vs. involuntary uninsured. (12) That is to say, a large group of people elect to voluntarily not own health insurance. This group of voluntarily uninsured are people that otherwise qualify for health insurance and have the ability to pay yet opt to not purchase health insurance. Moreover, this group is a component of the 47 million statistic when in fact they are not "uninsured" they are "voluntarily uninsured".

Are uninsured non-citizens part of the 47 million statistic? Yes. (13) (14) (15)(16)Hence uninsured non-citizens have not been removed from the 47 million statistic for political reasons as the 47 million figure would quickly decline and not have as much political impact for proponents of socialized medicine.

An additional component is the millions who qualify for taxpayer financed (government) health-care benefits offered but just do not take the coverage for a variety of reasons. (17)

Involuntarily uninsured

The 47 million figure is an unreliable figure which further includes voluntarily uninsured people, non-citizen uninsured, and voluntary nonparticipants in taxpayer financed and offered health care.

Then what is the number of involuntary uninsured? 16 million. (18) In other words, those US citizens that are uninsured which desire to be insured is the true "crisis" number which equates to 16 million. That is, the crisis is overstated by 31 million people.

Summary

The "uninsured" health insurance statistic is based on a definition different than the traditional definition of not covered by insurance. The statistic "uninsured" for health insurance varies widely. When that statistic is dissected into its components the real number of involuntary uninsured for health care becomes 16 million which means the popular figure of 47 million is overstated by 31 million.

Note: mentioned above is that the total number of uninsured is a very unreliable statistic and varies widely. A fifteen minute side presentation by Catherine Hoffman of Kaiser Family Foundation is highly informative in this regard. Link is here:

http://www.kaiseredu.org/tutorials/CountingtheUninsured4/CountingtheUninsured4.html

References:

(1) http://www.pbs.org/newshour/bb/health/july-dec07/uninsured_08-28.html

(2) http://dictionary.reference.com/browse/UNINSURED

(3) http://www.kaiseredu.org/tutorials/CountingtheUninsured4/CountingtheUninsured4.html

(4)http://www.kff.org/uninsured/1420.cfm

(5) http://www.kaiseredu.org/topics_reflib.asp?id=142&parentid=71&rID=1

(6)http://nooilforpacifists.blogspot.com/2005/06/health-care-facts-and-myths.html

(7)http://sanantonio.bizjournals.com/sanantonio/stories/2009/09/21/story3.html

(8)http://www.realclearpolitics.com/printpage/?url=http://www.realclearpolitics.com/news/ap/politics/2009/Aug/05/health_care_debate__how_many_actually_uninsured_.html

(9)http://www.kff.org/uninsured/8004.cfm

(10)http://wiki.idebate.org/en/index.php/Debate:_Public_insurance_option_in_US_health_care

(11)http://www.pbs.org/newshour/indepth_coverage/health/uninsured/map_flash.html

(12)http://www.freedomworks.org/files/FreedomWorks%20Issue%20Analysis%20Source%20of%20Insurance.pdf

(13)http://online.wsj.com/article/SB124579852347944191.html

(14)http://www.cis.org/articles/2000/coverage/coverage.html

(15)http://www.kff.org/uninsured/7451.cfm

(16)http://www.freedomworks.org/files/FreedomWorks%20Issue%20Analysis%20Source%20of%20Insurance.pdf

(17)http://money.cnn.com/2008/04/29/magazines/fortune/colvin_aetna_esuite.fortune/index.htm?postversion=2008050106

(18)http://www.freedomworks.org/files/FreedomWorks%20Issue%20Analysis%20Source%20of%20Insurance.pdf

The Socialized Medicine Scheme and Selling Insurance Across State Lines

The socialized medicine scheme proposed in the house and senate either avoids the argument regarding selling insurance across state lines or nullifies the benefits of selling insurance across state lines. (1)

What does selling insurance across state lines mean? Why don't insurers presently sell insurance across state lines? Why should insurers sell insurance across state lines? Are the many and several states proposing legislation regarding selling insurance across state lines?


What does selling insurance across state lines mean?

Basically selling insurance across state lines means that insurance regulated in one state could be purchased in another state which has separate insurance regulations. (2) That a citizen of New York could buy a policy that is regulated by the state of Arkansas.

Why don't insurers presently sell insurance across state lines?

The states retain certain rights based in the 10th Amendment. Insurance is one of those retained rights. (3) (4) (5) (6) Hence insurance is regulated on a state by state basis. Furthermore, the fifty states have differing insurance laws and regulations with each state having a separate insurance commissioner that enforces the insurance laws and regulations of each state.

An insurance company can sell policies in multiple states, however the insurer must license itself separately in each state that it wants to market its product. (7) The separate licensing in each state is required as each state has differing insurance laws and mandates. Hence the insurance policy sold in Nevada by XYZ insurance company is different that the insurance policy sold by XYZ insurance company in Florida. Therefore, a policy form that meets the insurance laws and mandates of Florida can't be sold in Nevada as the policy form does not meet the insurance laws and mandates of Nevada.

However, its very important to note that basic policy coverage and basic policy language generally do not differ widely from state to state. Why? One reason is the New York State Insurance Department. New York created the model for many policies. (8) For example, New York created the model coverage and language associated with the standard fire policy. They also created the model coverage and language for the personal auto policy (PAP). These models created by New York can be found adopted by many states. Hence the many states adopt insurance coverage, laws, and regulation that work in another state. Another reason basic policy coverage and language do not differ widely between the states is that the National Association of Insurance Commissioners propose and adopt many model regulations that then go onto be adopted by many states. (9)

Insurance law and regulation is a retained state right per the 10th Amendment. Currently insurance is not sold across state lines due to the conflict of insurance laws and mandated coverage of one particular state in regards to another particular state.

Why should health insurance be sold across state lines?

The idea of selling health insurance across state lines is not a new idea. The idea can be traced back to a 2005 proposal by Representative John Shadegg of Arizona. (10)

One of many items that drive up cost in health care and consequently health insurance are state mandates. (11) State mandates basically broaden coverage beyond the basic intended coverage under an insurance policy form.

As mentioned above basic coverage afforded by an insurance policy form is rather constant in the fifty states. That is to say, the basic language of a major medical policy does not vary widely. However, state mandated coverage varies widely. Currently 1,823 mandates exist among the several and many states. (12) The state with the most mandates is Minnesota with 62 mandates and the state with the least mandates is Idaho with 13.

What is a mandated coverage that broadens basic coverage? Examples of mandated coverage vary by state but several examples are hair transplants, acupuncture, massage therapy, in vitro fertilization, morbid obesity, and smoking cessation . (13) (14) Its estimated that mandated coverage increases the cost of insurance by 5%. However, the 5% cost increase associated with mandates does not reflect insurers having to administer varying policy forms to adhere to the 1,823 differing mandates across the several and many states. Hence one could clearly add a conservative estimate of an addition 2% onto the above 5% figure for administrative expense to comply with policy forms that vary i.e. administration of 1,843 mandates.

The mandated coverage also drives out insurers and hence competition within particular states. (15) The more and stricter the mandates, the fewer insurers that want to provide insurance. For example, New Jersey with many mandates and strict mandates only has a handful of insurers willing to participate. Hence the mandates create insurance oligopolies offering coverage rather than a wide spectrum of insurers competing in a free market.

Given the discussion of mandates above, the selling insurance across state lines proposition is about freedom to choose leading to the consumer finding affordable coverage to fit individual needs. For example, say an individual in New Jersey wants to buy a basic health insurance policy given a fixed dollar budget. The individual is faced with a staggering cost for health insurance in New Jersey. However, if the same individual could buy a basic health insurance policy based on coverage and mandates of the state of Kentucky he/she could buy the coverage at a fraction of the price. (16) In other words, the competition among the states, giving the consumer the opportunity to match coverage and mandates that fit their needs and budget, reduces cost.

What are states doing about selling across state lines?

The answer to what states are doing regarding selling insurance across state lines comes in two parts: actual legislation to allow purchases across state lines and the blocking of the federal government to require citizens of the several and many states to purchase insurance on a mandatory basis.

Legislators in the state of Georgia are currently considering a proposal to allow citizens of Georgia to purchase insurance across state lines. (17) Further, twenty eight states have proposed legislation known as "health care nullification legislation". The legislation effectively nullifies any future national health care plan within their borders and/or makes it illegal to require state citizens to purchase health insurance. One state, Arizona, has already passed a nullification law while a nullification law has passed the Senate of the state of Virginia. (18)(19)


Summary

Selling insurance across state lines allows citizens more freedom of choice in health insurance purchases resulting a very conservative estimate of a 7% reduction in cost. Presently health insurance is not sold across state lines as insurance is state by state regulated with differing insurance laws and mandated coverage. The many and several states are seriously looking at ways to sell across state lines and legislation is being proposed and discussed.



Notes
Note: if you would like to see what health insurance mandates exist in your particular state, as of 2008, please go to the following link which is a very comprehensive list of mandates for the fifty states:

http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2008.pdf

Note: the 7% price reduction mentioned above may seem insignificant. However this 7% reduction is only part of the puzzle. When the puzzle pieces of health savings accounts, tort reform, allowing individuals to buy insurance with pretax dollars, and selling insurance across state lines are added together major price reductions are achieved.


References:

(1)http://www.kaiserhealthnews.org/Stories/2009/November/06/health-insurance-across-state-lines.aspx

(2)http://www.insurancecompanyrules.org/blog/entry/gop_health_reform_bill_more_shifts_costs_to_you/

(3)http://www.tenthamendmentcenter.com/the-10th-amendment-movement/

(4) http://www.tenthamendmentcenter.com/nullification/health-care/

(5)http://en.wikipedia.org/wiki/States'_rights

(6)http://en.wikipedia.org/wiki/Tenth_Amendment_to_the_United_States_Constitution

(7) http://www.kaiserhealthnews.org/Stories/2009/November/06/health-insurance-across-state-lines.aspx

(8) http://www.answers.com/topic/new-york-standard-fire-policy

(9)http://www.naic.org/

(10)http://online.wsj.com/article/SB10001424052970203550604574360923109310680.html

(11)http://www.kaiserhealthnews.org/Stories/2009/November/06/health-insurance-across-state-lines.aspx

(12)http://www.heartland.org/policybot/results/16867/Analysis_State_Mandates_Drive_Up_Insurance_Costs.html

(13)http://wonkroom.thinkprogressive.org/2008/10/15/conservative-mandates/

(14)http://www.heartland.org/policybot/results/16867/Analysis_State_Mandates_Drive_Up_Insurance_Costs.html

http://bytestyle.tv/content/state-mandates-health-insurance-find-out-what-youre-paying-and-dont-need

(15) http://localhealthguideonline.com/the-debate-over-selling-insurance-across-state-lines/

(16)http://mjperry.blogspot.com/2009/08/competition-cure.html

(17) http://www.timesfreepress.com/news/2010/jan/22/interstate-insurance-sales-considered-by/

(18)http://www.tenthamendmentcenter.com/nullification/health-care/

(19)http://www.qando.net/?p=6911