Showing posts with label socialized medicine pricing. Show all posts
Showing posts with label socialized medicine pricing. Show all posts
Friday, June 7, 2013
Friday, March 16, 2012
ObamaCare: The Ultimate Premium Increase, $940 billion becomes $1.76 trillion.
CBO: ObamaCare Price Tag Shifts from $940 Billion to $1.76 Trillion, YahooNews. (1)
What does the $1.76 trillion price tag mean vs. the old price tag of $940 billion? It means your premium came due, again, and….. ouch! What an increase!
By The Numbers
First off, the $1.76 trillion is a ten year cost period hence $176 billion per year. The $940 billion figure is the ten year comparison period number generated at inception of ObamaCare -or- $94 billion per year.
The most recent total expenditure on health-care in the US is 2.6 trillion (2010 stats):“U.S. health care spending grew 3.9 percent in 2010 following record slow growth of 3.8 percent in 2009; the two slowest rates of growth in the fifty-one year history of the National Health Expenditure Accounts. Total health expenditures reached $2.6 trillion, which translates to $8,402 per person or 17.9 percent of the nation’s Gross Domestic Product (GDP).” (2)
Moreover, as of 2010, total annual private health insurance premiums written were $378 billion, Medicare cost was $446 billion and Medicaid was $380 billion. Hence private and public equals $1.204 trillion premium/quasi-premium volume. (3)
With ObamaCare you have a new total consisting of: $1.204 trillion plus $176 billion = $1.38 trillion of premium.
Note: the $1.76 trillion would appear in private subsidized premium and Medicaid costs as many will merely end up on Medicaid and part of the $176 billion goes to that quasi-premium portion.
Hence, by-the-numbers, you have a social insurance scheme of some sort, that has an old premium of $90 billion, and in two annual renewal cycles since inception, the social insurance scheme premium changed to a $176 billion annual premium. A 95% premium increase since inception, two short pricing cycles ago. According to research, and stand to be corrected, a $86 billion dollar increase in premium over two years might be considered the ultimate premium increase.
What Does Your $176 Billion Per Year Insurance Premium Buy?
The $1.76 trillion (over the next decade) regarding the cost of ObamaCare is made up of the following:
(a) the cost to provide coverage to the current uninsured (should fall from 16% to 6% uninsured i.e. not all will be insured),
(b) cost of expanded coverage,
(c) administration cost.
The cost to provide coverage to the current uninsured:
(1) many of the uninsured will be placed in Medicaid and hence the annual cost of Medicaid increases,
(2) those purchasing coverage that have means, but not total means to buy, will be subsidized (up to 133% of poverty level qualify for subsidy),
(3) those firms ending coverage due to cost, those subsequent uninsured employees will then purchase individually and some will fall into #2 above (subsidy).
The cost of "expanded coverage" (scope of coverage) e.g. first dollars coverage for annual physical, colonoscopy, etc. means the premium is driven up, hence the cost for subsidies increases with the underlying premium cost increase to cover expanded benefits. Also, the scope of coverage will include no pre-existing condition exclusion yet charge the impaired risk nothing extra, hence driving all premiums higher, hence driving the subsidy higher.
The administration of ObamCare by a federal bureaucracy speaks for itself.
The Other Side of the Coin
What about the payment of the annual cost of $176 billion vs. the old annual cost of $90 billion per year?
That is, the myriad of ObamaCare associated taxes, the penalty fines for not buying, the penalty fines for not providing (firms), etc. had to equal $90 billion. Now it has to equal $176 billion hence the tax and fines have to increase -or- you decided to deficit spend -or- you cut the program benefits -or- all of the above.
And About That Base Economic Model that is Broken?
What about this $176 billion regarding changing the base model of health-care (a $2.4 trillion dollar per year broken model)? It does nothing about fixing the model. If anything it exacerbates the broken model through mandated coverage under ObamaCare which is a basically a low deductible major medical plan which causes over utilization......meaning the coverage itself is a cost driver and hence you are subsidizing an ever increasing cost driver. Ops!
Cost Containment and Price Fixing Schemes
The "cost containment" within ObamaCare is a price fixing scheme. That is, they intend to contain cost ala Richard Nixon. There is not one price fixing scheme in all of economic history that was ever successful. Why? If one doesn't use price as a rationing agent, then some other rationing agent must replace price. That is, price fixing merely affects supply quantitatively and qualitatively. Or, alternatively, supply merely deteriorates in quality and the new lower quality supply is rationed over time.
Notes:
(1) CBO: ObamaCare Price Tag Shifts from $940 Billion to $1.76 Trillion, YahooNews.http://news.yahoo.com/cbo-obamacare-price-tag-shifts-940-billion-1-163500655.html
(2) https://www.cms.gov/NationalHealthExpendData/downloads/highlights.pdf
(3) Insurance Industry Overview, http://www.plunkettresearch.com/insurance-risk-management-market-research/industry-statistics
Monday, December 7, 2009
Socialized Medicine Scheme: Universal Coverage does not equal Universal Access
The socialized medicine scheme is based in part on the premise that universal coverage creates universal access. What would be the true costs of universal coverage if it truly created universal access?
Defining Terms
(1) Universal Coverage: health insurance coverage for all persons in a state or country, rather than for some subset of the population. It may extend to the unemployed as well as to the employed; to aliens as well as to citizens; for pre-existing conditions as well as for current illness; for mental as well as for physical conditions. (1)
(2) Universal Access: universal access can be defined as access for all to quality health services if need be, with social health protection. Universal access is not, by itself, sufficient to ensure health for all and health equity. The roots of health inequities lie in social conditions outside the health system’s direct control, to be tackled through intersectoral collaboration. Universal access however is the necessary foundation within the health sector on the road to health for all and health equity. (2) (3)
(1) Universal Coverage: health insurance coverage for all persons in a state or country, rather than for some subset of the population. It may extend to the unemployed as well as to the employed; to aliens as well as to citizens; for pre-existing conditions as well as for current illness; for mental as well as for physical conditions. (1)
(2) Universal Access: universal access can be defined as access for all to quality health services if need be, with social health protection. Universal access is not, by itself, sufficient to ensure health for all and health equity. The roots of health inequities lie in social conditions outside the health system’s direct control, to be tackled through intersectoral collaboration. Universal access however is the necessary foundation within the health sector on the road to health for all and health equity. (2) (3)
Universal Coverage and Universal Access
From the definition above one can see that universal coverage is on the demand side of the equation. Demand for health-care products and services would certainly increase with universal coverage.
From the definition above, Universal Access is related to supply. Supply of health-care products and services would need to adjust to the increased demand caused by universal coverage.
The Missing Determinant
The missing determinant of universal coverage in relation to universal access, is price. That is, to achieve universal coverage a price (cost) must be paid for those currently uninsured. To achieve universal access an incentive price must exist for supply to accommodate demand.
Price/Cost
To achieve universal coverage a price/cost must be paid. To fully insure the entire population, income and/or wealth must be redistributed. The political class attempts to make the moral argument that redistribution of income/wealth must occur from the producer class to the recipient class as the recipient class is uninsured in large part due to price/cost. That is, the uninsured are in large part uninsured due to affordability of health insurance.
However, the price of health insurance is directly related to the cost of producing/providing health-care. In other words, in the free market, the demand for health-care intersects the supply of health-care, at point price. The price point of health care is known and hence the "price" becomes the cost of health insurance. That is, the risk of facing the price of health-care is then a major component of determining the cost of health insurance.
Price Controls
In the scheme of socialized medicine the argument routinely put forth is that the price to provide health-care is too high. That is, even though demand and supply produce price, the price point is too high. In other words, the natural or true price created by demand and supply becomes a socio-economic argument. As the argument goes, the price is too high because only a certain percentage of Gross Domestic Product (GDP) should be allocated to health-care. That somehow and some way, if the percentage of GDP allocated to health-care was lower, then the subsection of consumers uninsured would find coverage affordable. The argument goes on to compare costs in one country to costs in another country and/or percentage of GDP spent on health-care in one country to another country (one economy compared to another economy). Note that it is a price argument.
Welcome to artificial pricing. In a command and control economy "price" is set artificially regardless of demand and supply. Price can be set artificially too high or too low in a command and control economy. In the socialized medicine scheme argument, "price" is artificially set below the price produced by the previous free market for health-care.
Arguments for artificial pricing are artificial by nature. If consumers value an item then they demand the item. For example, if the Chinese economy demands rice, and rice makes up 20% of GDP, why is 20% wrong and 12% right? Price controls always backfire. (4)
From the definition above one can see that universal coverage is on the demand side of the equation. Demand for health-care products and services would certainly increase with universal coverage.
From the definition above, Universal Access is related to supply. Supply of health-care products and services would need to adjust to the increased demand caused by universal coverage.
The Missing Determinant
The missing determinant of universal coverage in relation to universal access, is price. That is, to achieve universal coverage a price (cost) must be paid for those currently uninsured. To achieve universal access an incentive price must exist for supply to accommodate demand.
Price/Cost
To achieve universal coverage a price/cost must be paid. To fully insure the entire population, income and/or wealth must be redistributed. The political class attempts to make the moral argument that redistribution of income/wealth must occur from the producer class to the recipient class as the recipient class is uninsured in large part due to price/cost. That is, the uninsured are in large part uninsured due to affordability of health insurance.
However, the price of health insurance is directly related to the cost of producing/providing health-care. In other words, in the free market, the demand for health-care intersects the supply of health-care, at point price. The price point of health care is known and hence the "price" becomes the cost of health insurance. That is, the risk of facing the price of health-care is then a major component of determining the cost of health insurance.
Price Controls
In the scheme of socialized medicine the argument routinely put forth is that the price to provide health-care is too high. That is, even though demand and supply produce price, the price point is too high. In other words, the natural or true price created by demand and supply becomes a socio-economic argument. As the argument goes, the price is too high because only a certain percentage of Gross Domestic Product (GDP) should be allocated to health-care. That somehow and some way, if the percentage of GDP allocated to health-care was lower, then the subsection of consumers uninsured would find coverage affordable. The argument goes on to compare costs in one country to costs in another country and/or percentage of GDP spent on health-care in one country to another country (one economy compared to another economy). Note that it is a price argument.
Welcome to artificial pricing. In a command and control economy "price" is set artificially regardless of demand and supply. Price can be set artificially too high or too low in a command and control economy. In the socialized medicine scheme argument, "price" is artificially set below the price produced by the previous free market for health-care.
Arguments for artificial pricing are artificial by nature. If consumers value an item then they demand the item. For example, if the Chinese economy demands rice, and rice makes up 20% of GDP, why is 20% wrong and 12% right? Price controls always backfire. (4)
Artificially Set Prices in the Socialized Medicine Scheme
As previous pointed out, in a free market, demand and supply intersect at price. The price point can be afforded by most consumers but a subsection of consumers can not afford price due to their particular command of resources (income). For example, the demand and supply of 42 inch flat screen TV's produce price (p). Price (p) attracts certain consumers while other consumers do not have the resources to allocate to a 42 inch flat screen TV.
In the realm of socialized medicine the political class argument is put forth that in order for the subsection of consumers to afford price, income and wealth (resources) needs transferred to to this subsection of consumers (redistribution of income and wealth). However, the producer class resists the redistribution to the recipient class. Further, the redistribution causes the producer class to have less disposable income to pay for health-care. In other words, the price point of health-care then becomes unaffordable for some producer class members due to the redistribution of income. That is, some of the producer class now slips into the recipient class due to redistribution of income and wealth.
Enter political-economy. If price is artificially set below the free market price, then the redistribution of income and wealth from the producer class can be set low enough to cut resistance and to stop the slippage mentioned above of producer class members falling into the recipient class.
The Effects Producing Universal Coverage through Artificial Pricing and Redistribution
When universal coverage is achieved through artificially pricing and redistribution of income the proponents of socialized medicine then promote that they have given the masses universal access. That universal coverage is the avenue to universal access.
However, access is supply driven. If Price is distorted (artificially set below the market) the supply, which is the summation of suppliers, now faces a disincentive in the form of an artificially low price.
Existing suppliers now have to decide to stay in the health-care field or allocate their resources to other ventures. If price is too low, some suppliers leave the market place. Further, with price set artificially low, many other potential future suppliers e.g. future doctors, nurses, medical device makers, pharmaceutical research companies, etc. shift their resources to other more profitable fields where price is set by the free market. However, other supplier will enter the health-care field but enter on "cost". That is to say, the cost sensitive supplier offers cut rate services, service quality below service quality that was available at Price (p) set by a free market. (5)
Hence artificially low prices set by command and control then causes supply to dry up and/or become of lower quality. The ability to access health-care is then diminished for the entire group of universal coverage participants as demand engulfs supply. Price (p) can not function as the rationing agent as it has been set artificially. Therefore, among an array of rationing agents, time (t) becomes a component of rationing. For example, at artificial price (aP) the supply of hip replacements is 1000 per day. However, universal coverage has created a demand for hip replacements of 5000 per day. Time must pass before the hip replacement can occur for the majority of demanders due to restricted supply.
Summary
Universal Coverage through redistribution of income and artificial pricing leads to a universal access that is rationed through time and the Universal Access is generally of lower quality. That the only way to create un-rationed universal access is to allow the free market to determine price through demand and supply.
However, if price is allowed to be the determinant, price set by the natural forces of demand and supply in a free market, then un-rationed universal access would have a price tag of redistribution of income and wealth that would break the back of the producer class. (6)
Hence universal coverage, with price set artificially low, as proposed by proponents of the socialized medicine scheme, actually leads to rationed universal access for the entire group of participants.
(1)http://www.mondofacto.com/facts/dictionary?universal+coverage
(2) http://www.becausehealth.be/becausehealth/PDF/seminar2009/becausehealth_140509_concept_bc_ws.pdf
(3) Advancing and sustaining universal coverage. In: Primary health care: now more than ever. The World Health Report 2008. Geneva, World Health Organization, 2008. http://www.who.int/whr/2008/whr08_en.pdf
(4)http://www.ncpa.org/sub/dpd/index.php?Article_ID=8146
(6) http://www.dailymail.co.uk/news/article-1234660/Pre-Budget-report-Clobbering-middle-earners-national-Insurance-raid-mean-40-000-find.html
Thursday, September 10, 2009
The Socialized Medicine Pricing Scheme
Regarding Socialized Medicine vs. Private Sector Medicine: a debate has arisen regarding “pricing premium” within the Socialized Medicine Scheme.
In the Socialized Medicine camp is the position that older insured’s should not pay more than two times what a younger insured pays. Please see the USA Today report below regarding the 2 to 1 pricing scheme.
http://www.usatoday.com/printedition/money/20090831/premiums31_cv.art.htm
“Pricing” in the field of Insurance is based on a series of different items depending upon the risk insured. For example, in Life Insurance the components of pricing are Mortality/Morbidity, Expense, and Interest. Mortality/Morbidity is the risk. Expenses are the cost of maintaining and operating the insurance company. Interest is how much money the insurer can earn on premium flow and reserves.
“Risk” must be underwritten. That is, what is the characteristics of the risk that makes the risk more or less prone to loss. Take auto insurance as an example. A person with a clear driving record for 20 years is different than the recent DUI offender.
You can create millions of risk scenarios. Try this: price those million risks into an understandable underwriting and price pattern. Good luck! But its not luck. Its Actuary Science. Further, Private Insurers have hard data for risk comparison spanning + 100 years. All that data is poured over by the best mathematicians you can find, known as Actuaries.
Human health generally deteriorates over time. That is to say, an increase in risk occurs with age. How many 30 year old people take 3 prescriptions per day? How many 80 year old people take 3 prescription drugs per day? How many 30 year old people have had a hip replacement? How many 80 year old people have had a hip replacement?
If an insurer offered health insurance to 30 year old people based on the risk of 80 year old people, they would have no takers. If an insurer offered health insurance to 80 year old people based on the risk of 30 year old people, they could not take enough applications.
The basic problem with an arbitrary price arrangement, not based on risk, is that you end up under charging certain risks and over charging other risks. The undercharged risks swarm to the under priced insurance. The overcharged risks refuse to buy the insurance. The collection of insured’s becomes risk adverse to the insurer as the risk translates into losses (claims) that can not be supported by the premiums collected, based on the arbitrary price arrangement.
Hence the price charged for the risk must match the risk. It is an Axiom within insurance theory and practice.
The idea of charging younger people more money for a health insurance risk, and older people less money for a health insurance risk becomes a mis-matching of risk and price. Charging older people no more than two times younger people is a mis-matching of risk and price.
When you mis-match risk and price, you have violated an Axiom of Insurance. You have also asked for unintended consequences. Likely cascading unintended consequences as you have distorted demand and supply at the point of price. Artificially distorting price is always a bad idea in the field of Insurance as well as Economics.
If you set up an arbitrary price arrangement, not based on risk, one will notice that the Socialized Medicine Scheme “forces” the overcharged segment to buy insurance (forced participation). The forced-overcharged-segment then subsidizes the under charged segment. The risk of the entire group is constant, premium is sufficient, but one group merely becomes the fall guy for premium.
Generally, the over charged group will find ways to opt-out or merely fail to participate (fail to pay premium).
One will notice Socialized Medicine Schemes generally include a “fine” for not buying insurance. This “fine” requires the Socialized Medicine Scheme to have access to the participants financial and tax records (starting to sound familiar?). The access to financial and tax records of participants is necessary to levy fines.
The following is the Insurance experience of such overcharged plans : regardless of forced participation or fines, the system will break down as the overcharged segment will fail to pay premiums in such numbers that enforcement becomes extremely difficult. The undercharged segment, on the other hand, will increase in number.
The cost of Fine Enforcement drives costs/expenses that are then a drain to the Socialized Medicine Scheme. The missing premiums and subsequent missing fines then causes the plan's income to be lower than claims paid. In other words, you have a combined ratio (claims and expenses) that exceeds income.
The excess loss (claims) over premium collected must be paid by some entity (likely tax payers).
In the Socialized Medicine camp is the position that older insured’s should not pay more than two times what a younger insured pays. Please see the USA Today report below regarding the 2 to 1 pricing scheme.
http://www.usatoday.com/printedition/money/20090831/premiums31_cv.art.htm
“Pricing” in the field of Insurance is based on a series of different items depending upon the risk insured. For example, in Life Insurance the components of pricing are Mortality/Morbidity, Expense, and Interest. Mortality/Morbidity is the risk. Expenses are the cost of maintaining and operating the insurance company. Interest is how much money the insurer can earn on premium flow and reserves.
“Risk” must be underwritten. That is, what is the characteristics of the risk that makes the risk more or less prone to loss. Take auto insurance as an example. A person with a clear driving record for 20 years is different than the recent DUI offender.
You can create millions of risk scenarios. Try this: price those million risks into an understandable underwriting and price pattern. Good luck! But its not luck. Its Actuary Science. Further, Private Insurers have hard data for risk comparison spanning + 100 years. All that data is poured over by the best mathematicians you can find, known as Actuaries.
Human health generally deteriorates over time. That is to say, an increase in risk occurs with age. How many 30 year old people take 3 prescriptions per day? How many 80 year old people take 3 prescription drugs per day? How many 30 year old people have had a hip replacement? How many 80 year old people have had a hip replacement?
If an insurer offered health insurance to 30 year old people based on the risk of 80 year old people, they would have no takers. If an insurer offered health insurance to 80 year old people based on the risk of 30 year old people, they could not take enough applications.
The basic problem with an arbitrary price arrangement, not based on risk, is that you end up under charging certain risks and over charging other risks. The undercharged risks swarm to the under priced insurance. The overcharged risks refuse to buy the insurance. The collection of insured’s becomes risk adverse to the insurer as the risk translates into losses (claims) that can not be supported by the premiums collected, based on the arbitrary price arrangement.
Hence the price charged for the risk must match the risk. It is an Axiom within insurance theory and practice.
The idea of charging younger people more money for a health insurance risk, and older people less money for a health insurance risk becomes a mis-matching of risk and price. Charging older people no more than two times younger people is a mis-matching of risk and price.
When you mis-match risk and price, you have violated an Axiom of Insurance. You have also asked for unintended consequences. Likely cascading unintended consequences as you have distorted demand and supply at the point of price. Artificially distorting price is always a bad idea in the field of Insurance as well as Economics.
If you set up an arbitrary price arrangement, not based on risk, one will notice that the Socialized Medicine Scheme “forces” the overcharged segment to buy insurance (forced participation). The forced-overcharged-segment then subsidizes the under charged segment. The risk of the entire group is constant, premium is sufficient, but one group merely becomes the fall guy for premium.
Generally, the over charged group will find ways to opt-out or merely fail to participate (fail to pay premium).
One will notice Socialized Medicine Schemes generally include a “fine” for not buying insurance. This “fine” requires the Socialized Medicine Scheme to have access to the participants financial and tax records (starting to sound familiar?). The access to financial and tax records of participants is necessary to levy fines.
The following is the Insurance experience of such overcharged plans : regardless of forced participation or fines, the system will break down as the overcharged segment will fail to pay premiums in such numbers that enforcement becomes extremely difficult. The undercharged segment, on the other hand, will increase in number.
The cost of Fine Enforcement drives costs/expenses that are then a drain to the Socialized Medicine Scheme. The missing premiums and subsequent missing fines then causes the plan's income to be lower than claims paid. In other words, you have a combined ratio (claims and expenses) that exceeds income.
The excess loss (claims) over premium collected must be paid by some entity (likely tax payers).
Subscribe to:
Posts (Atom)