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« Hand up | Main | Broken Senate »

Feb 24, 2010


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Account Deleted

Wow, here is what the current president had to say about reconciliation in 2005:

"(What) you have is majoritarian absolute power ... and that is just not what the founders intended."

Andrew Brod

Yep, it makes Obama look bad, no question. But it's only fair to note that everyone looks bad on issues like this. The Repubs were condemning the filibuster back when they had the Senate majority, but now they're setting records in its use.

This is why we need a forward-looking change in Senate rules, one that says the change will take place in 2016 or 2018, when no one can know with any certainty who'll be in power. Now that the filibuster has been bastardized to create a de facto super-majority requirement, it's time to either get rid of it or restrict it. One idea is to restrict it to judicial nominations because those are for life terms.

Andrew Brod

But back to the topic: Reconciliation is legal and within Senate rules. The only issue is whether the Dems have the will to use it for healthcare reform, and that's by no means clear.

Ed Cone

Back to which topic? Senate custom and practice, important as they are, don't have much to do with this post, at least until any related legislation gets to the Senate.

greensboro transplant

"About that market-driven approach to health care:"


i would contend that we don't currently have a market-driven approach and that's 3/4 of the problem. The employer based/insurance system has got to go.

I don't always agree with reich, but i always find him honest and entertaining. in this case, he seems to be spot on. if we fail to increase competition, we're screwed.


That seems to confirm that the solution does not lay in a new, big government program.

Andrew Brod

I meant to say, closer to the topic.


The idea of allowing consumers to cross state lines for health insurance has been shot down on this blog time and again, as well as tort reform and portability.

Ed Cone

I hope ideas have not been "shot down" as in "rejected without discussion."

The possibly counterproductive impact of interstate sales has been discussed, and tort reform has been widely endorsed, although its impact seems fairly limited and not sufficient as a solution in itself.

If there are strong counter-arguments to make, I'm sure people who are genuinely interested in solving the problems at hand would like to hear them.

Andrew Brod

Does anyone, on this blog or elsewhere, admit to being against portability? Of course if we want to do something about it, Obama's proposed reforms are a good place to start, by preventing coverage rejections due to pre-existing conditions.

As for tort reform, like Ed, I've heard mostly support here. Sure, it's unlikely to do much to contain costs, but tort reform is a good idea. If the Repubs want it as part of a reform bill, I hope the Dems agree to it in exchange for something they want.

Interstate competition for health insurance deserves to be shot down. It'd be disastrous so long as we have state-level insurance regulation, and I doubt the Repubs would go for federal regulation.


I defer to our Distinguished Professors of Economics, who basically stated it may be cost prohibitive to the insurance companies to enter new geographic markets, and the savings would be nominal. However, reform does need to be comprehensive, so maybe in total, with other measures, it may work.

FWIW, my new premium is approaching my mortgage payment.

Account Deleted

I am to the point where I would go ahead and support the higher taxes and increased coverage if I can be assured that the points of service (my doctor, the hospital, the pharmacy)does not devolve into a bureaucratic hell hole like the county mental health center I spent the day at last week helping a homeless man get back on his meds and signed up for a treatment plan.

Yes I will admit it is fear, but that is what I fear. Nameless, faceless bureaucracy.

Is there a way to expand coverage and access while leaving providers and facilities as is?


Maybe it would have been better said that some of these ideas were band-aids, and not enough to impact by themselves. Lack of portability is at the top of my list. I don't have to buy any other insurance products from my employer. My health insurance should belong to me, unless I move to another state, I guess.

Jim Caserta

Aren't we free to buy individual insurance if we want? Why don't we choose to buy insurance on the individual market instead of through our employers?


Group coverage is less expenive.

Jim Caserta

The state issue is really about individual insurance. Kim, it seems like you prefer your group coverage to individual. The biggest change I'd like to see is more people having access to group, or group-like coverage. Perhaps that is setting up groups that are independent of your employer, maybe it's something else. Any change should include the things about group coverage people like the best: no denying based on pre-existing conditions, and everyone pays the same premiums. Am I wrong that people like those features of group coverage?

Account Deleted

I have insurance for myself through my employer. I pay zero. I was speaking of the myriad of people we hear about who are suffering under the current failed system we hear so much about.

Ed Cone

I have insurance through my employer and there's a chunky deduction from my check every two weeks.

Account Deleted

Well, yeah, so I tried to ask an honest question at 3:33 p.m.

Anybody? Or do we just keep going in circles?

Jim Caserta

JS - Most people pay for the insurance they get through their employer. Either way your employer pays, and they consider what they contribute on your behalf part of your compensation.

"Is there a way to expand coverage and access while leaving providers and facilities as is?"

That is a goal..."Health care reform should have two critical goals: reducing costs and covering more people." [Charles Kolb, in the Times op-ed Ed linked to Monday] Both are things that need to be addressed. When you confront the fact that covering more people has a non-zero cost, and you add a constraint of not simply increasing the deficit, you quickly move to cost reductions. Frist's points are very sensible and to some degree are included in proposals. Simply expanding coverage without addressing costs is not a good idea.

Ed Cone

JS, didn't meant that to be a smart-ass rejoinder, just a statement of relevant fact about the way job-related insurance plans often work.

Keeping your current coverage and access is the plan -- not that I find private bureaucracy so friendly, and one of the problems we face is that "insurance" often isn't really insurance.

Account Deleted

Thanks. I generally don't see a way out of the fiscal mess and often get tired of arguing and begin looking for solutions. In that mindset today.

In looking back at most of 2009 it seems we all agree on expanded access and prevention as morally just. I can buy that.

I just get confused when politicians start talking about this and that. That's what I think was the Dem. mistake, going for omnibus legislation instead of a step by step approach.

I don't really care which step is first, but the steps should include access, prevention, tort reform, weeding out abuse and fraud, etc.

When they go with comprehensive legislation, I think it becomes too easy to obfuscate on this point or that and people lose interest and can just tune out by buying into a generic (Obamacare, Party of No, etc.)

Ok, that's my ramble for the day.


"....but the steps should include access, prevention, tort reform, weeding out abuse and fraud, etc."

Any sign of that in what's now proposed by the majority in Congress?


"Simply expanding coverage without addressing costs is not a good idea."

Besides an incredibly arrogant set of new taxes, any actual sign of that in what's now proposed by the majority in Congress?


In addition to some of the standard obnoxious some details on those increased taxes:

"- Place a 2.9% assessment on income from interest, dividends, annuities, royalties and rents for individuals earning more than $200,000 or families making more than $250,000.

- Apply the proposed 2.9% assessment to capital gains. That would push the rate to 22.9% in 2011, up from 15% currently and 20% scheduled to take effect next year.

- Increase the Medicare payroll tax on the highest earners. This increase is also part of the Senate health bill."

and those "excessive health care premiums"?

Here's some perspective:

" 'Premiums are increasing because of soaring medical costs and a weak economy that is causing younger and healthier people to drop their health insurance,' AHIP spokesman Robert Zirkelbach says.

'In every state, health plans must provide data showing that requested premium increases are necessary to meet the expected rise in health care costs,' Zirkelbach says. 'Creating a new duplicative layer of federal premium regulation on top of what states are already doing is unnecessary and will only add regulatory complexity and increase health care costs.'"......something that's right in line with what our good Doctor Brod suggested above.


From the Rome(NY)Sentinel:Government Beer.

"By the way, just how obscene are those profits? Economist Mark J. Perry, at the Carpe Diem blog listing of Profit Margins by Industry, shows the Health Care Plan Industry ranks #86 by profit margin (profits/revenue) at 3.3 percent and the hospital industry ranks #77 at 3.6 percent — much lower than the 25.6 percent profit margin for beer brewers. Yet the administration is not beating the drums to hold down brewery profits or to take over the industry to create Government Beer."

Hat tip: Carpe Diem


"When someone calls for something to be made 'more fair' it signals that it’s time to grab your wallet, count your change, and keep your eyes peeled. Whenever A proposes to help B and only C will have to pay, A is fishing for control. They propose free healthcare. Someone else will have to pay. Not you.

Dear government, your answer to every problem seems to be to put you in charge. It ain’t gonna happen."

Wait, I can't use that!

Perry is one of those inferior evil, wicked, mean, and nasty George Mason economist types!

Andrew Brod

Someone needs to untwist his panties.

It's true that many liberal politicians and pundits decry the high profits of health insurers, as though this is the issue. But that's never been a concern among health economists. Economists know that when viewed in percentage terms, e.g. profit margin as above, those profits aren't especially high.

I faced something similar in the late 1980s when I worked at the AMA on medical liability (we weren't allowed to call it medical malpractice). It was an article of faith among the docs who ran the place that insurance-industry profits were the problem. But we saw the same thing with those insurers that's true for health insurers now: the profits looked big when expressed in dollars but not when put in appropriate perspective. We told the docs but they sat on that info. It contradicted the narrative.

But from the standpoint of policy, we don't care first and foremost about insurers' profits. That's a populist side issue. What we care about is how health insurers treat consumers; we care about premiums and policies and coverage. And by that measure, the insurers really do look bad. We don't need reform because health insurers are too profitable. We need it because they're surprisingly unprofitable even with their antitrust exemption, and they scrounge for elusive profits by screwing many of their consumers.

Tim Noah of Slate put it well: "It's far from clear that the economic model of private for-profit health insurance is viable when we demand that health insurers behave decently."


Andrew, I found both your commentary and the NYT link informative. What I'm not sure I understand is, if the big insurers' profits are not outrageous when properly expresssed as a percent of revenue, with the remainder of that revenue covering operations expenses,and the bulk of that revenue comes from premiums (isn't that how all insurance basically works?) how does it logically follow that they are screwing the public on premium costs, when they are not resulting in excessive profits relative to other industries?

"According to WellPoint’s income statement for 2008, the company’s total revenue that year was $61,579.2 million. Of that, 93.2 percent came from premium revenues"

The author hinted that his next post might yield an answer, and did speak in terms of attempts to mandate an increase in what is known as the "health care benefit" ratio, but short on specifics for how to accomplish this, then promised to in the next post, but that one focuses on inefficiencies in medicare, not private insurance. I don't see him providing any evidence to support his implied assumptions that the nonmedical expenses are comparatively wasteful, as compared to those he proceeds to highlight in Medicare, the solution for which he proposes to increase the age for eligibility for that program! What am I missing here?


"Someone needs to untwist his panties."

More power to you for admitting you need help.

Andrew Brod

Of course high prices often lead to large profits, but the two aren't always linked. It's not uncommon to see high prices and low profits. An example I've written about a few times is payday lending (see the 3rd graf). Those lenders do just fine, but their profits aren't nearly what people assume given the steep interest rates they charge. Payday loans are costly to service.

But back to health insurance. The coexistence of high prices and low profits is wrapped up in Uwe Reinhardt's summing-up sentence: "The insurer’s health benefit ratio therefore is correspondingly low without necessarily yielding a huge profit margin." (The HBR is total payouts to insureds divided by total premiums.) A low HBR could be due to profiteering, i.e. a big portion of the gap between payouts and premiums could be profit. But that's not the case. Those profits are getting sucked up by administrative expenses.

Keep in mind that something on the order of a quarter of all U.S. health spending is administrative expense by insurers. Not all such expenses are bad. Some improve the underwriting process and are efficiency-enhancing. Reinhardt focuses on attributes of the group being insured, but there's also the reality of cost-shifting (trying to get someone else to pay). Private insurers have a strong incentive to engage in cost-shifting, and they spend billions and billions on it. It's fundamentally inefficient. But the lesson of low HBRs is that insurers engage in cost shifting not because they're evil, but because it's what they have to do in order to generate a modest profit.

Jim Caserta

When someone points to how medicare expenses differ by region, they are not singling out medicare but using it as a proxy for general health care costs in those regions. Medical expenses in general are higher in Miami than other areas, keeping age/health & other factors constant. That is a general issue with a medical system that rewards volume and not value - check out Bill Frist's comments in the times.
Notice that Frist does not single medicare out in the volume vs. value question.

Part of the bargain in the Democratic plans was taking out the denying coverage for pre-existing conditions (get insurers to act better), but you put in the mandate that everyone buys insurance. More people buy insurance, more money into the system.

I would imagine that a good chunk of insurers costs is on underwriting - should we insure you and how much should we charge you. Only about 80% of premiums actually make their way to health care providers.

There's two ways to cut costs, and one way to increase money into the system. Wont' cover everything, but it's a starting point.

Also, where were the Republican complaints about Medicare RX Drug benefit not being paid for, and adding to the deficit? Not that two wrongs make a right, you should think about why some are so adamant about finding the money for one program when they didn't really care about where the money came for another program. That is mentioned in your last link.

CP, how closely did you read that last link? The person proposing raising Medicare eligibility age is Betsy McCaughey, the Republican side of the argument. The other debater, Anthony Weiner, is one of the most liberal congressmen. The author of the post is CRITICIZING that idea.


"The insurer’s health benefit ratio therefore is correspondingly low"--compared to what? The specific service:administrative cost ratios of other industries? By who's barometer or benchmark is the acceptable ratio set? If such ancillary costs are necessary for the business to squeeze out a "modest profit", what's wrong with that?

Unless you're making an argument against the pursuit of modest profits, what is the beef here and by the author's own arguments in the three posts, how does private insurance fall short compared to Medicare, which he proposes to shrink due to its own inefficiencies?

Andrew Brod

Yes, low compared to other industries. There's no one benchmark or acceptable ratio. If stockholders are okay with merely modest profits, I'm not going to say they're wrong.

I'm making no argument for or against profits. From a policy perspective, profits are usually a distraction (even though they drive populists crazy). The gist of my previous comments is that profits are certainly a distraction in this case. Conduct is what matters. The primary benefit of analyzing profits here is to help us frame the issues regarding conduct.


"CP, how closely did you read that last link? The person proposing raising Medicare eligibility age is Betsy McCaughey, the Republican side of the argument. The other debater, Anthony Weiner, is one of the most liberal congressmen. The author of the post is CRITICIZING that idea."

Obviously not very closely. Never post while watching "24". Even so, did the author's arguments not focus on the waste and recklessness of adding to government-run medical coverage and highlight some waste therein? Was that just so he could whack Bush or did he mean it as a sincere opinion that we couldn't afford or sustain such an expansion? I didn't notice the party affiliations of anyone in the articles, nor do I see it as all that germane to my attempt to understand the points being made. I was focusing on the arguments, not who was making them. But if that distinction would help my understanding of the alleged inferiority of private,as opposed to federalized health care/insurance in terms of cost and inefficiency, feel free to shed some light.
I didn't see Andy as seeking to score political points, which is part of what prompted me to read the linked article and follow-ups. I obviously skimmed the last one pretty superficially and missed the heavy politization in that one compared to the first two.


Andy, I don't mean to, nor think I'm being picky here, but how can you simultaneously claim "low compared to other industries" while acknowledging you have no basis for comparison? Or did I misunderstand? Maybe Fortune 500 tracks such a ratio by industry, and I will check, but I doubt it.

Jim Caserta

Is it a coincidence that we both were watching 24 last night?

One of the attacks on reform is that it will cut medicare benefits, remember 'death panels'. It is disingenuous to make that criticism and then to propose something that will cut medicare further and more deeply.

The author was pointing to an inefficiency in Medicare. My point, which Bill Frist agrees with, is that it is an inefficiency shared by private insurers also, and is a general bug of our health care system. That is the McAllen problem: why does (in this case) Miami spend so much on medical care and not get better outcomes? That extrapolates to America as a whole, how do we spend 2X the next country on medical care and not get better outcomes? The answer to America's question is linked to the different locales spending.

It's not about scoring points, but improving the system. Both of those are related though. In any back and forth, you will most likely find a (d) and (r).

As to the health-benefit ratio, the author is pointing to the expenses associated with writing an individual insurance policy vs. a group one. Individual policies have brokers, underwriting, risk assessment. Group has pick a plan, and get teh payroll deductions rolling. If you made the individual market more like the group, you could cut some of those expenses.

The two key problems are somewhat different. Increasing access & quality of insurance directly helps those in the individual market and without insurance, about 25% of the population. It indirectly helps everyone because the fear of losing your insurability if you lose your job or want to switch jobs would be gone or lessened. Lowering costs, while helping to pay for that, also helps drive down (or at least reduce the rate of growth) costs for everyone. CP, don't worry, you'll be doing just as many scopes, just on a possibly a different patient mix.

Are people really more afraid of faceless bureaucracies more than they fear not having insurance and not getting medical care they need, or having their savings wiped out paying for their care? Do people who are 62/3/4 worry about being forced onto medicare, or are they just hoping that things work out until they get there?


Are people really more afraid of faceless bureaucracies more than they fear not having insurance and not getting medical care they need, or having their savings wiped out paying for their care?

Well, let's ask them.

"Voters still strongly oppose the health care reform plan proposed by President Obama and congressional Democrats and think Congress should focus instead on smaller bills that address problems individually rather than a comprehensive plan"

"Brown does not support President Obama's health care reform plan approved by the Democratic-led House and Senate. He has stated this plan is fiscally unsound, and during his campaign specifically pledged to be the 41st vote to filibuster the bill in the Senate."

As long as CTU doesn't throw Renee Walker under the bus, I'm Ok either way :)

Ed Cone

There's already plenty of faceless bureaucracy in the private system -- it denies coverage, truncates coverage, and drives us nuts in various ways. So while none of us want to make healthcare more like the DMV, let's compare apples to apples.

Private insurance spends a lot on marketing, advertising and administration. The execs live large. None of that is doing much for people in need of insurance.

Profits are good. Profiting from controlling access to healthcare in an anti-trust-exempt oligopoly, less good.

Andrew Brod

CP, I don't see how "low compared to other industries" implies no basis for comparison. The other industries are the basis for comparison.

Business Week used to track profit/sales ratios. The reports were online and I found them useful more than once. Unfortunately, it appears that BWeek doesn't do this any more. But with the right data base, it's straightforward to calculate this.


I'm more concerned with the ineffeciencies of nothing more than an administrater, than their profit margin. Would more competetion help wring out these ineffeciencies? The effecient survive in a more free market, eh?

Ed Cone

"The effecient survive in a more free market, eh?"

Compare Social Security admin costs to Merrill Lynch fees and overhead.


Good one

Jim Caserta

That wasn't exactly the question. Also, focus in on the group I mentioned:

8. Do you think the government should or should not expand Medicare to cover people between the ages of 55 and 64 who do not have health insurance? Do you feel that way strongly or somewhat?

--------- Should -------- ------- Should not ------ No
NET Strongly Somewhat NET Somewhat Strongly opinion
12/13/09 63 48 15 33 9 24 4
9/12/06 75 55 20 23 9 14 2

I would bet that a lot of those that want to allow the buy in are in the group that might benefit from it. I would also think that many opposed are currently on Medicare and fear expanding the program would somehow weaken it. That is not an opposition to a bureaucracy, that is wanting the bureaucracy limited to you. I would also imagine that many of those that oppose Obama's proposal are also on Medicare, or even Medicaid, and again fear their program would be weakened. Saying you don't want gov't paying for one person's health care because it might decrease the gov't's ability to pay for yours, or your parents or grandparent's care is not opposition to gov't providing health care.

Brown supported Romney's plan that is virtually identical to Obama's proposal. If he advocated repealing Mass's plan, I would take his objection to Obama's plan more as philosophical and less as tactical and political.

Jim Caserta

Did Merrill Lynch survive? What is ML trading at these days...


What motive do insurance companies have to be effecient if the state grants every rate increse they request, and the are still making a modest profit, and the execs are rewarded handsomely?


Andrew, not to split hairs, but let me amend that to "you didn't OFFER any basis for comparison," and so far as I can tell, still haven't, upon which to base your conclusion that their spending waste is worse than other industries. That doesn't mean it isn't so, but I'm still interested to know on what basis you are making that claim.


Of course there is no "free" market, except in Econ101. Arn't both those entities now subsidized by the fed government?


JC, Brown's slogan may or may not have been tactical, but I don't see how you can fail to see the message in the voters' response to it, especially given their own state's health-care experimentation and their traditionally strongly liberal voting tendencies. I thought that was kind of obvious. Public opinion was what you were asking me about, wasn't it?

Andrew Brod

CP, you're not splitting hairs--you're asking a new question. I didn't talk about "spending waste" because I thought you were asking about profits. As I noted, a low HBR could be due to high profits or high costs. If the latter, the costs could be more heavily weighted toward necessary expenses or wasteful ones. It wouldn't be apples-to-apples to compare administrative expenses across industries, and I'm not sure the data are available for that anyway.

What does make sense is comparing administrative expenses between private and public insurers. And about that much has been written, including on this blog. Ezra Klein had a sober take on the issue last year. Jacob Hacker claims that looking at Medicare vs. Medicare Advantage (p. 6) provides an apples-to-apples comparison.

Andrew Brod

Kim asks why insurers should try to be efficient if their rate-increase requests are always granted. First, is it true that those requests are generally granted? According to this, some well-publicized recent requests were not:

"Sebelius cited half a dozen examples, from Maine to Washington state, in which insurers have sought large premium increases on people who buy coverage individually. In every case but one, state insurance regulators rejected all or part of the requested increases."

Of course that doesn't address the group market. And it's not data, just a few anecdotes.

In any case, the president agrees with Kim that this is a problem. And he has an answer.

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