Complicated topics: Insurance

Introduction
Health insurance & pre-existing conditions

Introduction (§)

When it comes to forming opinions, nobody can sit down and critically analyze every opinion and belief that they hold, myself included of course. And that's understandable, because there are just so many opinionable topics in our lives that we simply have to prioritize what to think about and leave the rest to instinct, upbringing, and whim. Otherwise we'd be doing nothing but opinionating.

The phrase "standing on the shoulders of giants" gets thrown around a lot, to the point that I'm pretty desensitized to it now. After all, it's true for just about every aspect of everything, and it sounds poetic, so it gets repeated. But occasionally I will sit down and try to think critically about a topic I want to form an opinion on only to get lost, tangled, and overwhelmed in the details.

It's one thing to stand on the giants, it's another to look down.

These articles are dedicated to those topics. Topics where the underlying, primordial elements sound reasonable but the current, evolved state of affairs is objectionable, and for the life of me I can't find the line in between. Topics where I'm supposed to pick the best course of action to help the most people but every path seems wrong for one reason or another.

Health insurance & pre-existing conditions (§)

A small group of people get together and say "Hey, hospital visits are usually more expensive than I can afford at any given time, but they're very rare. If we all agree to share some money in a pool, then we'll each be putting money in and each be getting benefits out, so it comes out fair and makes us all safer". And lo, private health insurance is born.

I know what you're thinking: the government to which these people pay taxes should already be serving this purpose so they wouldn't feel financially endangered in the first place. But hold that thought because that's where the lost, tangled, and overwhelmed part is going to come in. Anyway, that's what the situation ought to be and not what it is. On its face, there's nothing so wrong with the actions of these people: they saw a problem in their lives and banded together to solve it. Surely a small group like this wouldn't think they could influence the government to enact socialized healthcare, and if they did try to go that route they would be unprotected in the meantime. Foreshadowing alert: there's nothing more permanent than a temporary solution.

For this nascent health insurance collective to operate, they'll have to calculate some statistics regarding the frequency of hospital visits and the cost of those visits so they can divide it up and have everyone pay a bill each month into the central pool. If the collective is being lead ethically, it won't be seeking excessive profit or hoarding money for its own sake. That can be a big if but this is a theoretical piece.

At some point, someone new comes along who wants to join the collective. This person has some kind of health condition and needs frequent, expensive treatment. The statistics on which the other members' payments were decided weren't calibrated for this. The collective will have two choices: provide this person with the same level of coverage and premium as everyone else, even though it won't be enough for their higher bills; or increase everyone's premium so that this person receives the same level of care, proportionally.

It does seem unfair to treat the newcomer differently than anybody who's already in the group. Life is unpredictable, and it's possible that anyone in the collective can develop this kind of expensive condition at some point. But, if they've got a contract with their insurance that prevents their premium from increasing, then that's part of the financial risk that the insurance collective accepted when they formed and calculated the rates. Now we're talking about someone who has a pre-existing condition [1], which gives the insurance the luxury of deciding whether to accept or deny their application.

What should they do? Nobody wants that person to be in pain (or worse, die), but if this is a private group who have all agreed to share their private money, they're well within their rights to decline the new member. Nobody can force you to accept someone into your club, right? I hesitate to write this because it sounds so bad, but it's true. Everybody would have to pay more without getting any additional benefits because the new member would be taking out a disproportionate amount, which will certainly lead to sour feelings (if they're sour enough, they could splinter off and form a new group with the original rates) even if it's for the greater good of humanity by helping this new member. It's not easy to convince people to give up more of their money for the good of humanity [2].

The only entity that can force the insurance collective to accept the new member would be the government. Gov could say "let everyone in without discrimination or else your collective is illegal" and poof, it's play along or disband (or be outlaws. Healthy outlaws). The likelihood of government taking notice of the collective grows as the collective itself grows and more members start to depend on it. This is especially true if the collective grows so big as to overtake competing insurers, such that the marginalized groups of people with pre-existing conditions have even fewer choices of insurance collectives to join.

Competing insurers? What? Why do they need to compete? In the primordial state, the collective is made up of people whose full-time job is something else. There's probably a leader who had the idea to form the collective in the first place, and a person who's good with stats to calculate the bills. In this state there's not much reason to 'compete' with other groups doing the same thing. That's like competing with the adjacent neighborhood to see who can share more sugar. But as more people join, someone's going to have to step up and become a full-time leader or treasurer or statistician to manage the collective and its money pool. As soon as that happens, and they've quit their day job, their livelihood relies on the insurance collective in more ways than one, and now the group definitely needs an income stream greater than their outbound stream, and that means they need to compete.

If insurers want to compete by offering low rates, they'll want to exclude people with pre-existing conditions. Insurers that accept expensive people will charge expensive premiums, and only expensive people will be joining them.

You know I don't normally cite things in these articles but this passage says exactly I'm thinking:

In the absence of regulatory interventions in a Private Health Insurance market, insurers might tend to adopt practices that seek to minimise their risk to avoid losses, including denial of coverage for applicants who have preexisting health conditions (Kofman 2006). On the other hand, overregulation might exert enormous stress on insurers, resulting in strangulation of the market (a situation whereby insurance schemes are unable to function in a sustainable manner and therefore are forced to shut down) (Sekhri 2005b).

Government regulation of private health insurance (2015) [pdf]

The idea of government regulating the practices of private insurance, to me, sounds like a joke. But not the funny kind, I mean the dumb kind. Firstly, because if the government wants everybody to have an equal opportunity at receiving healthcare, then... why is that not part of the taxes? And secondly because it forces every insurance collective to converge toward a single point, where every insurer is nothing more than a new face and logo on top of a singular system known as government-approved operating practices and non-discriminatory membership. Even in the primordial state, insurance collectives have very little room for flavor — put money in, get money out, the amounts of which are based on the stats of the collective's demographic. The only flavor is the demographic. So the reckless skateboarder whose membership application into the Stay At Home Knitters Health Insurance collective was rejected will instead have to stay in the Reckless Skateboarders collective, with appropriately higher rates which correspond to the cost of living that lifestyle. An insurer that casts a wide demographic net will, by definition, see the cheaper members subsidizing the more expensive members, while a narrow demographic net will charge rates that more accurately reflect the costs of the member, which may be quite high if you live a dangerous lifestyle.

Notice that if the entire collective consists of people making frequent withdrawals, whether they're reckless skateboarders or people with expensive medical conditions, then the whole concept of amortizing costs falls apart as members are making deposits and just as quickly turning them around for withdrawal. The premiums at that point must become as expensive as the bills they cover, and everyone is essentially paying their own bills indirectly through the insurance. Cheap members must subsidize expensive members in order for the concept of the insurance's cost amortization to work.

Unlike the reckless skateboarders, people with expensive pre-existing conditions didn't choose that lifestyle. Under a self-segregating and self-pricing private system, there is logically no collective who would enthusiastically accept the pre-existing condition people, who introduce a high cost through no fault of their own. Realistically, the only way to give these people reliable support (which they deserve, as we all do) within our society is for it to be mandated by government, thus washing away the only variable that could distinguish the collectives in the first place.

Oh, and that's not to mention the practical arms race that occurs between hospitals and insurers, where the price of everything inflates so comically high that non-insured people don't stand a chance, certainly not those with expensive conditions. Once insurance becomes commonplace, hospitals can raise their prices through the ceiling because who cares haha the insurance will pay for it. And the individuals, because they're paying indirectly through their insurance premiums, and only encounter the hospital under bad circumstances, have little leverage.

I know that there are people who oppose government-run healthcare because it brings the word "socialism" to mind. They'll certainly feel embarrassed when they realize that the entire concept of any insurance at all is based on the socialized distribution of risk and funds. Sure, government health insurance is socialistic and private health insurance is not-socialistic, if you need to draw a strict political distinguishing line. But practically, it's difficult to say the current free market of health insurance really does what free markets are thought to do. 49% of Americans get their health insurance from their employer, so they're stuck with their employer's choice of insurance provider and plan unless they want to go it alone. The other 51% are, I suppose, self-funding their insurance, or covered under government Medicare, or simply don't have any. It's only some portion of that 51% that's exercising their ability to shop around for insurances (which, again, have few legitimate ways of distinguishing themselves), but it's 100% of us that get caught in the pricing arms race and in-network hospital requirements; and it's the people with pre-existing conditions who deal with the anxiety of only maybe being covered.

REMEMBER: there's nothing more permanent than a temporary solution. It would be great we if could go back in time, to the moment the first private health insurance collective was formed, and say Hey no, start a movement for government-run tax-funded healthcare instead, or else we're going to wind up with a bunch of vaguely unique health insurance companies acting as proxies for the government's wishes under tight regulation except taking a privatized slice off the top of your bill every month [3]. But now every aspect of this system is so tightly intertwined, especially with regards to that pricing arms race, that it's easier for the government to regulate private insurers into acting like government bodies than to actually fix healthcare as a government body.

BUT, that's not what's on the ballots. You know what's on the ballots? "Should insurers be required to accept pre-existing conditions [_] Yes [_] No". Oh my god. If I say yes I'm allowing the government to get away with yet again lazily slapping more restrictions on private insurers instead of saddling up and creating a tax-based healthcare which is obviously what this is supposed to be, contributing to the decay I've described above, and encroaching on the rights of private people in private groups to do with their private money what they wish. And if I say no, people will die.

[1] A note about this vocabulary. There is a movement around "Being a woman is not a pre-existing condition", and other "____ is not a pre-existing condition" sentiments. The word condition here really poisons the tone because in common speech it almost always means sickness or illness or something wrong with you. If you re-interpret pre-existing conditions from the point of view of the insurer as meaning "there is some fact about you which is visible from the outset and changes our expectations about the amount of coverage you're going to cost us", then it's very easy to conclude that their statisticians have, for whatever reason, found that people who are or who have ____ cost them more coverage than their median member. Does that mean I'm happy to see people get charged higher premiums for something that they can't change about themselves? Of course not. This is where we get into distributing costs among the wide demographic, or letting the narrow demographic pay different rates closer to their expenditures. After thinking about this for as long as I have, I can't help but see these people as being angry at statistics, though the vocabulary doesn't help either. They might do better to redirect their anger towards the government for not making a national health insurance, since the private sector is where these demographic-specific statistics take effect. If the entire population is under a single insurance, there are no demographic lines any more. Under private health insurance, understanding what your rates should be is nigh impossible with the information gap between regular people and the insurers who invest billions into collecting stats on their target demographic. Under national health insurance, your rates derive from national expenditure divided by population size.

[2] So, why do I keep saying that tax-funded healthcare is okay? Isn't that exactly "giving up more money for the good of humanity"? This is an area where the tangibility, the line-of-sight to the cost, has a big psychological impact. Even though we can look at the government's spending of our taxes and deduce that X% of my Y dollars was spent on roads, and X% was spent on schools, I for one don't really feel those percentages. Taxes are more like a black box where money goes in and results come out. Case in point: if taxes were paid as itemized bills, and every citizen in the US received a separate "Bombs to Drop on Countries that Have Oil we Want" bill in the mail, they'd be shocked and outraged. But taxes aren't itemized like that, and the fact of the matter is we're all paying this Bombs tax already, but few think about it and even fewer complain. For the rest, it's invisible. If healthcare were migrated into taxes, I do assume it would wind up being cheaper, but at the very least it would be invisible like the Bombs tax and people would stop complaining about it so much.

[3] Why do I sound so sure that a government-run insurance would be cheaper than private insurance? The government is not known for its economic efficiency. Firstly, private insurance companies have costs that a government insurance wouldn't have, such as advertising. Here are a couple of numbers about that (one, two). Secondly, and probably more impactful, I expect that if the government was the one paying out for coverages, they wouldn't give in to the pricing arms race game that hospitals want to play. Another technique the industry uses to reduce individual power is to create partnerships between insurers and hospitals, and to establish "service areas", within which you should go to an insurer-sanctioned hospital or else they won't cover the visit. Much of this wouldn't be possible when there's only a single insurer in the nation.

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