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The real reason health insurers won’t cover people with pre-existing conditions
- zyfo 15y agoIsn't this common knowledge? I'm pretty sure this was something that was mention in a seminar on information asymmetry when I studied Microeconomics 101 a couple of years ago.
- deleted 15y ago[deleted]
- guan 15y agoIt's still an information asymmetry story. From my cursory reading, the contribution is to identify what kind of information asymmetry is involved in healthcare, namely that it's more about the cost of treatment than about the probability of illness. I know that health insurance is often used to teach asymmetric information models, but it wasn't always obvious that it's a good example. Someone selling a used car might know a lot more about the car's hidden costs than anyone else, but does the typical buyer of health insurance really know more about his or her probability of illness than a sophisticated insurer with good doctors and actuaries and a lot of data? This led some economists to argue that the problem in health insurance markets is not asymmetric information, but rather too much information—the insurer already knows you will be a bad risk. This research makes it clear that there really is asymmetric information and spells out what it is.
- Loic 15y agoRead the The Cartoon Introduction to Economics Volume One, page 50. Everything more or less is there.
- ars 15y agoThis article demonstrates a very common mistake: People think health insurance covers health bills. It doesn't. It covers unexpected health bills, which is a very different thing. Any type of situation that is expected to happen can not be covered by insurance, it needs to be covered by savings instead. However many people want insurance premiums to be a type of forced savings plan, which is why there is such a huge argument in the US about health insurance. Those opposed to government regulation want to handle the savings on their own. Those who like government regulation want it to force people to save for health care costs.
- onemoreact 15y agoIn the US the insurance companies also negotiate the costs with various heath care providers. It's possible to pay 6,000$ / year in premiums, never hit your deductible so the insurance company does not pay anything out of pocket and still save money.
- bunderbunder 15y agoLast time I saw a hard figure on it, which was admittedly a long time ago, was while I was working at an immediate care clinic. Uninsured folks were getting billed roughly 170% what insured folks were thanks to these negotiated rates.
- tptacek 15y agoAs someone who has paid out-of-pocket for an MRI (it needed to get done ASAP for logistical reasons and there was a bookkeeping screwup with my insurance): the markup for out-of-coverage services can be way way more than 170%.
- anarchotroll 15y agoThat's cause most of the people are insured and there is no pressure for lowering rates for the uninsured.
- tptacek 15y agoVirtually everyone is insured as a side effect of being an employee at a company that provides access to a group health insurance plan as a benefit. This has the side effect of coupling people's jobs to their health insurance, which drastically reduces labor mobility.
- bunderbunder 15y ago83% is certainly a large majority, but it is not "virtually everyone".
- sunsu 15y agoGreat article! I just don't agree with the author's confidence in the "guiding hand of the government" in his conclusion. I would much rather have the freedom to purchase future options to buy healthcare rather than have my freedoms removed because the of the fear that the "average 20-year-old" may not have enough foresight to think about his/her future.
- DanBC 15y agoThere's no reason they have to be exclusive. The UK has dual public / private provision of healthcare. (Personally, I would never use private health care in the UK. I know people who have.)
- anarchotroll 15y agoIf you can opt out of public helthcare, then it is fine. But if you can opt out, I wouldn't call it "public" anymore. If you can't opt out, then choosing private basically means paying for both.
- tptacek 15y agoI read this yesterday and was unimpressed; it seems that the finding here is "adverse selection", which is more or less the classic canonical problem in insurance. Did I miss something?
- davidw 15y agoMy read of it is that it's not just adverse selection, but a situation where instead of both parties having a vague idea of what their costs may be, one party now has a really good idea about their costs, and is therefore in a much better bargaining position.
- tptacek 15y agoSure; adverse selection and asymmetric information are two sides of the same coin.
- FireBeyond 15y agoNot so much that, to me - both parties have a great idea of what their costs might be, but the consumer has the critical information - "of the options open to me, which will I choose, if any?" The "ignorance" is in "likelihood of utilization", not "cost of utilization".
- dalke 15y agoYou missed that this was describing research which shows adverse selection is a "at least partly" behind the problem. Without research, you're just hand-waving that it might be a problem, but you don't know if it's actually a significant influence. Quoting from the article: Hendren didn’t invent the idea of markets falling apart because customers know something that companies don’t. Nobel prizes were awarded to a trio of economists in 2001 for developing this idea of adverse selection in the 1970s. But his use of the concept may at least partly resolve the puzzle of why those with pre-existing conditions can’t get insurance. Another quote: This individual mandate is a natural fix to the problem of adverse selection in health insurance: It keeps the lowest-cost participants from opting out, and as a result the market doesn’t unravel.
- RyanMcGreal 15y agoAll the more reason to take economics out of it and provide health coverage via universal single payer insurance.
- davidw 15y agoI'm pretty happy with the health care system here in Italy. It's so much less of a hassle than in the US: get sick? go to the doctor, no paperwork, no forms to fill out (which, in Italy, is really something of a minor miracle), but "economics" are always with us, because health care is a scarce good.
- RyanMcGreal 15y ago> health care is a scarce good. It's true that every health care system rations care. The difference is that a universal system rations based on medical need (triage) whereas a market system rations based on ability to pay.
- simplefish 15y agoThis is not true. Your ideal universal system may ration on medical need. There might even be one in existence that does so... ...but I really doubt it.
- drucken 15y agoExtremely well-written article. It also clearly demonstrates one of the reasons why markets alone are simply not sufficient/appropriate for some problems. The rest of the developed countries outside of the US have long understood this with respect to health care.
- joedev 15y agoThe entire concept of insurance is to share risk. (Egyptians had the bright idea to combine grain together onto shared barges so if one sinks, none of us loses our entire cargo.) Risk carries an element of unpredictability. If a scenario is predictable, there is no risk to be shared, ergo by definition a scenario with little risk (e.g. known diagnosis and treatment plan) is absolutely and unsurprisingly not fitting for insurance.
- tomx 15y agoAs a UKer, it strikes me the US system of health insurance is just inefficient, even if only from a time management perspective. Do 300M people really have to negotiate their own insurance, and research carefully all the terms and conditions and so on?
- anonymoushn 15y agoNo, generally we have less than four options for insurance provided by our employer. When we are not employed, most of us cannot afford to carry insurance.
- ars 15y agoDo 300M people really have to negotiate their own home purchases/rent? Or cable tv? Or car insurance? Or home/renters insurance? Why do you single out health insurance?
- anarchotroll 15y agoIt just doesn't make any sense for a health insurer to cover people with pre-existing conditions. Insurance is all about risk; if you have a pre-existing conditions, there isn't a risk involved anymore, since you already know you have a problem (unless the provider doesn't cover anything that derives from that pre-existing condition which would also increase processing costs).