Monday, August 18, 2008

Even for conservatives, health insurance (and other insurance) presents contradictions

Daniel Gallington, himself (the column says) insured by Medicare, has a column on p A16 of The Washington Times today (Aug. 18), where he points out some inconsistencies in the way conservatives debate health care. He mentions the McCarren Act of 1945 (not the national security McCarran Act of 1950) but I couldn’t find a lot on it, other than on this blog. But let’s move on.

Our system leaves regulation of all insurance to the states, so what we are left with is system where, under some regulation, insurance companies make a profit by taking in more in premiums than they pay in claims, and that gives them every incentive to avoid anti-selection. So, to the extent that they can “get away with it,” insurance companies “discriminate” against the less insurable. In health insurance, he argues, that leaves government to pick up the tab (that is, the taxpayers). Insurance companies (especially the “not-for-profits” like Blue Cross and Blue Shield plans) will take the money for processing the claims that the government pays. With the poor, we have a similar consideration with Medicaid, which states pay for, but with considerable federal participation (and with nursing homes, considerable controversy).

We do this with other kinds of insurance, and considerable variation among states. With auto insurance, more regulation (to get everyone insured) tends to lead to higher premiums. Auto insurance companies can discriminate in some cases, as against young single men, who take more chances and as a group represent more risk, even if some individual men (say, military pilots) may be excellent risks.

“As the world turns” risk gets harder to assess. Insurance companies balk at insuring properties in coastal or fire- or earthquake-prone areas. States try to regulate. They offer umbrella policies, often as part of auto or homeowner’s coverage, and then suddenly wonder if they are taking on too much liability risk because of the exposure created by blogging and the Internet. It’s not so much that there have been many claims or losses (there haven’t) but that the risk is not calculable because the actuarial parameters and equations just don’t exist yet, and the practical anti-selection risk seems great. Writers have found out that media perils insurance for Internet activity can be difficult to arrange.

Getting back to health care. Gallington challenges the presidential candidates to ask hard questions on such questions as high risk pools (or elimination pre-existing conditions), preventive care, and child and newborn care. He has a challenging perspective, but no easy answers. There aren’t any.

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