Obama on Healthcare – Lies, damned lies, and statistics

The problem I have with President Obama is that he’s too smart to be wrong by accident. I actually thought W. made mistakes because things were over his head. But BHO is a very smart man, so I have to believe he knows when he’s full of crap.

Take his current bugbear, the health insurance industry. Everybody loves to hate them, and not without reason. Their role in life is to make health insurance cheap, and the best way to do that is by making it illusory. Every time a health insurance company denies your neighbor’s claims, your premium goes down. That’s because health insurance is a very competitive business.

Health insurance companies really do compete on price. But only two things affect price: underwriting and administration. Assuming that competitive pressures make the companies substantially equal in administrative cost, the difference in price primarily reflects coverage and benefit decisions. We pay the companies to pay claims, but select them because they deny claims.

Especially claims for preexisting conditions. The issue is what insurance types call “adverse selection,” the tendency of people who need insurance the most to buy the most of it, so that the insured pool represents, in the aggregate, a greater risk than the total population.

Adverse selection comes in two flavors: conscious and unconscious. The unconscious variety is difficult to counteract. People who tend not to be careful about their risks tend to buy more insurance and take more comfort from it. (This is where adverse selection gets confused with another phenomenon called “moral hazard.” Moral hazard is the tendency of insured individuals to take greater risks because the net loss is less if those risks mature. People who are more prone than others to succumb to moral hazard tend to buy more insurance in the first place, and that’s a form of unconscious adverse selection.)

Conscious adverse selection is preventable. People who have been diagnosed with terminal illnesses are denied life insurance, not just because those people are bad risks, but because if people were allowed to wait until they incurred severe illnesses before buying life insurance, the number of people doing so would grow intolerably. Insurance is about sharing risk; if the risks aren’t insured until after they mature, there is no sharing.

In the health insurance business, the exclusion of pre-existing conditions is the key to successful underwriting. Just as a life insurer cannot allow people to wait until they get sick to buy life insurance, a health insurer cannot afford to let people wait until they encounter an expensive illness to buy “insurance” against its costs. A health insurer must exclude pre-existing conditions from coverage unless it adopts some other device to preclude – or pass on to its premium payers – the adverse selection that coverage of those conditions enables.

That’s not to say that there are no such devices available or that we, as a society, ought not to decide that they be used. (Mandatory enrollment at the earliest possible time is one of them. Hillary knew this and said so in the campaign. BHO, I believe, knew it, too, but didn’t say so.) But it does mean that pre-existing condition exclusions do not exist so that, as BHO says, insurance companies can “cherry-pick” the best risks, or “get out of paying” benefits because they “claim” that an illness is a pre-existing condition. Insurance companies cannot cover pre-existing conditions, so the fact that they don’t cover them can hardly be seen as a sign of corruption. The President’s saying so is a lie, and I believe he knows it.

The President is also lying about his public option. He says that we need a public option to “compete” with “the private sector,” to “keep it honest.” This notion so misconceives the nature of the private sector that it would be really scary if our President actually believed it. But he doesn’t. He can’t. Just what are the private companies, who compete tooth and nail with each other to provide the lowest premiums, being so uniformly dishonest about that a public competitor would fix? Would the public competitor cover pre-existing conditions? Not if it’s required not to lose money. What would it do?

My guess is that the public option would simply pour red ink on the fire, undercutting private insurance on price no matter what the cost. The object will not be to make insurance companies “honest,” but to make them unprofitable in the hope they will go away. There is an irony here: Newt Gingrich said that he wanted to create a private scheme to compete with Medicare so that Medicare would wither on the vine as people leave it voluntarily. I suspect that BHO has the same plan for private health insurance, and his claim that his public option is not a “Trojan horse” is true only in the sense that Bill Clinton’s denial of “sex” with Monica Lewinsky was true: technically accurate, but not in any useful sense true. I think it’s a damned lie.

As for statistics, why bother? Everybody knows politicians distort statistics. Like that large number of people who aren’t covered because they choose not to be even though they can afford to be. But statistics are boring, and if Mark Twain hadn’t mentioned them in his effort to supply a title to this post, I wouldn’t mention them either.

Of course, I could be wrong about all of this. President Obama may in fact be so biased against insurance companies because of his mother’s experience with their efforts to keep their premiums down that he actually think they are all evil and actually does not understand the industry at all. He should feel free to offer that explanation.