Monday, July 17, 2017

The Rand Paul Compromise

I wish I knew St. Paul's view on healthcare.  Maybe he thought it was a right.  If so, Rand Paul would certainly be the right guy to propose the solution to the healthcare mess that he has come up with.

Being a complete hypocrite, Sen. Paul does not care whether Obamacare disappears.  He just wants to be able to say he voted to repeal it and did not vote to replace it.  It makes no difference to him what the replacement says or does, so long as he can "keep his promise" to vote for the repeal.  After that, if Republican moderates and Democrats want to destroy the country, at least his pecker tracks won't be on the bills.  He'll be the author of the procedure that made the new law possible, but he'll have voted against it, and that's all he has to do to fool enough of the people enough of the time in Kentucky.

I really like this solution.  By allowing Republicans to vote for what Sen. Paul calls "clean repeal," he gives each of them the ability to go home and shout from the rooftops the wholly irrelevant fact that he or she successfully voted to repeal Obamacare.  That's the promise Republican have been making for eight years, and it's the promise they can claim - substance aside, of course - to have kept.  After that, a compromise bill can be created.

On substance, Dr. Paul doesn't understand the issues.  He has latched onto an important insurance notion - adverse selection - but he has not shown any useful grasp of it.  Adverse selection is the tendency of people with the greatest risk to buy the most insurance.  In other words, the people voluntarily buying health insurance are, in general, sicker than those choosing not to buy it.

Adverse selection is a problem for insurers today because, under Obamacare, people can buy insurance from any carrier with no exclusion for pre-existing conditions.  The mandate that forces people to buy when they are healthy does not help insurers, because the insurer acquiring a sick person does not get the money that that person may have paid under the mandate when healthy.  If the person paid the penalty for declining coverage, or was covered by Medicaid or a parent's group plan, the new insurer must rely on a subsidy (or higher premiums on everyone it covers) to defray the cost of pre-existing conditions.

Senator Paul doesn't like these subsidies because the "health insurance industry" is making $15B annually, and he doesn't see why an industry that is making so much money should get a government bail-out.  This is really a stunningly stupid claim.  The insurance companies are making that much money only because they are not forced to participate in the individual Obamacare market.  They have withdrawn from that market so that they can remain profitable.  If the subsidies under Obamacare were increased to the level necessary to attract private insurers, those insurers would make some more money - they are entitled to profit on every class of business - but no more than is usual under our capitalist system.  That's not a "bail-out," as Sen. Paul likes to call it.  It's just how a free private market works.

What Paul does not seem to see is that he is exposing the thread on which the fans of single-payer are dying to pull: administrative costs.  If the insurance companies are making so much money, maybe it's because they charge more than a public payer - Medicare, say - would charge for covering the same ailments in the same way.   (That is, of course, the case.)  He is laying the groundwork for single payer by attacking the insurance industry.  Is that any way for a guy named Rand to think?

But wait!  There's more!  Sen. Paul's solution to the problem of insurers leaving the individual market is to get rid of that market by letting people form non-employer groups.  There are group policies available in other areas of insurance - life insurance through AARP, say - that are based on affinity of some sort, so why not health insurance?  The answer: all of these other insurance programs do have some underwriting requirements; they are actuarially sound and benefit primarily from the economies of scale.  Health insurance policies without pre-existing exclusions are not actuarially sound (see adverse selection, supra) and, therefore, cannot work that way.

Sen. Paul also argues that these pick-up groups would be viable just like employer groups.  If the large-employer market is profitable without subsidies, he, er, reasons, why wouldn't group plans of random citizens be healthy?  Well, one of the first thing one learns in the group insurance business is that group insurance isn't insurance.  Group insurance is "experience- rated." The employer basically pays the cost of all claims, plus an administrative fee.  The insurance policy simply smooths out the peaks and valleys, but premiums are adjusted to match claims over time.  An employer-based plan is an employee benefit, part of the compensation of the employees, with the added benefit of a healthier workforce for the sponsoring employer.  A random group of people with no interested third-party to pick up the rising costs simply would not be viable.

The employer's backstop for employee plans, and the entanglement of membership in the plan with having a job, make the employer market a wholly different place from the random group market.  Indeed, if these sorts of plans were viable, is there any doubt that insurance companies would have lobbied to make them legal?  If they made any damn sense, they would exist already. Because they don't make sense, they don't exist.  Sadly, the same cannot be said for Rand Paul.