Comments on: Private insurance and social insurance in the health care debate http://www.samefacts.com/2009/09/uncategorized/private-insurance-and-social-insurance-in-the-health-care-debate/ Everyone is entitled to his own opinion, but not his own facts. Fri, 10 Feb 2012 09:54:58 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: jwg http://www.samefacts.com/2009/09/uncategorized/private-insurance-and-social-insurance-in-the-health-care-debate/comment-page-1/#comment-33416 jwg Thu, 01 Oct 2009 23:35:07 +0000 http://www.samefacts.com/?p=8661#comment-33416 I'm extremely late to this post, but hope I won't be lost in the 'tubes for all that. Just out of college, I worked as an actuary, computing required reserves for a variety of lines of insurance - workers comp, auto, commercial liability, etc. Characteristic of all these is that the insurer pays out on the basis of when the insurable incident occurred, not when the charge came due. So payouts for a given batch of policies might extend for years beyond the expiration of those policies, especially in the case of commercial liability. It has always seemed to me that if health insurers want to exclude pre-existing conditions, then at the very least, they must be held to pay for all claims, whenever charged that arise from a given diagnosis. That is, it seems to me that the diagnosis is what ought to trigger insurance coverage rather than the 17th visit to the chemo lab. This doesn't bear on the distinction between private and social insurance, but does seem pertinent to any discussion of how private health insurance works. I’m extremely late to this post, but hope I won’t be lost in the ‘tubes for all that. Just out of college, I worked as an actuary, computing required reserves for a variety of lines of insurance – workers comp, auto, commercial liability, etc. Characteristic of all these is that the insurer pays out on the basis of when the insurable incident occurred, not when the charge came due. So payouts for a given batch of policies might extend for years beyond the expiration of those policies, especially in the case of commercial liability.

It has always seemed to me that if health insurers want to exclude pre-existing conditions, then at the very least, they must be held to pay for all claims, whenever charged that arise from a given diagnosis. That is, it seems to me that the diagnosis is what ought to trigger insurance coverage rather than the 17th visit to the chemo lab.

This doesn’t bear on the distinction between private and social insurance, but does seem pertinent to any discussion of how private health insurance works.

]]> By: paul http://www.samefacts.com/2009/09/uncategorized/private-insurance-and-social-insurance-in-the-health-care-debate/comment-page-1/#comment-33250 paul Fri, 25 Sep 2009 14:05:16 +0000 http://www.samefacts.com/?p=8661#comment-33250 That description of "conventional insurance" seems a bit utopian to me. Sure, it's the way you might want things to work in a world where every market had many competing insurance companies and all of their risk models and payout histories were readily accessible to prospective customers for analysis. But it's nowhere near the way that conventional insurance appears to work, whether medical or otherwise. When you have property-insurance companies using house-by-house topographical, criminal and other data to price their products, you're not really spreading risk, you're concentrating it. Same thing when you look at how pre-existing conditions are used, either in setting prices/rejecting applicants or in rescinding policies once issued. In the real world, one or two firms dominate any given market, their data is secret, and they have enormously more information about potential costs than customers do. So we're no longer really dealing with a risk-spreading calculation, we're dealing with a monopoly revenue-maximization calculation. (One sign of this is that insurance companies don't do much intertemporal risk-spreading -- it's easy to imagine longterm policies that, like mortgages, would commit both side to mutually beneficial behaviors, but churn seems to be a more successful business model.) There's ultimately a bigger question here: can "conventional insurance" survive the information age? The more information that's available (purchasing-record feeds, anyone? british-style traffic and CCTV data?) the more closely individual risks can be parsed, leading to both cherry-picking and adverse selection, depending on who has a temporary information advantage. In the absence of a more or less voluntarily imposed partial veil of ignorance, it's hard to see how ever-increasing information and analysis won't lead to a death spiral. That description of “conventional insurance” seems a bit utopian to me. Sure, it’s the way you might want things to work in a world where every market had many competing insurance companies and all of their risk models and payout histories were readily accessible to prospective customers for analysis. But it’s nowhere near the way that conventional insurance appears to work, whether medical or otherwise. When you have property-insurance companies using house-by-house topographical, criminal and other data to price their products, you’re not really spreading risk, you’re concentrating it. Same thing when you look at how pre-existing conditions are used, either in setting prices/rejecting applicants or in rescinding policies once issued.

In the real world, one or two firms dominate any given market, their data is secret, and they have enormously more information about potential costs than customers do. So we’re no longer really dealing with a risk-spreading calculation, we’re dealing with a monopoly revenue-maximization calculation. (One sign of this is that insurance companies don’t do much intertemporal risk-spreading — it’s easy to imagine longterm policies that, like mortgages, would commit both side to mutually beneficial behaviors, but churn seems to be a more successful business model.)

There’s ultimately a bigger question here: can “conventional insurance” survive the information age? The more information that’s available (purchasing-record feeds, anyone? british-style traffic and CCTV data?) the more closely individual risks can be parsed, leading to both cherry-picking and adverse selection, depending on who has a temporary information advantage. In the absence of a more or less voluntarily imposed partial veil of ignorance, it’s hard to see how ever-increasing information and analysis won’t lead to a death spiral.

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