By John C. Goodman
The health insurance market is changing. And the changes are not good. Even before there was Obamacare most insurers most of the time had perverse incentives to attract the healthy and avoid the sick. But now that the Affordable Care Act has completely changed the nature of market the perverse incentives are worse than ever.
Writing in the
New York Times Elizabeth Rosenthal gives these examples:
- When Karen Pineman of Manhattan sought treatment for a broken ankle her insurer told her that the nearest in-network doctor was in Stamford Connecticut in another state.
- Alison Chavez a California breast cancer patient was almost on the operating table when her surgery had to be cancelled because several of her doctors were leaving the insurers network.
- When the son of Alexis Gersten a dentist in East Quogue New York needed an ear nose and throat specialist the insurer told her the nearest one was in Albany five hours away.
- When Andrea Greenberg a New York lawyer called an insurance company hotline with questions she found herself speaking to someone reading off a script in the Philippines.
- Aviva Starkman Williams a California computer engineer tried to determine whether the pediatrician doing her sons 2-year-old checkup was in-network the practices office manager said he didnt know because doctors came in and out of network all the time likening the situation to players switching teams in the National Basketball Association."
But arent these insurers worried that if they mistreat their customers their enrollees will move to some other plan? Heres the rarely told secret about health insurance in the Obamacare exchanges: insurers dont care if heavy users of medical care go to some other plan. Getting rid of high-cost enrollees is actually good for the bottom line.
To appreciate how different health insurance has become lets compare it to the kind of casualty insurance people buy for their home or their cars.
Dennis Haysbert is the actor I remember best for playing the president of the United States in the Jack Bauer series
24. You probably know him better as the spokesman for Allstate. In one commercial he is standing in front of a town that looks like it has been demolished by a tornado. It took only two minutes for this town to be destroyed" he says. And he ends by asking Are you in good hands?"
The point of the commercial is self-evident. Casualty insurers know you dont care about insurance until something bad happens. And the way they are pitching their products is: Once the bad thing happens we are going to take care of you.
Virtually all casualty insurance advertisements carry this message explicitly or implicitly. Nationwide used to run a commercial in which all kinds of catastrophes were caused by a Dennis-the-Menace type kid. In a State Farm ad a baseball comes crashing through a living room window. Nationwides Life comes at you fast" series features all kinds of misadventures. And of course the Aflac commercials are all about unexpected mishaps.
My favorite casualty insurer print ad is sponsored by Chubb. It features a man fishing in a small boat with his back turned to a catastrophe. He is about to go over what looks like Niagara Falls. Heres the cutline: Who insures you doesnt matter. Until it does."
Now lets compare those messages to what we see in the health insurance exchange. Federal employees have been obtaining insurance in an exchange similar to the Obamacare exchanges for several decades. Every fall during open enrollment" they select from among a dozen or so competing heath plans. In Washington DC where the market is huge insurers try to attract customers by running commercials on TV in print and in other venues.
If the health insurers followed the lead of the casualty insurers their ads would focus on what could go wrong and how good they are at treating the problems. After all why do you need health insurance? Because you might get cancer heart disease or some other expensive-to-treat condition. And when that happens you would like to be in a plan that give you access to the best doctors and the best facilities for your condition.
But in fact this is what you never see in a health insurance commercial in Washington DC. There is never a mention of cancer heart disease diabetes AIDS or any other serious health condition. Instead what you see are pictures of young healthy families. The implicit message is: if you look like the people in these photos we want you.
What explains the difference between the health insurance and casualty insurance markets? In the latter people pay real prices that reflect real risks. In the former no one is paying a premium that reflects the expected cost of his care. The healthy are being overcharged so that the sick can be undercharged. So insurers try to attract the healthy and avoid the sick.
But the perverse incentives dont end after enrollment. The incentive then is to under-provide to the sick (to encourage their exodus and avoid attracting more of them) and over-provide to the healthy (to keep the ones they have and attract even more).
Rosenthal explains what this means for people who need care:
For some like Ms. Pineman narrow networks can necessitate footing bills privately. For others the constant changes in policy guidelines annual shifts in whats covered and whats not monthly shifts in which doctors are in and out of network can produce surprise bills for services they assumed would be covered. For still others the new fees are so confusing and unsupportable that they just avoid seeing doctors.
So whats the answer? In a previous
Forbes post I argued that we can
denationalize and deregulate the exchanges. And by instituting
health status insurance" we can have a market with real prices that gives real protection to people with pre-existing conditions.
There is no reason why the health insurance marketplace cannot work just as well as the market for homeowners insurance and auto liability insurance.
