The House hearings on rescission – the retroactive cancellation of individual health insurance policies – were over a month ago, but after its initial run through Daily Kos it seems to have waited a bit before popping up on Baseline and Slate. James Kwak at Baseline described the practice as rare, affecting only 0.5% of the population. The faint light bulb above my head began to flicker: could that be true…that’s not rare – that is amazingly common.
It is. In fact, from Don Hamm’s (CEO of Assurant) prepared testimony, with the company logo nicely on the front of it in the original:
Rescission is rare. It affects less than one-half of one percent of people we cover. Yet, it is one of many protections supporting the affordability and viability of individual health insurance in the United States under our current system.
What tangled webs we weave…
To understand why 0.5% of the people Assurant covers is a lot of people – a jarring, terrifying, probably criminal lot – you need to understand a little bit of math. You need to understand just enough math to understand what Don and his legal team are not telling you. You need to understand conditional probability. And the folks at Assurant are counting on the fact that you don’t.
A typical job interview question for aspiring finance folks is the Monty Hall Question. As typically phrased, you go on a game show and are asked to pick one of three doors. Behind two of the doors are goats. Behind one is a shiny new car. You pick a door. The host ceremoniously opens a door that you did not pick, and behind it is a goat. He turns to you while the audience giggles at the goat. Do you want to change your pick?
As I have pointed out on the Idea Locker comments, this typical phrasing is a bit unfair. If you haven’t seen the show, you might think the choice of what door the host opened was random, unrelated to the door you picked. Since there is no correlation, you don’t see why you should change your pick. If someone asked you to call the third of three coin tosses in a row, you wouldn’t change your pick if the first two were heads, would you?
But the nuance of the game is that the door is not random. The door that is opened will always meet two conditions:
- It is not the door you picked originally (or else what would be the point of carrying on)
- It is not the door with the car (that would certainly bring things to a close)
You had a 1/3 chance of being right in your initial pick. That means there was a 2/3 chance the car was behind “not your pick”. Well, if you change your pick now, you cover the entire “not your pick” set – you have seen one of the two doors, know that it’s empty, and now have the payoff from the other. You should change your pick.
Here’s the health care nuance (2005 HHS report based on 2002 data):
Half of the insured population uses virtually no health care at all. The 80th percentile uses only $3,000 (2002 dollars, adjust a bit up for today). You have to hit the 95th percentile to get anywhere interesting, and even there you have only $11,487 in costs. It’s the 99th percentile, the people with over $35,000 of medical costs, who represent fully 22% of the entire nation’s medical costs. These people have chronic, expensive conditions. They are, to use a technical term, sick.
An individual adult insurance plan is roughly $7,000 (varies dramatically by age and somewhat by sex and location).
It should be fairly clear that the people who do not file insurance claims do not face rescission. The insurance companies will happily deposit their checks. Indeed, even for someone in the 95th percentile, it doesn’t make a lot of sense for the insurance company to take the nuclear option of blowing up the policy. $11,487 in claims is less than two years’ premium; less than one if the individual has family coverage in the $12,000 price range. But that top one percent, the folks responsible for more than $35,000 of costs – sometimes far, far more – well there, ladies and gentlemen, is where the money comes in. Once an insurance company knows that Sally has breast cancer, it has already seen the goat; it knows it wants nothing to do with Sally.
If the top 5% is the absolute largest population for whom rescission would make sense, the probability of having your policy cancelled given that you have filed a claim is fully 10% (0.5% rescission/5.0% of the population). If you take the LA Times estimate that $300mm was saved by abrogating 20,000 policies in California ($15,000/policy), you are somewhere in the 15% zone, depending on the convexity of the top section of population. If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%, the folks with over $35,000 of annual claims who could never be profitable for the carrier – then the probability of having your policy torn up given a massively expensive condition is pushing 50%. One in two. You have three times better odds playing Russian Roulette.
People lie on their insurance forms, of course, and that is a serious problem. But let’s not forget that the very nature of the forms is designed to create inaccuracies, and it doesn’t matter in the slightest how minor the error may be once the company comes looking to get out of its policy. Back to Don Hamm:
I mentioned a story in my comment on the Baseline article, and it’s a favorite of mine, so I’ll repeat it here: Years ago I was walking a casino floor with a casino executive. It was an incredibly detailed tour, and we got to talking about pretty much everything that came to mind about crowds and gaming. Now, a clever observer might notice that even the tolerant people of Nevada will not allow alcohol in vending machines – wouldn’t want the little ones to be able to get a Bud Light without a human being verifying their ID. But there we were in the middle of acres of blinking lights, with absolutely no one making sure that underage kids weren’t walking up to a slot machine. Indeed, they don’t card for the table games.
The executive told me you are free to play if you are underage, you just aren’t free to win. You can sit down and pump your money into the slots, and if you look presentable you can drop some chips on blackjack or craps. However, if you should happen to start winning, the pit boss or security team will come over and check your ID. The house edge is 100%.
Conditional probability is tough for the human brain. We tend to think of things as either completely correlated (once the market tanked, McCain had to lose) or completely uncorrelated (coin tosses). To a certain extent, we make the calculations in everyday speech: when someone says that pancreatic cancer is exceptionally lethal, he doesn’t mean that it is likely to kill an enormous number of people; he means it will kill an enormous percentage of the people who contract pancreatic cancer. Get a bit more tangential and even very smart people with Nobel Prizes miss things; one of the reasons Long Term Capital Management melted down was that once they started sustaining heavy losses, people bet against LTCM’s other holdings – LTCM itself was the correlation. Low frequency, high severity events are also difficult for us to process – look at how much we invest fighting air piracy versus the sacrifices we are unwilling to make on drunk driving or domestic firearm violence.
Put them together and the guys with the actuaries working for them have a nearly insurmountable advantage. I tend to think of traditional banking and traditional insurance as mirror images: when you take out a mortgage, you get a lump sum and make a series of payments; when you get life insurance, you make a series of payments and get a lump sum. Health insurance is somewhat similar to life insurance, except the payout happens sometime during the payment stream instead of at the end.
When a person intentionally defaults on consumer credit, he is called a “ruthless defaulter” and the system, to the extent that it operates with any sort of efficiency, is designed to try to flush him out of the credit market in the future. Society can tolerate taking the risk of inadvertent defaults – the people who through some sort of misfortune are unable to make good their promised payments. The folks who do it on purpose…do it enough and the FBI might step in.
The insurance industry has a bit of a historical difference, in that pretty much everything in health insurance is similar to a liar loan. I tell the company if I have been sick, just like stating an income on a mortgage application. For a host of administrative and medical privacy reasons, the insurance industry has not historically wanted a comprehensive inventory of medical records before taking a client. Few people could probably deliver such a record even with the best of intentions. There is a problem with liar loans, and it was well described by Tanta (Calculated Risk’s late writing partner) here:
Well, with Number 1 [a liar loan that has gone bad], it’s “clearly” the borrower’s fault. He or she lied, and we can pursue a deficiency judgment or other measures with a clear conscience, because we were defrauded here. We can show the examiners and auditors how it’s just not our fault. The big bonus, if it’s a brokered or correspondent loan, is that we can put it back to someone else, even if we actually made the underwriting determination. No rep and warranty relief from fraud, you know.
It is in the health insurer’s interest to have application fraud, not only because it saves time and expense on the front end, but also because it lets them get out of any policy that isn’t going well for them. If the health insurer had to verify the information – if, in essence the insurance company had to behave as an accredited investor with adequate expertise to make a decision without reliance – it wouldn’t have the opportunity to bail out. It would catch more genuine liars, but many of these liars would have turned out to be healthy, profitable customers, and what the carrier really wants is a population devoid of expensive claims, not devoid of liars.
Years ago, the shameful business was the tobacco industry. There was a certain roguish charm to them; they had great ads and were fun outgoing people, and of course they made a product that if used as directed would kill you.
Say this for the tobacco folks: they printed the dangers right there on the pack. Few people who took up smoking after World War II did so with ignorance of the health consequences. Society wants tobacco, it might as well be produced in clean factories and wrapped in cellophane as opposed to sold on street corners. I hope we legalize marijuana and let Altria and RJR make joints and put the Mexican cartels out of business.
No, the health insurance companies sneak around. They have nice facades, they speak in the bureaucratic language of statistics few understand, and they make the eminently reasonable argument that they just need to protect themselves. They promise great coverage, and when many years later it comes time to pay out and the petitioner is sick and unable to function, sorry, wish we could do better, but there was an error and rules are rules. We’re keeping the premiums. It’s actually far more like this guy:
Bernie Madoff made people promises, and people believed them, because was it really possible that the former chairman of the NASD was running a scam? Come on. But he was, and his reputation was no more a shield to the defrauded than the huge balance sheets of the health insurance companies mean an individual claimant is going to get covered. The minute he began transferring money from one account to another and then raising external capital to try to square the numbers, he knew exactly where this was going. The insurance companies know too; they just know well enough to avoid outrunning the law.
I don’t know if this case is going to be the lever the Democrats need to get meaningful healthcare reform. The Democrats don’t even seem to be able to line up on the same side, which is probably a necessary precursor to getting something passed. The Taunter Drug Plan for lower prescription drug costs doesn’t seem to have taken the Internet by storm, so I give this post low odds of breaking through. But I will make this simple point in the hope some speechwriter pressed for a deadline picks it up: if a bank manager went to half of his highest net worth clients and said “sorry, you misspelled your address when you opened your account, I’m confiscating your balance,” he would be lucky to get himself assigned to minimum security.
I wish your rescission percentages got more play. It is unconscionable that 10 percent of seriously ill people get dumped from their plan because they actually need it.
The pre-existing condition thing has always bugged me – people need insurance precisely because they are ill – they shouldn’t be prevented from getting it because of their illness.
Love that you’re comparing insurance execs to Madoff…. it is a scam, pure and simple, to take money from people and cut them off of what you’ve promised, precisely at the moment they need it most.
Best way to get people to notice is to talk about it…
Funny thing is that I am generally sympathetic to the pre-existing condition argument. It would be unfair to allow people to sit out of the pool for years and then jump in only when they develop a chronic condition; it’s a bit like taking out fire insurance when the hoses arrive. That’s why I support mandates and a public product, so people actually have the opportunity to maintain continuous coverage. But the companies have no desire to make this a general fraud prevention thing. If it were, they would verify all incoming customers’ medical histories.
There is one key difference between the insurance companies and Madoff: Madoff’s investors were accredited investors; in the case of Fairfield Greenwich, it was a hedge fund paid massive fees with precisely one investment. They made the affirmative statement that they were qualified to analyze investment funds. An overwhelming majority of any health insurer’s clients are neither doctors nor actuaries, and have a difficult time understanding what is going on. Furthermore, at the time the carrier decides to renege on its obligations, the client is sick. I can barely think when I have a cold; it’s asking an awful lot to expect someone with cancer or ALS to be a robust advocate of his rights.
The other continuous care benefit is reduced employee abuse. I know a guy who has been passed over for raises every year since he had an autistic son. What’s he gonna do, leave? He’s uninsurable anywhere else, so the insurance system has put him in chains to his employer.
I think health insurance is a scam all around. If we could pay doctors cash for the services they provide, we wouldn’t need health insurance. Here’s an example: my fiance had to get an MRI. The price you had to pay for that scan if you were uninsured was $4,000. The doctors were paid $400 for that scan by the insurance company.
So, what’s better for me, the consumer? To pay $400 every few years when I need the service, or to pay $400 to the insurance company every month, just in case I need the service? They have rigged the system so that you CANNOT afford health coverage without them.
If you ask me, the whole debate of the “rising health care costs in America” is simply the Insurance companies moaning about their shrinking profits because their customers are getting old and are starting to actually use the service.
I think the whole crisis could be solved by eliminating today’s typical health insurance companies and allowing the free market to set fair prices at hospitals (we already know approximately what those prices are because we see on our EOB’s what the doctors accept from the insurance co.). Catastrophic coverage should still be available for the companies & people willing to gamble on who will lose that game, and declaration of relevant pre-existing conditions would be a fair part of setting up that business relationship.
>The pre-existing condition thing has always bugged me – people need insurance precisely because they are ill – they shouldn’t be prevented from getting it because of their illness.
What!? That’s like saying it’s OK to wreck your car, then go out and buy collision insurance, make one payment, and demand that they give you a new car.
That’s ridiculous. It’s *insurance*, not some magical “pay a low price, get unlimited medical care” scheme.
Your not getting it! YOUR RIGHT ITS REDICULOUS
but that is EXACTLY what they put it FORWARD AS. pay us this monthly fee for life and your covered for life.
THAT IS HOW THEY SELL IT so why in the world would you think it insane that people think THAT IS WHAT IT IS?
It did not always cost LITERALLY a fortune to see a doctor. I am only 32 years old and I remember when it was AFFORDABLE to see a doctor for something normal like a check up or shots or basic dental work.
The Pharma/Insurance industry has EXPLODED this field into this YOUR FRAKING LIFE IS OVER expense to FORCE people to buy what was originally OPTIONAL insurance for that just in case life altering event (cancer heart failure massive accident etc..)
Now its backfiring on them.
People are USING IT AS ADVERTISED and they are going OH SHIT this artificially inflated market WE CREATED is now BURNING US.
so now instead of eating there medicine they are making US EAT IT with recission and socialised care.
oh trust me they WANT socialized health care.
it means unlimited funding because it goes from being an OPTIONAL pay out of pocket plan (part of which is HIDDEN by the employer paid out half and you get LESS PAY as a result)
to a MANDATORY TAX whether I want it or not.
since when it is SANE for a “bill” to come to more dollars than some people make in there ENTIRE LIFE TIME.
sorry for the language but this entire structure needs a good old bitch slap across the face.
I went to the dentist a few years ago. I take decent care of my teeth. clean x-ray fill a tiny cavity (so small no Novocaine was needed)
Its also the last time I will ever go to the dentist again without insurance (that means a long time) for that bill came to $700
$700 to sit in his chair for 30 minutes (if that)
You so much as LOOK at an emergency room and your bill STARTS AT $10,000 and up.
only on THIS insane planet is there any logic in that.
The “pre-existing condition” problem is a serious issue, and the people most affected by it, unfairly, are the very ones who have been paying for health insurance for years, get dumped by their providers (or lose their insurance for some other reason) and have to find new insurance. Good Luck. They are pretty much screwed.
To respond to Freds statement:
Many people who have a ‘pre-existing condition’ may change jobs. Pregnancy was listed as a pre-existing condition when a friend of mine’s husband changed jobs (and therefore insurance) and the insurance refused to cover anything because she was already three months pregnant.
These pre-existing conditions do not mean the insured stop paying either. Like any continuing service, you are continually paying, so what you are saying is not only incorrect, but misleading.
On top of all of this, say a person survives cancer, but 15 or 20 years later they have a recurrence. Unless they have the same exact insurance they will be dropped (if they were even able to find coverage at all). And where do you think that leaves those patients? Sick, angry and soon destitute since cancer is incredibly expensive to treat (again, thanks to insurance companies who have great discounts, unlike the uninsured).
Where do you think those patients end up? Do you think the costs they incur and are unable to pay thanks to lack of insurance is not partially picked by you, either as a patient or a taxpayer? Don’t delude yourself into complacency – healthcare costs are out of control now and need strong regulation.
I’m sorry to hear that your friend had difficulties with her insurance when her husband changed jobs. Perhaps his employer had never heard of the Pregnancy Discrimination Act. It is illegal for any insurance company to deny coverage becuase of preganancy, even as a preexisting condition. The tenents of the bill are as follows:
Any health insurance provided by an employer must cover expenses for pregnancy-related conditions on the same basis as costs for other medical conditions. Health insurance for expenses arising from abortion is not required, except where the life of the mother is endangered.
“Pregnancy-related expenses should be reimbursed exactly as those incurred for other medical conditions, whether payment is on a fixed basis or a percentage of reasonable-and-customary-charge basis.
The amounts payable by the insurance provider can be limited only to the same extent as amounts payable for other conditions. No additional, increased, or larger deductible can be imposed.
Employers must provide the same level of health benefits for spouses of male employees as they do for spouses of female employees.”
Maybe your friend needs to go back to the Benefits Manager of the new company and demand coverage.
Obviously our healthcare system needs to be overhauled, but it won’t be fixed if government continues to be involved in it. All of the complaints made by Taunter in the blog post have come from the government’s involvement in the healthcare system.
It’s easy to deamonize the insurance execs and they assuredly deserve some of the ridicule, but never forget that the quality and cost of healthcare took exponentially opposite directions only after government entered the fray. Governments don’t regulate costs, they artifically inflate them and then offer pathetically inadequate service for it.
The problem with government healthcare is that the consumer would no longer have a choice. I’ve lived under socialized medicine. It’s not a good thing. You end up with a handfull of pills becuase doing the tests to determine exactly what’s wrong with you is too expensive and becuase the doctor is only being paid $3 for your visit. Where is his incentive to be the best at his job? And consequently, that attitude correlates back into his educational experience and his staff’s treatment of patients.
I’d suggest that anyone looking favorably on government run healthcare should go to a northern Michigan hospital and talk with the Canadians who are there getting treated. Their stories will make blood shoot out of your eyes.
Concerning the topics of “gvmnt in healthcare = BAD” in your last few paragraphs:
The reports I hear about put the USA #1 in healthcare costs and around #37 in citizen health and longevity, behind many countries with government sponsored healthcare.
I also take issue with your claims of execs and doctor incentives. You say the doctor has no incentive because he’s only getting $3 for your visit. I argue that if he’s only getting $3 for the next guy, he has more incentive to give you personal attention; if he’s getting $3000 for the next guy, he has more incentive to push you through and move on to the next cash cow. Insurance execs are the heads of corporations that legally have one purpose: make money for their shareholders. Given the bastardized definition of Free Market that exists in the USA, consumers are stupid if they think anything other than that the insurance companies will screw them over as much as possible. It’s all about profits. If they’re trying to make you happy, it’s ONLY because they think it will make them more money.
Regarding not getting a test because it’s too expensive: you are free to pay for that test yourself, right? How does the cost of that test compare to the cost of putting money in insurance company pockets every month?
I posted above about how an MRI costs $400 if insurance pays and $4000 if you pay without insurance. An occasional $400 payment is a much better choice than monthly premiums, but that’s not the system we’re given. We in the USA are living in a system where prices are artificially raised so that you have no choice but to buy health “insurance”. The only purpose it serves it to put a middle man between you and the doctor and siphon money. We should be able to pay out of pocket for 90%-100% of the healthcare we receive in our lives. I’d also like to buy real insurance for the off chance that something major happens. Imagine paying your car insurance company higher monthly premiums and having oil change deductables, tire change co-pays, gas fill-up out-of-pocket expenses. That’s what our health “insurance” system has become in this country, and we need to get back to paying healthcare provider directly for all but the most exceptional situations.
>That’s ridiculous. It’s *insurance*, not some magical “pay a low price, get unlimited medical care” scheme.
Do you realize what you’re saying here?
Of course from the company’s perspective it’s perfectly reasonable. But what you’re saying to sick consumers is essentially, “how dare you ask to be able to afford medical care for your serious illness.”
This is one of the reasons our healthcare system is a failure: seriously ill people cannot get medical care because of cost/insurance discrimination. Why persist, as a society, in relying on institutions that fail us so terribly?
Anne:
The decision to utilize a pre-existing screening is entirely up to the Employer! The companies we work for can set up their policies anyway they choose……health insurance companies just handle the administrative side of things. So when we are unsatisfied…let’s go back to our corporations if they aren’t providing the right coverage for your needs.
But if you purchase directly from an insurance company……yes, they can set the pre-existing condition……..why would they want to shell out millions of $$’s for someone who has had cancer or another illness in exchange for a measly 200-500$ premium……….c’mon, that’s just common sense.
I disagree. How can you claim Poo Hoo why should we have to pay all this money when its YOUR FAULT it costs so much to begin with.
THEY ARTIFICIALLY MADE health care so expensive that 99% of us can NOT AFFORD IT without insurance and then BALK when we want insurance to cover it.
What is wrong with this picture.
All things being equal your RIGHT but its NOT equal. These procedures cost so much because insurance/pharma companies ARTIFICIALLY MADE THEM cost so much so that THEIR SERVICES are mandatory not optional.
That’s THEIR FAULT. they should be made to eat the results of it.
Well articulated explanation of a truly atrocious practice. To me, it was surprising that Assurant CEO Don Hamm is so open about their rescission process. My first reaction was that he’s a pretty stupid guy to admit that they go out of their way to drop individual subscribers.
Yet, your question “If someone asked you to call the third of three coin tosses in a row, you wouldn’t change your pick if the first two were heads, would you?” reminded me of something that I witnessed quite recently. An otherwise intelligent finance guy wanted to bet against the Yankees even though he was a Yankees fan. Why? They had won seven in a row. What were the changes they would win eight in a row?
Maybe Don Hamm’s understanding of the common man and common Congressman is exceptional, and I’m the one who’s stupid.
I take it your friend is not one of this nation’s more successful sports gamblers.
There is a curiously persistent misunderstanding of the concept of mean reversion. Many people seem to believe that sequences of events are self-correcting: if I have flipped ten heads in a row, and I know that the expected value for thirty flips is fifteen heads, surely I should expect more than ten tails in the next twenty flips to bring me back to the mean. They even receive reinforcement for this belief every time they play cards with their buddies – get a disproportionately high number of face cards early, expect fewer face cards later.
This is a confusion between determined and undetermined outcomes. A deck of cards, once shuffled, will only play out one specific permutation (a major reason for the house to use a “large” number of decks and stop playing before the number of cards remaining ceases to be large – they want so many cards of each type in the deck that probability on each draw is similar to the probability for the first card out of 52). In the case of coin tosses, however, the next toss does not exist when the first toss has happened. The coin will fly with no conception of previous events. A running tally will “revert” to the mean only to the extent that future 50/50 results overwhelm the determined history.
TAUNTER : STEPHEN DODSON ::
preacher : choir
[...] Taunter wrote an insightful post about rescission, expanding on a comment he left on this blog. He drives home a point I thought I made in my [...]
Brilliant post, Taunter.
I actually did manage to get kicked out of a casino once when I was underage, however – even before I won anything
Now that is impressive.
Were you, by any chance, on the MIT blackjack team?
One of the most insightful posts I have read for a while. Thank you.
Fantastic post. I’ll leave it at that.
Maybe something about health care and gambling make math idiots of everyone? Or maybe some are idiots to being with: http://mediamatters.org/mmtv/200907270052 (via Krugman).
Wow. If you want to say something that incredibly moronic on television, at least have the decency to look good:
Wonderful post.
I paid for individual insurance for most of twenty years until it became prohibitively expensive. All that time, I always had the sneaking suspicion it was a scam but I was told it was the responisible thing to do. Now I know it was a scam.
The other day Krugman referred to young people who don’t buy insurance as “gaming” the system, or something to that effect. But is it gaming the system to decline to buy into a Ponzi scheme? If you think that the insurance won’t be there when you need it why buy it in the first place?
I feel almost certain that without a public option mandates will be a disaster.
I think Krugman’s perspective is in the context of a public option and mandates.
Because health costs vary enormously by individual, with a few individuals accounting for enormous amounts of cost, a system that aims to provide broad coverage needs a large amount of people whose premiums exceed their cost usage. For every person paying $10,000/year and consuming $50,000/year, you need four people who pay $10,000/year and consume nothing. If the people who consume nothing know that they will consume nothing (or think that they will consume nothing), they will be tempted to opt out of the system and only join later, when they think the expected value of their costs is equal to or greater than $10,000. If all four healthy people opt out, however, the sick person needs to be charged $50,000 to keep the system in balance – which defeats much of the pooling benefit.
I doubt Krugman supports rescission in cases where the applicant has not intentionally defrauded the carrier. Even the Republicans are repulsed by the practice, and I think they would be far more horrified if they knew how widespread the practice is among very sick individual insurance clients
Thanks for the first balanced comment in the entire thread (or article for that matter).
The same light bulb went off when I read the 0.5%, but I could not have explained it _nearly_ as well. Very nice post.
I still wonder, though, whether it might be slightly worse than even this picture.
1) I believe your data is for the US population as a whole. (If I’m wrong, then this comment is meaningless – apologies.) But, in fact, much of the sickest part of the population receives health care via Medicare because older people are (to use your technical term) sicker.
So the % of people in the top tier AMONG PEOPLE NOT ON MEDICARE is much lower, which means that the conditional probability of suffering recission given that you need treatment is much higher. Roughly, if the % of people among under-65 (and not on Medicaid) in the top bracket was half of what it is for the entire population, then the probability of suffering recission given that you have a large claim is double even your current estimates.
2) The probability of losing the policy given that you really need it may be X% in any given year. But there’s a cumulative effect – over time, you build up a reservoir of uninsurable who lost insurance due to recission, and now cannot get it back because they have a chronic condition.
You are absolutely correct about #1, and this is a huge error factor. 10% of Medicare costs take place in the last month of life alone, and Medicare is roughly 45% of the national health care spend. So all of those patients are clogging up the top end of national distribution and not on private insurance in the first place. Unfortunately, I can’t find a private-only, or individual-pay-only distribution, and of course if I did find an individual-pay-only distribution it would be skewed on the top with denied claims (some people should be spending a lot, but actually spend much less, because their policy was pulled). The Reuters article says Medicare spends 30% of its outlay on the top 5% of its population, which means it has a flatter curve than non-Medicare (I would assume, without evidence, that fewer Medicare beneficiaries have negligible health expenses). This implies non-Medicare spending is even more highly concentrated with a few very high spenders.
On #2, I’m a little less confident, and it was one of the reasons I may have misunderstood James’ original post. There is a cumulative effect, but that effect is blunted to some degree by the fact that the people who account for the very high medical expenditures do not necessarily change much from year-to-year (with the obvious exception of the end-of-life expenses typically borne by Medicare). In fact, one of the reasons I suspect rescission became such a powerful phenomenon is that if Sally has breast cancer at a young age, she is going to be in the 99th percentile several times; the carrier is weighing years of such expenses against her premium. So it might not be the case that in a forty year career an average person has a 33% chance of ending up at some point in the top percentile (1-(.99^40)); it is probably the case that most people have a tiny chance of ever getting an expensive chronic condition (or at least an expensive, chronic condition before turning 65), and some people have a large chance of repeatedly being in the top percent.
Fascinating – and horrifying – insight, Taunter.
While the odds you show are bad enough, I wonder if there is another factor to make them worse:
The insurance executive used 0.5% as the recission rate, but that is for ALL insureds.
Shouldn’t the insureds who are covered under an employer’s ‘forced insurance’ policy be excluded from the potential pool of ‘recission candidates’?
I have no idea what percentage of people covered under an employer’s plan are not subject to potential recission, but whatever the number, they would make the potential pool of recission candidates even smaller.
As Mark Twain once said, “Figures don’t lie, but liars figure.”
Excellent post.
What a terrific explanation of the unfairness of rescission!
I do understand what Krugman says about young people “gaming” the system, an in theory I can see how mandates would fix that. But, in Massachussetts, it seems to me that they still have a problem with this. I presume this is because the penalty for failing to buy health insurance (on the order of $1000 in taxes, or less) is much lower than the cost of purchasing health insurance (at least $3000, up to $12000).
It seems to me that a solution would be to make a law that insurance companies cannot drop or raise rates on anyone who has been continuously covered by insurance for x years (let’s say, 5 years or so). This would incentivise young people to contribute to the insurance pool during the years when they don’t need expensive care.
In theory, if the federal government manages to enact some kind of Obamacare, the problem of the non-contributing youth would disappear as we would all be mandated to buy insurance. But, I suspect nothing will be enacted.
At the very least, the government should restrict insurance companies from predatory practices such as rescission. Without such legislation, companies that don’t use rescission would be outcompeted by companies that DO use rescission. Anti-rescission legislation would just take that factor off the table altogether and level the playing field.
You are right, the penalty needs to create the incentive to sign up.
Rescission could easily be stopped by imposing an affirmative obligation on the insurance company to verify its information. So in the Taunter world, there would be a standstill period (30-60 days) from inception of a policy during which time each side could review and verify health information and break the policy if it didn’t work. Beyond the standstill, the carrier would be on the hook. Once admitted to a pool (eg women born in 1960 living in Boston), individual rates could not change – change one rate, change the entire pool.
The flaw with my plan (apart from the politics) concerns actions the client takes that increase his risk. If he begins smoking, for example, or decides to become an ice road trucker. But I would think customer-initiated change could be recognized as a policy reset without affecting the system overall.
[...] Posted in Uncategorized by Mike on July 30, 2009 I follow up on Taunter’s excellent post on rescission over at The Atlantic. It’s a ramble that I had fun with, about zombies and end [...]
This is whack. Why don’t they simply pass an “incontestability” rule/law/statute? In LIFE insurance, there is a clear-cut 2-year incontestability rule that says policies cannot be rescinded after that 2-year period, and evern further that if insured dies due to something adverse omitted in the application, the insurer cannot contest the death benefit if this occurs after 2 years from policy start. Wouldn’t that resolve this in health insurance too?…
…also, I forgot to address this too: I’ve read that it would be “impractical” for insurer’s to comprehensively investigate applicants, so they only spend $ to do this if/when big claims arise that they wanna get out of. Not totally accurate, as insurers (life/health/disability/long-term-care) DO spend a decent chunk of change underwriting applicants, with paramedical exams, APS (medical records review), the new (and spooky) filled-Rx records check, etc…in addition to applications that rest on applicants honesty. Granted not everything will show up thru this underwriting, but most will get caught; insurers are well aware of ‘adverse selection’. Issue is symptom of macro problem w/ our system. Finding a (politically do-able) way to have EVERYone be covered and in the pool (+ incontestability rules or what jenn said, rules based on continous coverage) would go a long way towards fixing it.
the underwriting screening process may be done to gather information for a later recision rather than to disqualify applicants, and refuse their premiums.
They do have this. In California it is Insurance Code section 10350.2.
@Dan
California Insurance Code 10350.2 refers to disability insurance. What about health insurance?
I’m totally with you on rescissions. In general, I’m in favor of a strong health care reform with a serious public option.
But I thought I’d point out a consequence of making rescissions illegal. Either #1, it becomes the Insurer’s responsibility to identify preexisting conditions.(although denial of a new policy for pre-existing conditions might become illegal, as well). or #2 Health insurance coverage becomes mandatory.
#2 is probably a necessary consequence of making rescission illegal. But enforcing mandatory health insurance is actually quite tricky. Assumedly, the government would track people’s insurance(or lack thereof) and a fine would be issued.
Therein lies the rub. If the fine is lower than the insurance premium, it is in by interests to not get insurance, pay the fine, and then sign up for a policy when I get sick.
But selecting the appropriate fine is tricky business, in some senses, it is equivalent to insurance underwriting. At the same time, legislators are under pressure to make the fine as small as possible, to prevent alienating their constituents. Moreover, the tendency of government, is to specify the fines in the legislation itself. This means that an appropriate fine at the time of passage, even if it is initially significantly larger than the cost of an insurance premium at the time, will eventually become less valuable than the premium due to dollar inflation and health cost inflation.
I don’t mean to imply this is a bad idea. In fact, if we’re lucky, the legislation is written poorly, it kills health insurers, and we end up with the public option. But I just think it is important to understand how making practical legislation to make rescission illegal, is actually quite tricky.
After paying $550 per month for health insurance, they’d better not recission me!
You’ve got a good deal – at least compared to what we pay…
Very nicely written article… but I can’t help but wonder about your bias towards a national healthcare. Let’s just take a couple of examples.
First, you liken rescission’s statistic to an underage person playing in a casino. True, the house advantage is 100%–but this is only because the underage person IS BREAKING THE RULES. Likewise, companies should be able to disqualify people if they lie on the insurance form.
Ok, so secondly, you assert that “…the very nature of the forms is designed to create inaccuracies…” Are you serious? Far more people are covered under group insurance plans than individual insurance plans… and HIPAA has explicit language that prohibits discrimination against employees and their dependent family members based on any health factors they may have–including prior medical conditions, previous claims experience, etc. So your numbers MUST be faulty because the only people who could be rescissed are those who happen to have been diagnosed, quit/lose their job, and chose not to go with COBRA before finding another job and lying on the form. And even if you somehow got excluded for a preexisting condition, that exclusion can only apply for 12 months (18 if you enroll late).
So I have to doubt the veracity of your article. Very well written though.
No need to wonder about my bias – I advocate a single payer system for basic and catastrophic health care and a private system for supplemental coverage. Call it the French or the Swiss systems.
The key point I hoped to make is that the casino doesn’t care about underage gamblers, they care about gamblers who win, and when there is an intersection of the sets (underage gamblers) and (winners) they act. If they really cared about underage gamblers they would universally card for the games, as they do for the bars.
On your second point, the entire post concerns individual health insurance. Assurant, not Taunter, provided the population estimate for rescissions. If you think the pool of candidates is even smaller – filing deadlines, excluded clauses, etc – you are arguing for a higher percentage of rescissions within the suspect class. It is the same point Stats Guy made above, and would argue even more strongly for insurer bad faith when presented with large claims.
You and I have the same desires for a national health care system–having just returned from my stay in Europe (and having had to partake of an ambulance call and emergency health care), I know I do not want to see what Congress is planning ever come to fruition; in Europe, if you’re not a citizen, you must sign a paper to acknowledge that you agree to reimburse the cost. The American proposal–to officially legislate to pay the health care for non-Citizens is ludicrous.
Back to the article: my point is that the article makes the implication that people who lie on their forms and perpetrate that lie by paying premiums should be allowed to have health care; the HIPAA explanation I provided was to illustrate reasons that honest, rule-obeying folk don’t need to lie because in most cases by law they cannot be excluded; and if they are, they cannot be excluded indefinitely.
If someone were to hop over your fence and lay $5 bills on your doorstep every morning… would you complain? Now how about if the guy starts taking the cars that you parked in the driveway for joyrides? Are you trying to tell me that just because you overlooked his trespass when he was laying money down on your doormat you are willing to let them get away with taking your car?
People who lie on their insurance forms are committing fraud. It sounds to me like the article is whining that it isn’t fair that high cost patients can’t get away with fraud like low cost patients can, doesn’t it?
… in Europe, if you’re not a citizen, you must sign a paper to acknowledge that you agree to reimburse the cost …
This is definitely not so in Spain, where you have the constitutional right to free health care just because you are stepping on its territory, regardless of your citizenship, even if you are an illegal alien. What country in Europe do you refer to?
If you’re not a citizen in certain European countries you have to agree to reimburse the cost? That seems a bit unfair for legal non-citizen residents of that country who work and pay taxes.
In response to Morgan:
So what about those that don’t break the rules, become sick, the workplace gives them six months disability before terminating employment and at that time (while sick) you are meant to somehow pay for COBRA, which occasionally costs more than unemployment provides?
Should we tell these people to shut up and stop lying? Because a friend of mine, who just passed away two weeks ago, experienced this policy. I am certain he would have loved to have been able to go find another job – if his body hadn’t been riddled with Lymphoma. This is not uncommon either, as another of my co-workers is experiencing an incredibly similar situation and was just terminated from employment. That is two in one workplace in one year.
Also, employment can provide insurance, but the insurance company can just as easily not cover certain procedures due to the ‘pre-existing condition’ and leave those costs solely to the insured, all while still taking your bi-monthly payments.
I have to doubt the veracity of your statement, unfortunately, since it is based on the premise that so many of those who get sick are just liars and rule breakers.
This scenario also assumes people have disability insurance. Many many do not have this benefit. Small businesses in particular do not have this benefit.
Some who have it have long term but not short term etc.
Patrick C, I agree healthcare insurance has to be mandatory, otherwise the funding base becomes too narrow. But there are better ways to go than fines. Here in Oz we have universal healthcare supported by a taxation levy. This guarantees treatment in the public system of hospitals. But the government would prefer people used the parallel private hospital system instead, to reduce the call on the public system. There is a tax break that encourages people to take out private health insurance that covers private hospitals. This means high income earners take out private health insurance to use private hospitals and cover some of the additional cost by reducing their tax bill. Admittedly, there are downsides to this system, as with all parallel systems; one will inevitably be better funded. But I’ve never heard of rescission in Australia…
I’m concerned with this Mandatory Health Insurance idea. I will NOT EVER purchase insurance through a for-profit corporation for my health. Period. It’s my HEALTH, not a horse race. Then, what enforcement are people REALLY planning? Creepy!
And don’t compare this to life insurance or car insurance. You don’t need life if you have no dependents/business responsibilities and you can walk/use public transport and thus not need car insurance.
I used to think I was getting ripped off by insurance unless I was filing claims but then I had a wreck. Now I happily throw money down that rat hole and devoutly hope to never see it again. The only real solution I see is to accumulate enough wealth that you can self-insure. In the meantime save an emergency fund and carry high deductibles so you only file when it’s a big deal.
I guess my family got lucky last year when we had our twin daughters 12 weeks early. Between my former employer’s health insurance and medicaid we didn’t pay anything for their 3 months of neonatal care.
We were definitely in the the top 1% bracket, I think the final bill came out to be $750,000 for the two of them, not including the delivery. I can pay health insurance premiums for the rest of my life and not hit that number.
Is $750K the amount that you would have been charged if you did not have health insurance, or the total amount the insurance company actually paid to the hospital?
“We were definitely in the the top 1% bracket, I think the final bill came out to be $750,000 for the two of them, not including the delivery. I can pay health insurance premiums for the rest of my life and not hit that number.”
You think so?
First, let’s factor in what the insurance company actually paid out. Most people here seem to think it would have been about 75k. To be on the safe side, we’ll double that to 150K.
Second, let’s figure out what you actually pay in premiums. Between your premiums and what your company pays for you, money that they could be paying you if they weren’t paying for your insurance, it’s costing you probably 2000-2500 a month. Again, to be safe, we’ll take about half that and call it $1200.
Now, let’s say you invested that $1200 a month and got a below average return on 8% and guess how long it would take you to hit that 150K number?
Less than 8 years. And yours is pretty much a worst case scenario.
Very interesting article.
The $7,000 you cited for an individual adult insurance plan is incorrect. The source you linked to explains that this number is the 2005 “Estimated Average Total Medical Expenditures for Low-Income Medicaid Beneficiaries, If They Were Covered Instead by Private Insurance”. The main problem there is that it’s total expenditures by the insurer, not premiums paid by the person.
Instead, consider using $4,704, the 2008 average annual premiums for employer-sponsored health insurance for single coverage. http://ehbs.kff.org/images/abstract/7791.pdf
Alternatively, it was $2,613 for non-employer-sponsored single coverage in 2006-2007. http://www.ahipresearch.org/pdfs/Individual_Market_Survey_December_2007.pdf
That’s a fair point, but the challenge with using the overall average for non-sponsored coverage is that many of these plans are stripped-down policies for people who believe themselves to be in particularly excellent health. I was trying to find a population that is large and contains people who might develop chronic conditions and are not being pruned.
If you believe my estimate of policy revenue is too high, use a different intersection point of revenue and medical loss. I think you will still find that the power series of medical loss puts extensive pressure on insurers to look carefully at a small segment of the population. Skipjim’s comment above that his premature daughters ran an insurance company and the government $750,000 shows what one client can do to a carrier.
Dave – I’m a freelancer who knows quite a few self-insured freelancers – We talk A LOT about health insurance and its costs.
If you’re 21 and just out of school and have NO pre-existing health conditions – never saw a therapist for depression, don’t have allergies, no asthma or ADHD – you probably can find a policy for $2600 a year. Once you marry and have a family, costs for insurance grow exponentially. Or once you start aging but remain single, your costs grow exponentially. Just how it works with the for-profit market.
The PDF you link to is provided courtesy of America Health Insurance Plans – a group devoted to the interests of health insurance companies, not consumers. Show me where I can get a $2600/year policy that provides the same coverage our Senators get, and I’ll stop advocating for health care reform now.
Unfortunately, such a policy is not readily available to people who actually need it.
[...] Source:http://tauntermedia.com/2009/07/28/unconscionable-math/ Tags: assurant, cancellation, ceo, hamm, health insurance, health insurance policies, individual health insurance, individual health insurance policies, insurance, medical care, population [...]
[...] Source:http://tauntermedia.com/2009/07/28/unconscionable-math/ Tags: assurant, cancellation, ceo, hamm, health insurance, health insurance policies, individual health insurance, individual health insurance policies, insurance, medical care, population [...]
A well-reasoned article. You lost me, though, with the Monte Hall excerpt. Once you have been shown door X has the non-prize, doors Y and Z immediately assume 50% probabilities. If you had picked door Y in the beginning, door Z does not assume the 2/3 probability that X and Z had pre-knowledge of X.
I don’t know what they are teaching in Finance courses these days, but it doesn’t match what I used to teach in Psych Stats.
Mike O., the odds are indeed 2/3 and 1/3. It was a famous problem that a lot of math professors and PhDs got wrong (and apparently former Psych Stats instructors).
http://en.wikipedia.org/wiki/Monty_Hall_problem
Thanks, Stephen (you too Andy), I stand corrected. The wiki entry was unclear until I read this:
“Why the probability is not 1/2
This difference can be demonstrated by contrasting the original problem with a variation that appeared in vos Savant’s column in November 2006. In this version, Monty Hall forgets which door hides the car. He opens one of the doors at random and is relieved when a goat is revealed. Asked whether the contestant should switch, vos Savant correctly replied, “If the host is clueless, it makes no difference whether you stay or switch. If he knows, switch” (vos Savant, 2006).
[edit] Increasing the number of doors
It may be easier to appreciate the solution by considering the same problem with 1,000,000 doors instead of just three (vos Savant 1990). In this case there are 999,999 doors with goats behind them and one door with a prize. The player picks a door. The game host then opens 999,998 of the other doors revealing 999,998 goats—imagine the host starting with the first door and going down a line of 1,000,000 doors, opening each one, skipping over only the player’s door and one other door. The host then offers the player the chance to switch to the only other unopened door. On average, in 999,999 out of 1,000,000 times the other door will contain the prize, as 999,999 out of 1,000,000 times the player first picked a door with a goat. A rational player should switch. Intuitively speaking, the player should ask how likely is it, that given a million doors, he or she managed to pick the right one. The example can be used to show how the likelihood of success by switching is equal to (1 minus the likelihood of picking correctly the first time) for any given number of doors.”
I’m suprised this is the first time I’ve encountered this problem (though the teaching I did was back in the 70s).
The best way I’ve explained it is this:
Pick one of three doors. I open one of the doors you didn’t pick and show that it’s a loser. You are now left to decide between the one you’ve already picked and the one I have left. Would you change your pick?
Compare that to:
Pick a card out of a deck, but don’t look at it. The goal is to pick the ten of hearts. I then look at all the rest of the cards and throw 50 away. Again, you are now left to decide between the one you’ve already picked and the one I have left. Now would you change your pick?
Andy, that’s funny: It’s almost the exact same way I try to explain it: http://stephendodson.wordpress.com/2009/07/22/exaggerating-to-solve-problems/
For me, the easiest way to explain it is this: When you first make your pick, the odds are that you got it wrong (2 in 3). So when Monty opens the door, he shows you how to correct your (likely) mistake. It is not 100%, but better than even.
[...] is not rare. The odds are shockingly high that you’ll get the axe if you get seriously ill. Taunter breaks down the [...]
One issue – it is not just one health insurance company, but many! One cannot count on all private insurers to have an even sample of the population. I’m sure I could improve my odds by buying into an “more healthy” plan (and I’m sure that info is very hard to come by). Also, I’m unlikely to stick with the same insurance plan my entire life (due to job change, location change, ETC) so if I change plans, the money I’ve been paying to some other company doesn’t help my net profitability in the slightest.
Luckily I don’t have to worry about this for a few months – thanks in part to a flat tire. You see – I got a flat tire the day that I was supposed to be laid off. This happened to be the last day of the month. I found a spare can of fix-a-flat and came in anyhow, but since I had called in and said I’d work from home (and I needed to be there for the formalities) the paperwork was dated a day later so I got an extra month of coverage.
[...] time to comment recently. Only eight of my posts have even broken the hundred view mark; to have one just shy of ten thousand is rather surprising. I suppose Malcom Gladwell was onto something when [...]
[...] week I read a lot of great stuff. The best post by far was this post about rescissions. It’s a very good read and if there is just one link you read from this collection, read this [...]
Three words, Single Payer System anything else is unconscionable.
[...] a policy after a claim has been filed on said claim. Over at Taunter Media Taunter has a great piece about how both decisions are informed by the same logic: conditional [...]
[...] This is a really good article on the misleading math health insurance companies are quoting when it …. While canceling the policy of 0.5% of the population is indeed a relatively small number, given the chain of events that lead to the cancellation, the chances of losing your coverage when bad things happen are a lot worse. It turns out that if you have an expensive condition, the probability of you losing coverage is around 50%! Why? Because insurance companies won’t cancel the vast majority of people who don’t claim enough in a year to make them lose money. So that leaves only the really sick people. If 1% of the population is really sick and insurance companies only cancel policies on really sick people, then 0.5% of the total population means half of the really sick people are going to lose their coverage. Insurance is there to cover losses we can’t handle individual. If a misfortune hits and you lose your coverage because of that, what is the point of the insurance? Unlike things like car insurance, health problems often times involve more than one payment. Furthermore, insurance companies make it easier for them to cancel your coverage by purposely leaving the application vague and error-prone. That gives them an excuse to cancel your coverage when you really need it the most by claiming that you’ve lied on your application. As the article mentions, casinos don’t card when you play but will when you cash in. So someone under 18 can lose all they want but when they go to take their winnings, the house will lay down the law. No comments yet [...]
Here’s another question- for those who don’t want to be forced to pay for an insurance policy:
If you take your $7k a year for premiums, and instead of giving it to your insurance company, you give it to your mortgage company to pay off your 5% mortgage interest.
In 20 years (so I’m still young and probably healthy) I have a nest egg of about $230k. That is a whole lot more than I can expect from an insurance company to pay out, and chances are it’s more like 40 years before I get to pay out for a large medical bill.
Now, you might say that’s not fair, it only works for the rich. The $7k annual health insurance costs and mortgage rate has nothing to do with the rich. Even the working poor has to pay rent, which is usually higher than the mortgage payment for the same property.
If employers can be forced to pay for the health insurance, they can also be forced to offer a “cash on the table” equivalent of the the health insurance.
A plan like this could cure the housing market collapse and keep the insurance companies (or government) from taking this money and using it for other things (private profit, no bid government contracts)
That is a gamble, though. Of my family members had the body go haywire in the early 30s. This is why I always worked health insurance into my budget when I was in my 20s and making 10 bucks an hour!
Don Hamm is an honest guy. Assurant is one of the few health companies not using “bait-and-switch” tactics in pricing. They don’t automatically raise rates each year because they underpriced in year 1 to tease people in.
How can Assurant do it? By making sure that there are few cheaters in the pool. You need to redo your analysis and look at what percentage of a claim costs arise in year one from an uninsured population. Then, compare that to an insured population. The insured population will be higher because some are sicker, and not revealing that on the application. Recission eliminates cheaters (and a few honest players as well), but keeps costs down for the healthy, and those who have unexpected negative changes in health.
Those who are sick and don’t reveal it should not be rewarded for their deception to insurance companies. It’s a form of fraud.
FD: long AIZ
If you believe that health insurance rescission is limited to those who intentionally made material misrepresentations on their insurance applications, we have a significant difference of opinion.
There’s an easy fix, which was proposed in the House hearings: limit rescission to cases where there is intent. You will note that it was the honest health insurers who declined to make this change.
Surely the public option will prevent neither “gaming the system” nor a Son of Rescission? The bill is 1000-pages long, and the system is complex and unproven. To the insurance companies, it must be screaming “Game me!” (And to the consultants who are busily scouring the 1000 pages for loopholes, too.)
Medicare for All (single payer), with its “Everybody in, nobody out” policy, eliminates both problems by definition.
Agreed. The only thing recommending the public option is that it is superior to the current system.
While I may agree that health insurance companies are the devil, it does not necessarily follow that I want to hand over control to the government, which is equally a devil in disguise.
With people like Nancy Pelosi selling the House health care plan with statements like, health care reform means “a cap on your costs, but no cap on your benefit,” I want someone to tell me why these liars are preferable to the liars who sell insurance. We’ve got Democrats trying to sell the people on some sort of economic perpetual motion. Benefits will automatically continue, but costs won’t rise.
I think we get more truth from folks like Rahm Emanuel’s brother Ezekiel, who implies your heath coverage may be based on how many tax dollars you are worth to the government. Treatment priority will be weighted toward the young person who can recover, work, and feed the system. Old folks? Well, we can’t waste too much resources on them. What are they worth, in dollar terms?
He believes in a form of communitarianism, where health care for the chronically ill or elderly will be weighted with regard to the impact on the whole society.
If I am not mistaken, this dude is an advisor to Obama on health care.
Maybe the devil we know is preferable. The new health care legislation would not allow high-decutible policies, according to an article on the CNN’s money site. But I think that is the direction to move. Let folks bear more ordinary costs, and only insure against the catastrophic. Also, make insurance companies live up to their contracts when something catastrophic does happen.
But please, keep idiots like Pelosi and communitarians like Emanuel out of my health care. Please.
[...] insurance industry should be properly regulated to prevent abuse such as the rescission game, but to argue that private insurance should be driven out of existence because of such [...]
So when the CEO of Assurant testified that “Rescission is rare. It affects less than one-half of one percent of people we cover.”, why did not any of the congress-buffoons respond with the obvious rejoinder: “Yes, and exactly what per cent of the people you cover actually file claims?”
That would have put the matter into crystal-clear clarity. In fact, they could recall the CEO and ask him this question even now.
But they will not, because the Congress is in on the scam, as well as the administration. Changing the rules of the health insurance game/scam is the last thing they have in mind.
There’s a big problem here: You are arguing on simple percentages without looking at whether the patient lied or not. You seem to be showing that about 10% of policies with high claims are rescissed. It says nothing about what percentage of these people perfectly well knew they had expensive problems and lied on the application.
Mistakes certainly are made but it doesn’t mean that it’s the right thing to do to push welfare costs off onto insurance companies and probably destroy the industry in the process.
As for the casinos–I’ve seen them card those who appear young plenty of times. It’s just there is normally no human interaction when sitting down at a slot machine so they very well might gamble for a bit without being carded.
Why do you care about the health insurance industry? They do NOTHING socially useful. They take $11+ dollars from you tp pay a $10 bill. THAT is all they do. Name another function they serve and tell me any innovation they have come up with that improves my life.
[...] Taunter explains how the .5% rescission rate figure discussed in the hearings on health insurance premiums and coverage is used to dismiss Congressional concerns as inconsequential and actually is a good business practice that will not change. It is worth going to the post to accurately follow the train of thought. Taunter concludes that the chances for rescission for a serious illness is: If the top 5% is the absolute largest population for whom rescission would make sense, the probability of having your policy cancelled given that you have filed a claim is fully 10% (0.5% rescission/5.0% of the population). If you take the LA Times estimate that $300mm was saved by abrogating 20,000 policies in California ($15,000/policy), you are somewhere in the 15% zone, depending on the convexity of the top section of population. If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%, the folks with over $35,000 of annual claims who could never be profitable for the carrier – then the probability of having your policy torn up given a massively expensive condition is pushing 50%. One in two. [...]
[...] is an absolute must-read regarding the workings (or not-working) of health insurance in the U.S. The 'Nuclear Option' in the Health Insurance Industry More importantly the abuse of statistics in logic/reasoning. There is nothing like statistics, and [...]
Back to the Monty Hall problem for a second.
One poster suggested that if Monty didnt know which door held the prize and when opening the other door just luckily opened the one with the goat that you should not switch. That seems absurd, Montys knowledge does not affect the odds, the only thing that does is your original choice and whether or not the door that gets shown does NOT have the car.
I’m going to respond to this, not because it’s important, but because I’ve been interested in the Monty Hall problem for several years, and I’m bored.
Though it seems absurd, it is absolutely true that the classic formulation of the solution (that it is in your interest to change your door choice) is dependent on Monty Hall knowing what door the car is behind. Let’s look at the three possible situations:
1) You initially choose a goat door. Monty Hall randomly opens one of the other doors, and we see a goat behind it. This means that a car lies behind the third door, and if you change your choice, you win.
2) You initially choose a goat door. Monty randomly opens one of the other doors, and we see a car behind it. You lose automatically.
Now the chance of picking a goat door initially is 2/3, and once that door has been chosen, Monty has an equal chance of opening either of the remaining doors. So the chance of situation 1 or 2 occurring is 1/3 for each.
3) You initially choose a car door. Monty randomly opens one of the other doors, and of course it is a goat. If you you change your choice now, you lose.
Situation 3 also has a 1/3 probability of occurring. Note that situations 1 and 3 will look identical to the contestant, so you have no way of knowing whether the car is behind the first door you picked, or behind the other unopened door. But situation 2 is NOT identical, and results in a loss. So three situations, each with equal probability, only one of which results in a win. Therefore, probability of success is still 1/3 (though if Monty opens a goat door for you, your chances jump to 1/2, but you can’t better them by switching doors).
The key difference is that in the classic problem, there is no situation 2.
[...] illuminating blog post by blogger Taunter shows us exactly how the healthcare industry extracts it’s profits from it’s customers. [...]
Great article, but your probability example from Let’s Make a Deal is flawed.
It is true that at first the prob of your choice being right is 1/3 and being wrong is 2/3′s.
First when Monte opens a door with the goat – it is not random. Monte knows where the car and goats are, and no matter which door you pick, there is always a door with a goat that Monte can pick. After he opens the goat door, all that has happened is the odds have shifted to 1/2 and 1/2 – NOT 1/3, 2/3.
Even if Monte doesn’t know, and opens a door at random, it still is prob 1/2, 1/2. Once the open door event occurs, the prob that it is a goat is one. The issue with gampbling that gets people is trouble is the belief that “dice have a memory”. Effectively a new “game” is initiated once more information is added (e.g. we know what is behind one of the doors, but still not the other two). Each door is now 1/2 and 1.2, and your odds don’t change no matter which you pick.
attitude_check,
The odds are indeed 2/3 and 1/3. It was a famous problem that a lot of math professors and PhDs got wrong. Your “gampbling” analogy is also off. Yes, dice don’t have memory. Each roll is a discrete event. But Monty specifically selecting the door with the goat (it can’t be the door with the car or the door you originally picked) is a continuation of the same game.
http://en.wikipedia.org/wiki/Monty_Hall_problem
But let’s not get distracted from the main message of this post.
The article assumes that any cancellations must be unjust, and then uses math to show that there are more cancellations than one might suspect. But if the cancellations aren’t unjust in the first place, then the article is all smoke and no fire.
News flash – If you include fraudulent information on your insurance application, your insurance company may cancel your coverage when you need it most. Of course, if you filled out your application in good faith and they try to cancel it for frivolous reasons, you can take them to court and you’ll probably win. What exactly is the problem here?
Most of the urgency in his article comes from comparing fraudulent insurance applications to game show contestants and underage gamblers. Using these kinds of analogies obscures the more fundamental fact that insurance companies can only legally cancel your policy when you have supplied demonstrably fraudulent information.
That hardly seems like a scandal, or anything that warrants additional government regulation in what is already an incredibly heavily regulated industry.
News flash – If you include fraudulent information on your insurance application, your insurance company may cancel your coverage when you need it most. Of course, if you filled out your application in good faith and they try to cancel it for frivolous reasons, you can take them to court and you’ll probably win. What exactly is the problem here?
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Does dying before you win your court case because you were denied a transplant count as a problem?
http://articles.latimes.com/2009/jun/17/business/fi-rescind17
“The committee investigation uncovered several rescission practices that one lawmaker called egregious, including targeting every policyholder diagnosed with leukemia, breast cancer and 1,400 other serious illnesses. Such investigations involve scouring the policyholder’s original application and years’ worth of medical and pharmacy records in search of any discrepancies.”
Why don’t you wait until you have chemo, radiation, and a cold, and see how well you hold up trying to defend yourself?
Actually here is the a link to the woman who had breast cancer: http://www.cnn.com/2009/POLITICS/06/16/health.care.hearing/index.html
What’s the problem?
“Beaton turned to Texas Rep. Joe Barton for help. Barton said his staff went to work, but the insurance company, he said, was “unyielding.” Barton appealed to the company’s president, who promised to investigate personally. The president called Barton back within four hours and said the coverage would be reinstated.
Beaton underwent surgery in October, but by then her tumor had grown from two to three centimeters to seven. She had to have all the lymph nodes removed in her arm”
Attitude check:
Your analysis is the usual naive one, and it’s wrong. There are three cases: (1) you’ve chosen goat A; (2) you’ve chosen goat B; (3) you’ve chosen the car. In cases (1) and (2)–2/3rds of the total–Monty has only _one_ choice of door to show the other goat. In that 2/3rds of the cases, the other door _must_ be the car. Hence you _do_ improve your odds by changing your choice.
The analysis has nothing to do with the “dice-having-a-memory” fallacy. It has _everything_ to do with contingent probabilities resulting from new information.
Don’t believe me? Better run some simulations before you apply for that finance job.
Your analysis seems to assume that fraud is effectively nonexistent. Otherwise the injustice argument here falls flat pretty fast.
In any case, a single-payer system will simply shift us from rescission to rationing. If we don’t practice rationing then costs will continue to rise and we will get it taken from us in taxes that rise every year instead of premiums that rise every year.
As an alternative, I would like to see a system more like life insurance, where individuals buy a contract that provides a defined benefit at a defined cost for a defined number of years (or life). People would have a strong incentive to buy young and it would be up to you to decide whether to spend your money on a treatment. If your odds of rescission hit 50% at some level, then this type of defined-benefit option could hardly be a worse gamble.
Your analysis seems to assume that fraud is effectively nonexistent. Otherwise the injustice argument here falls flat pretty fast.
======
How do you figure? 10% fraud is really high. What kind of fraud numbers are you thinking about?
If fraud is high then the companies are making out even better, because they are taking in loads of money from people that they will NEVER pay out to.
[...] wrote how the claims that rescission is rare is a claim that should be taken with a grain of salt. Taunter Media breaks down the math: To understand why 0.5% of the people Assurant covers is a lot of people – a jarring, terrifying, [...]
When he claimed 0.5% was that 0.5% every year? If that is the case, and one is insured say, on average, 30 years, then the chance of getting rescinded is really high, isn’t it? At least here, they claim the figure is per year,
http://baselinescenario.com/2009/07/27/health-insurance-innovation/
Regards
Gordon
[...] Care and Statistics: Check out this post at Unconscionable Math: The House hearings on rescission – the retroactive cancellation of individual health insurance [...]
the monty puzzle seems to have a flaw to me.
it assumes 3 solutions because there are 3 choices and that is how they come up with 2/3 1/3
but this is false.
there are FOUR solution.
pick car open goat change to goat
pick car open other goat change to goat
pick goat open goat change to car
pick other goat open goat change to car
2 chances to lose and 2 chances to win
the odds are 50/50 it seems to me.
they “distort” the odds by displaying but IGNORING that initially selecting the car has TWO probable outcomes NOT ONE.
so its NOT a 1/3 2/3 problem.
its a 1 in 4 problem BECAUSE of the host interference.
at least thats how my brain munges it though I am tired at 0436 in the morning
when you base the odds NOT on initial choice but on potential outcome paths its clearly 50/50 to me.
BUT I have run the experiment to test with the cards and experimentally the results are correct you DO win more often by changing.
my brain hurts. I still think the odds are 50/50
by having the host interfere your not changing the odds your IGNORING THEM since now its no longer odds its “acting” on inside information (host opening a goat door)
You are correct that there are 4 possible outcomes instead of 3, and have hit upon the crux of the misconception of this problem: these outcomes do not have an equal probability of occurring.
That is, the first two options each have a 1/6 chance of occurring (Pick Car Open Goat 1 Change Goat 2 and Pick Car Open Goat 2 Change Goat 1), because the probability of the original choice (Pick Car) is itself 1/3.
The probability of each of the remaining choices (Pick Goat 1 Open Goat 2 Change Car and Pick Goat 2 Open Goat 1 Change Car) is 1/3 (a total of 2/3 when combined).
That means that the total chance of winning the car when switching is 2/3.
In common sense terms:
1. Everyone will agree that you had a bigger chance of initially picking a goat, ie 2/3.
2. Therefore in 2/3 of the cases, the initial pick is wrong.
3. Your chance of initially picking a Car is 1/3, and you can only get a goat on a switch if you pick a car. In fact if you pick a Car and switch you will always get a Goat! But since everybody agrees that your chance of initially picking a car is exactly 1/3 and your chance of getting a goat is 100% if you switch from the car, then your overall chance of getting a Goat by switching is also 1/3.
4. Likewise, everyone can agree that your initial chance of picking a Goat is 2/3. Similarly, you can only switch to a Car if your initial choice was a goat (either one, since the host ALWAYS reveals the other one). In fact, your chance of switching to a car if you initially chose a goat is 100%! Therefore your overall chance of getting the car if you switch MUST be 2/3.
Hey Chris,
You’re right, there are four scenarios, but they aren’t weighted equally.
Two scenarios, pick car and Monty opens Goat, or Monty opens other Goat, only occur in 1/3 of the circumstances, because of the initial conditions. No matter what Monty does, you still only had a 1/3 likelihood of picking the car.
Now if you were to follow the likelihood of all the situations occuring, Monty picking either Goat A or Goat B when you chose the Car initially will occur 1/6 of the time each, or any individual Goat is selected for 1/2 of the time for that 1/3. Then with the 1/3 likelihood that you chose Goat A, monty 1/1 of the time will choose Goat B. And for the Final 1/3, when you chose Goat B, Monty will 1/1 of the time chose Goat A. All together the (1/3)2 + (1/3)/2 + (1/3)/1 + (1/3)/1 equals 1, or the full set of possible scenarios.
Make more sense this way?
As an attorney, I agree that some recission stories are horrifying. But some regulatory tweaks will suffice to address the problem: allowing recission only if the undisclosed or erroneous information is medically relevant to the eventual insured event; requiring that it be an actual recission, in which premiums, with interest, are repaid, in the event the insurer successfully shows that the insured failed to disclose a relevant factor.
The democrats portray the preexisting conditions rules as insurers looking out for their own profits, and there is always that in any business, but they are also looking out for me, their insured. If people with preexisting conditions who have not been contributing to the pool jump in at the last minute once they need money for medical care, insurance companies will not have enough money to pay out claims when they arise for those like me, who have been paying in since age 18.
Indeed, I am now 38, and pay $180/mo for a Blue Cross policy. Nowhere near $7000. By design, I keep my premiums low, by maxing out the deductible and co-pay. My out of pocket limit is $7500 per year. As a 38 year old, I can pay that if need be. In healthy years, which, thankfully, all of them have been, save for a $1500/5 stitch finger cut this past Thanksgiving, I set aside some money, so that when the time comes that I do get sick or have a major injury, I can meet the out of pocket limit for several years.
The total of premiums and saving for health care (NOT in an HSA — just plain old saving) are far less than $7000 per year.
Ideally, health insurance would be reduced to a much simpler financial proposition, with flat payouts to insureds upon verification of various diagnoses. Then, people could choose how much coverage to buy, and then if anything happened they would get cash with which to pay bills. That $1500 finger cut would have been instantly bargained down to $750 or less, if I had lied and told the emergency room intake clerk that I had no insurance. Similarly, people who need a coronary bypass can bargain with the hospital if they are going to pay cash. In this, health insurance would become more like life insurance or house insurance. I can even see combined life and health policies, which would give the insurance company a lot of reasons to quickly pay out for medical events, if their failure to do so would cause a pay-out for death.
Lastly, my advice to people is to pay a bit more in premiums, for a large company insurance policy that does not re-underwrite at the end of each annual period. I have had continuous coverage for 20 years, and have no preexisting conditions. I do not want what I have going for myself, and for which I have paid, to be taken away.
Because make no mistake, requiring individual insurers to take all comers will raise my premiums. The most similar Blue Cross policy to mine in New Jersey is over 4 times as much per month. Please, don’t raise my insurance premiums!
These health insurances are the main protaginist in the mess the healthcare system is in. These insurances should be eliminated because they are after one thing……profit.
Once the medical insurances are diminished, the doctor-to-patient relationship will be fully implemented and efficiency and proper treatment will take effect.
Google PAINSCOURT for more info.
[...] Taunter explains how the .5% rescission rate figure discussed in the hearings on health insurance premiums and coverage is used to dismiss Congressional concerns as inconsequential and actually is a good business practice that will not change. It is worth going to the post to accurately follow the train of thought. Taunter concludes that the chances for rescission for a serious illness is: If the top 5% is the absolute largest population for whom rescission would make sense, the probability of having your policy cancelled given that you have filed a claim is fully 10% (0.5% rescission/5.0% of the population). If you take the LA Times estimate that $300mm was saved by abrogating 20,000 policies in California ($15,000/policy), you are somewhere in the 15% zone, depending on the convexity of the top section of population. If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%, the folks with over $35,000 of annual claims who could never be profitable for the carrier – then the probability of having your policy torn up given a massively expensive condition is pushing 50%. One in two. [...]
Incredibly interesting discussion!
On the subject of rescissions: I assume the term refers to policies that are specifically terminated by the insurance company in response to a review of the application. But in this country, we have a system in which medical insurance is employer provided. If an individual becomes too sick to work for an extended period of time and loses his job, he also loses the insurance. While this seems logical, is it not also a form of rescission in response to excessive utilization? This seems similar to the gambling analogy: you can play but you can’t win.
On the subject of pre-existing conditions: Any time a claim is made on a medical insurance policy one is, by definition, creating a possible pre-existing condition. A vague definition of “pre-existing” can be used as an “effective rescission” without actual policy termination.
[...] Yves Smith, an important piece on “rescissions”: cases in which insurance companies retroactively cancel your health [...]
[...] Taunter explains the link between Monte Hall and Health Insurance. Brilliant. [...]
[...] of policies. It’s a rare occurrence, they say. Rare, that is, unless you get sick. Blogger Taunter does the math (emphasis added): Half of the insured population uses virtually no health care at all. The 80th [...]
This seems to be a bit confusing though-how many people are actually covered by individual health policies? Health insurance companies can’t rescind group health coverage. If you have continuous coverage, you aren’t subject to a pre-existing denial of benefits either (so the guy with the autistic son can leave on employer health plan for another employer health plan without losing coverage at all). And if you do have a pre-existing condition that you were treated for in the 12 months before you get group coverage (or if you have a break in coverage of 63 or more days) then the coverage for everything isn’t denied-only for the condition you were treated for, and only for 12 months. This rule was one that came into effect in the 1997 HIPAA (the P is for Portability) regulation.
I think to determine who might actually be at risk for rescission, or at least the actual number of people, you have to take only those people with individual health policies, then look at the top 5% of that.
That being said, it’s a horrendous practice. While those of us covered by group health plans have considerably more protection, as another poster said, if we are very sick, we lose our jobs and our coverage.
I don’t think I’m stupid but I don’t get your Monty Hall logic.
You made a choice. You had one chance in three of being right. Monty showed you one wrong answer. The other wrong answer is either the one you chose or the other one you didn’t choose. Now, with this new data your original guess has one chance in two of being right. I see no compelling case for switching or not switching – the odds are equal. Monty Hall would have done the same thing had your first guess been right or wrong.
Why is the above not correct?
That said, I understand your point about recission very well, and thanks for it.
sTiVo,
Think of it as not as a 1 in 3 chance of being right, but a 2 in 3 chance of being wrong.
That is, you are unlikely to be right. It is likely that the car is behind one of the other two doors. So when Monty eliminates one of the other two doors, he shows you which door the car is most likely behind.
josephdietrich:
Not buyin it. This thread is supposed to enhance mathematical understanding? It doesn’t do that, it obfuscates it.
Looking at it your way, okay, you had a 2/3 chance of being wrong. Monty now provides you with more information. Based on this new information, the odds on your original pick having been wrong are reduced to 1 in 2. The original 2 in 3 odds are no longer relevant. Should you switch? Based on this new information, it’s a wash.
And you haven’t considered a point I made in my original posting: would Monty Hall have done anything differently had your original pick been right or wrong?
This is a lousy example of conditional probability.
josephdietrich:
To elaborate further:
>> That is, you are unlikely to be right. It is likely that the car is behind one of the other two doors.
But which one? and is either of them any more likely to be right than the one you originally chose?
>> So when Monty eliminates one of the other two doors, he shows you which door the car is most likely behind.
Bad logic. Yes, the right answer is more likely to be ONE OF the doors you didn’t choose, but that doesn’t mean that your answer has NO probability of being right. It had some and it still has some. Your logic makes the leap that because the right answer is more likely to have been one of the group you didn’t choose than the one you did, therefore the probability that your original guess was right can be discarded. That logical leap is faulty.
sTivo,
> But which one? and is either of them any more likely to be right than the one you originally chose?
Not by themselves. But combined, they are more likely to have the car behind one of them.
> Bad logic. Yes, the right answer is more likely to be ONE OF the doors you didn’t choose, but that doesn’t mean that your answer has NO probability of being right.
This is true. You have a 1/3 chance of being right with your initial choice. You don’t discard the original probability. And that is precisely the point. The probability doesn’t change to 50-50 when Monty, with full knowledge of where the car is, opens one of the doors.
If you switch, you are not assured a win. I think this point throws a lot of people. Instead, you are just improving your odds.
Let’s look at it from Monty’s viewpoint. His staff puts the car behind door A, and doors B and C have goats.
1. One third of the time, the contestant chooses A, and Monty can open either door without worries.
2. One third of the time, the contestant chooses B, and Monty must open C.
3. One third of the time, the contestant chooses C, and Monty must open B.
If the contestant switches in the first situation, he loses. (1 in 3)
If the contestant switches in either the second or the third situations, he wins (2 in 3).
So if the contestant stays with his choice, he only has a 1 in 3 chance of being right. If he switches, he has a 2 in 3 chance of being right.
Perhaps the easiest way to understand the “Monty Hall problem” is to realize that you are actually being given a choice between:
(1) picking one out of three doors or
(2) picking two out of three doors.
Clearly picking two out of three doors will give you better odds of winning the car. And that is precisely what you are doing when switching doors after Monty shows you one door with a goat, assuming he is always required to open a door with a goat behind it.
If you always stay with the original door, your overall odds of winning are still 1/3 and of losing are 2/3 since they must total 3/3.
If you always switch doors, your overall odds of losing are 1/3 and winning are 2/3 since they must still total 3/3.
The reason switching doors increases your odds is because the two doors you did not initially pick will have the car behind them 2/3 of the time. And by Monty eliminating one of those two remaining doors, the 2/3 odds of winning become guaranteed, but only if you switch doors. Meanwhile, you are only guaranteed the original 1/3 odds of winning by staying with your initial pick.
If you still don’t see it, consider a situation where another contestant gets whatever is behind the door you did not choose. Would you rather be the contestant choosing a door or the one who gets the “leftover” door? Remember, you still pick one door and Monty eliminates one of the two remaining doors with a goat behind it. Are your odds of winning truly 1/2 if you don’t switch? If so, that means the other contestant’s odds are also 1/2. But how can that be, considering that the other contestant essentially started with 2 doors (assuming you never switch)? Clearly the other contestant will win the car 2/3 of the time and you will win 1/3 of the time. Those odds can, of course, be reversed by simply switching doors and therefore places with the other contestant.
The true paradox of the Monty Hall problem, usually not well explained, is that you should NEVER simply stay with your original choice, unless you have an “evil Monty” who only reveals a goat behind a door when you correctly pick the car. In all other cases, you only have the opportunity to improve your initial odds of winning from 1/3 by making a new selection. And those odds go to 1/2 only if your new selection is truly random and there is equal probability of picking either of the two remaining doors.
Always staying with the original door gives you 1/2 odds of winning only if Monty has already opened a door at random and there is a goat behind that door. But keep in mind, under such a random door scenario you will lose 1/3 of the time before even having the opportunity to switch because Monty will sometimes open a door with the car behind it. In other words, your overall odds of winning are not affected by the random opening of a door and thus will remain at just 1/3 regardless of what you do. You can never decrease your odds, however, by switching doors (precluding an “evil Monty”) but you can often improve them, and this is why the correct answer is to always switch doors even if you don’t know how Monty determines which door to open.
For-profit health insurance has, no, IS an intractable conflict of interest that cannot be eliminated within itself.
[...] an important bulletin on “rescission” (the retroactive cancellation of individual health insurance policies) [...]
David Herr,
If no health care reform is passed, you can be sure your premium will go up, because it will be a green light to the private insurers that their lobbying power and flooding of the right-wing media with disinformation has yet again deflected any effort to keep them honest. Many employers pay a higher per-employee rate than you pay. It boils down to where you are located, age, health history, and a multitude of other factors. When an insurer dumps an insured based on recission – fraud based or not – the public ends up carrying the cost, because that person will end up in an emergency room over and over again. They will undoubtedly suffer more, and probably die sooner, than if they had insurance, but their unpaid health care costs will be passed along to the rest of us. Emergency room care is the most expensive care available.
A public option makes a rational plan of care possible for people without other coverage options. We are the only major industrialized nation that does not provide some public health care option. The private insurers will be just fine, and if they can’t compete, then maybe they will have to make themselves competitive, won’t they?
As the retired CEO of a unit of one of the nation’s largest insurance companies I commend you on having written one of the best articles outlining the problem with rescission I have ever seen.
I heard Assurant’s CEO testify that rescission occurs in less than 0.5% of all cases, and another CEO talk about less than 1%, and was outraged.
Companies design insurance applications and their underwriting processes to accomplish multiple purposes.
The most laudable is to be able to quickly reject those folks who are honest enough to acknowledge medical or health conditions that make them sub-par risks which are likely to cost more in benefits than they will pay by way of premium (or in some cases to justify charging them a significantly higher premium for their coverage in light of the higher risk). The companies weed out the bad risks, enabling them to hold down expected claims and the premium costs.
While its great for the companies and the insureds who are in good health and qualify, the problem for society is these people still will have medical problems (sometimes more severe ones than if they had insurance and could be treated earlier in the process) and will still have to be cared for, resulting in financial strain for those with money and cost shifting for those without.
Companies also often design their processes to make it easy for people to do business with them. Yet while that sounds like a commendable purpose often the motivation is perverse. Companies can make it very simple to complete the application and get a policy — using the easy application and lack of any meaningful underwriting process as a competitive advantage in attracting agents, customers and making sales.
Those of us with industry experience know that agents often steer customers to those companies that pay higher commissions and/or are far more likely to issue a policy. Companies attract agents by making it fast and easy for their clients to complete the application and become approved. In that way the company can collect the premium and the agent can collect the commission. Light underwriting is also far less expensive upfront (except for the sales commissions) for the insurer.
As people balk at long complicated applications (which often can uncover medical and health conditions likely to lead to more frequent or more severe claims) make them short. Don’t ask specific questions which often would result in the application being denied. Instead, ask vague questions with lots of boxes people will not fill out so you can later claim failure to disclose. (The agent will not encourage you to be honest — s/he does not collect a sales commission if the application is rejected.) Agents quickly learn that submitting an application to company X will lead to a placed policy with a quick commission while applying to company Y that conducts rigid underwriting inevitably leads to delay and often to a rejection of the applicant or increased rates the applicant can not afford, and a lost client.
Health insurance companies know that if they obtained a complete detailed application and conducted full underwriting — as life insurance companies do on high face value policies, usually with a medical or para-medic examination, blood tests, a request for and review of medical records — it would be expensive up-front, and regarded as unfriendly by the applicants and the agents. The trade off for loose underwriting is worse claims experience — it’s just like turning the dial.
The companies’ ace in the hole is that if a big claim comes in — because the application was so simple and there was so little underwriting — they can use rescission as a weapon. Now the simplicity and vagueness of the application comes back to haunt the person who thinks s/he is insured.
It is such a balancing act, between motivations to help people and turn enough profit to make it worth the effort to make the sacrifices many in the medical field make, although – from what I have seen, the pay is pretty good.
I’ll speak up right here. I have diabetes2 for about two years and hold an individual policy from a major health insurer, the same company for about twelve years. Over the years they increased my premium annually about 10%. The latest increase was 20%. When I asked them to justify the double increase, they wrote that the reason was the part of New Mexico I live in. HMMMM….about 50 miles from Los Alamos National Lab. But why would that justify the sudden increase in premium hikes? I’ve lived in the same place for 15 years. When my agent offered a better deal through the same company – a new plan – he told me I wasn’t eligible when I informed him of my pre-existing condition. So I am trapped. My current insurer won’t admit me to a new, less expensive plan. My agent told me any other insurer will offer only an exorbitant premium. The American health care system offers me NO OPTIONS. For this reason, I completely favor a strong public option that covers pre-existing conditions at a reasonable premium. I hope the millions of Americans victimized by health insurers support a robust public option. It’s the only way we’ll get a fair deal.
this infuriates me. i thank you for sharing.
Another interesting phenomenon is that recovery money is being put into free clinics. I like free and low-cost clinics. The professionals running them are often doing it because they like people and want to see them get better. I don’t suspect them of wanting to take something out or off because they want the fee. If we required everyone to carry catastrophic at a reasonable price, the difference from what we have now is that healthy people would be paying a premium for the care they would get anyway if they are hit by a bus, have no coverage, and become disabled. Make a public option with reasonable fees, and you go in and give them a baseline of your health and pay for the exam. They are responsible for assessing you, as if you were an as-is house where the buyer has to do his due diligence. At the same time, allow people to self-insure for little stuff, at their credit union. Let them use their set-aside funds for gym fees, yoga, tai chi or acupuncture or other other stuff not covered by catastrophic but that has research showing it is low side-effect and contributes to health. If what we want to do is increase health, what we have now doesn’t do that. We need to let companies who are sure you will want to buy their health product if you try it, offer rewards to people for increasing their health, something like that. The present system makes everybody irritable, and that isn’t good for health. Patch Adams has pitched for an endowed system. If everybody knows it’s good and honest, people will volunteer in it and donate to it, and you can have fundraisers with musicians and artists. It’s just that we have got to trust it, and that is the really hard part.
Regarding your point about Las Vegas slots, it’s worse than you think. When I was 20 years old, I played some slots at Las Vegas. When i got a big win, they asked for ID. I showed it and they informed me the legal gambling age in 21 and confiscated all my winnings. I protested and they said if I said another word they would call the police and have me arrested and I would face up to 10 years in Nevada State Prison for illegal gambling.
I was not underage, I was an adult. There are no signs anywhere that say the age for gambling is 21 and not 18.
[...] http://tauntermedia.com/2009/07/28/unconscionable-math/ [...]
I agree with the reader who recommended the Swiss healthcare system as a model for the US. As a recent college graduate, I have been working here for a pharma company for 8 months now. Before the company would “officially” hire me, I had to show proof of my private health insurance, which is mandatory for anyone living and/or working here. At the not-unreasonable fee of 250 swiss francs (approx. $225) per month for a healthy 23 year old female, I am covered for all basic medical procedures and emergencies. Had I wished for more comprehensive coverage that allowed for more choice in doctors/specialty clinics and a private hospital room, my fees would have doubled. As I am only here for a temporary time period, I opted out of the extra fees and, therefore, better coverage. By requiring residents of Switzerland to be accountable for their own insurance, the healthcare system here has maintained extremely high standards as well as reasonable costs that need not be subsidized by the government or private citizens. Whether or not this would work in our much larger and more diverse country is debatable, particularly since many people would rather just have the wealthy subsidize their costs through higher taxes.
Ok…here’s the thing…would you rather have healthcare funded by (behind door #1) those seeking a profit, or (behind door #2) those seeking power over your lifestyle, or, (behind door #3) not at all, I’d rather pay cash. Now, I’ll let you choose any 2 of the three without knowing what’s behind the doors…same deal here. I understand that statistics, and how there’s “lies, damn lies, and statistics”, but let me point out that we aren’t given “infinite possibilities” in solving problems, we’re given “options”. So, back to our three doors. If you choose the door with profits, oh, you’ll get screwed, potentially, if you hit the special combination of conditions/triggers that actuaries at the insurance company have set up, to assure they are profitable. Yes, these folks exist. They pool loss numbers together and put together what’s called “underwriting policy” that decide whether or not you get covered, and what your premium will be. Hey, you chose door #1, and its about profit. Sorry, if you trigger a premium increase, or loss of coverage, you lose.
Ok…so you chose door #2…nice for you…the not-for-profit-but-for-bureacratic-control-of-your-life is there. Nice. Now, you are overweight, because you work at an IT job for an insurance company (wait, that’s me), and you sit on your butt all day, and you have arthritis, which dramatically limits your physical activity (not the weenie kind, the kind where you have your knees replaced at age 50 because you can’t stand to stand up for more than 5 mins because of the pain). Wait a minute…YOURE FAT! GASP. You are putting the government healthcare plan at risk with all your type II Diabetic meds and your knee replacements and your generally poor health. You are EFFECTING NATIONAL SECURITY by being a FAT SLOB. Oh, and wait, YOU make alot of money at that IT job…why, you’re a RICH FAT SLOB. Oh…you don’t think your premiums will go up to ridiculous levels? Wait…you hit 70, and some GOVERNMENT actuary has decided you are within 2 years of your mortality date? Hmmm, here’s some pain pills, here’s a nice “end-of-life-counselor”, Soylent Green is people! How nice that you are still innocent, how convenient for the government run health care lobbyists. We appreciate your vote.
Ok…behind door #3 and, lucky you, YOU get to pay cash for your medical coverage. Now, this one is a complete pipe dream, because, see, the government already controls 60% of the health care in America (Medicare and Medicaid). Now, let’s not forget the fact that THEY control the pricing of EVERYTHING health oriented in America. They do…the GOVERNMENT sets the prices of every procedure in America…I’m sorry, its a fact. So…unfortunately, you can’t GET health care for a modest profit over what the provider pays. You can’t, because the government sets the prices, and see, part of that price is TAXES they get paid on that procedure…but let’s just say, in this fantasy world of “Let Make a Health-Care Deal” that the government butts out through some miracle. And…prices drop to demand. Now, you have a life-threatening condition. Oh…lots of people have that…its in high demand. High demand = high prices, oh, wait, you don’t have the money? How about a second mortgage on the house? Oh, right, the economy is in the pisser…sorry, well, so sad, you die.
So, there you have it folks, 3 doors, you choose any one of them, and someone, somewhere, loses. I prefer my current plan, where I don’t lose most of the time, versus, where I lose ALL of the time, my freedom. I choose to have freedom, and I choose to let those who are covered by the government now, in a losing scheme, called Medicare and Medicaid, to continue. Heck, expand it to cover ALL American’s, fine, and prove to me that its worth me going on it…and I’ll jump. Right now, mine looks better. Oh, and those folks that are dropped and can’t get back on to a “for-profit” scheme…they can go there too.
So here’s my question…if Medicare and Medicaid exist (door #2 by default)…WHY does the government need to control 100% of healthcare? Why? It works for me! I don’t need it. Medicare and Medicaid are there? Where’s the SCAM here?
Regards,
Doc Rox All
medical costs… and perhaps those of the seriously afflicted.
…the “Unconscionable Math” here is in the heavy use of the term “insurance” without care as to its mathematical meaning or basis.
Actuarial insurance can only be based upon mathematical/statistical probabilities of risks. Actuaries are mathematicians who put a price tag on future risks. But not all risks can be calculated, priced, nor fairly “insured”.
In stark contrast to normal actuarial-insurance, discussions of “health insurance” quickly toss away any
objective concepts of insurance — we all just want ‘somebody else’ to pay our
An actuarial insurance system can NOT possibly provide health-care to everyone.
“Health-Care” is an undefined, open-ended, and non-insurable risk for a national population. The trivial focus on rescission here… entirely misses the big-picture.
[...] (see here) [...]
[...] the much bigger lie is carefully documented in a brilliant article in Taunter Media, which points out that calling rescission rare is, shall we say, misleading at best. Yes, the [...]
[...] For the whole blog, CLICK HERE. [...]
[...] Unconscionable Math [...]
[...] The Unconscionable Math of Health Insurance Rescission (Taunter [...]
[...] with my recent post on the hysteria around child abduction and is making the rounds. Go read it here. Conditional probability is tough for the human brain. We tend to think of things as either [...]
Enjoyed the post, and I’ll be visting your blog from now on. Now for some objections –
If single payer is such a great idea, let’s have single-payer for everything. Like supermarkets, say. After all, the vast majority of people can live much longer w/out medical care than they can w/out food. So why not single-payer for all supermarkets? Or better yet, only one supermarket chain for the entire country — think of all the wasteful costs, like advertising, or human resources, that could be combined or eliminated. With the savings, of course, “passed on” to the consumer.
Same thing for cars, just one car company …. oops, forget that one.
Advocates of single-payer should explain exactly what is different about medical care that makes single-payer essential and workable there, and pretty much nowhere else. I have yet to hear an even close to convincing explanation of this. That’s why I call it single-prayer, not single-payer.
Re rescission — nice theoretical argument, I enjoyed the reasoning and the math. What I missed were some actual facts, like who exactly, and under what circumstances, is actually losing coverage. Anecdotal stories I’m sure we can all find. Just as there are anecdotal stories on the other side. For example, I’ve recently heard from a now-healthy cancer patient about how great her insurance company was. But has anyone been able to get hold of good data and do an actual (preferrably peer reviewed) study on this? Unless there is at least one such study, I’m not convinced this is the problem that some here claim.
Re portability and preexisting conditions, if I change my job I don’t lose my IRA, so why not seriously consider some version of HSA’s, that would offer the same benefit? There are lots of arrangements that could be imagined, such as government vouchers to help people with preexisting conditions get the insurance.
There is already huge government intervention in health care, and maybe, just maybe, that’s why there are problems. Again, just maybe, the answer isn’t a thousand more pages of bureaucracy and rules layered on top of what we’ve already got.. Maybe the answer is less.
For why I think health care is different, please look here, here, and here. Or just search for the “Health Care” tag on the Categories menu along the right side of the page.
I’ll take a stab at a couple of your arguments, Alex:
1. ‘Free market’ principles work pretty well for supermarkets (food retailers, wholesalers, etc). There are a lot of facets to this that any business major could explain in detail, but I don’t think it’s a difficult concept. Market A and Market B sell the same types of items, for which the cost is known, they set their prices, sell stuff, etc, etc. That works well.
As we’ve seen, free market principles are the exact opposite of what is needed in health care. If you’re trying to run health care for profit, you MUST adhere to free-market principles (or go out of business, if there is true competition) but spending lots of money ‘fixing’ a person is ‘wasteful’ or ‘non-profitable’ (according to free-market principles).
Here’s an example: would you suggest privatizing the fire department? Have insurance companies contract with private fire-fighting companies, who would come put out your house fire? Well, that’s the way it was in pre-Civil War days, and if you research it, you’ll find it didn’t work very well (Boss Tweed, whom we’ve all heard of, got his start in the fire racket).
Another problem with your supermarket analogy is that you have complete freedom to shop at any supermarket you choose, but that doesn’t apply to health insurance companies, does it?
2. Single-payer doesn’t mean ‘one health care company’, it means ‘one PAYER’ (hence its name). ‘One health care company’ is what Britain uses – all of the medical resources are owned and operated by the government. That’s NOT what is on the table here in the US (and neither is single-payer, for a couple decades at least).
3. ‘Government intervention in health care’… well, Medicare is a tremendously successful program (stop chortling). It insures the sickest 15% of the population (by far), and EVERY ONE of it’s insureds is GUARANTEED to die while being covered…. and let’s not forget that the last 6 months of life are where the largest percentage (by far) of total health care costs occur. And Medicare does this for the incredibly low cost of about $10,000 per person.
In contrast, the private insurance companies – who only insure the healthiest and youngest, meaning the people LEAST likely to incur large health bills – spend somewhere between $5,000 and $7,000 per per person covered.
4. As for ‘de-regulation’, which your last 2 lines seem to be advocating, consider this:
States mandate which coverages must be provided in any health insurance policy. Let’s say you cancelled all these mandates. What happens?
Consider autism – let’s suppose 1% of the population of 1 million has this disease, and it costs $30,000 per year to treat. That’s 10,000 x $30,000 = $300 million, or about $300 per person in the general population… not a lot.
But what happens if autism coverage isn’t mandated? Well, almost ALL of the 99 million people who don’t have autism and aren’t likely to give birth to an autistic child will DROP that coverage.
So, let’s say we’re left with the 10,000 who have the disease, and 10,000 who are worried about having a child with the disease. So now, the 20,000 who WANT that coverage have to share the $300 million in total costs (which haven’t changed), so each will have to fork over $15,000.
My example is designed to illustrate the basic concept of insurance: shared risk. The larger the ‘pool’ that is sharing the risk, the lower the cost for all.
Think of it this way: if there is NO risk sharing, then each pays his/her own costs. That’s the most expensive option – for those who incur any cost, that is.
If EVERYBODY shares the costs, that’s the cheapest for EVERYBODY – except those who incur NO costs, of course.
It seems to me that, over a lifetime, the total cost of medical care is likely to deviate less than you might think (considering that most people die a ‘messy’ [read expensive] death).
So the more we share, the better off we are as a group.
Cheers,
DataBob
Your analogy is “shared risk” is quite flawed. I have a blistering headache and much work to do so I am not going to go into much detail right now but I will try a little.
You say share the cost minimum expense not share massive expense. I disagree.
MOST people will never NEED it for the massive expense. MOST people live a normal relatively healthy life.
MOST people would do better with what we had in the PAST.
in the PAST for your normal routine stuff you PAID AS YOU WENT. ie you went to the doctor. you got a bill.
this bill was not cheap but it was reasonable. the AVERAGE person could afford it.
then you had low cost insurance with high deductibles for that “what if” type of scenario. You got a disease or you got cancer etc.. you get the idea.
IE for the EXPENSIVE medical coverage.
this worked great for the most part. the “shared cost” problem was solved because it was cheap (though this required people to be smart and SAVE a nest egg to cover that out of pocket expense if something did happen ie the deductible)
Now here is where your entire ideology flops flat on its face.
Inject HUMAN BEINGS and their GREED into the equation and everything falls apart.
the “system” worked to create this low deductible insurance policy for the EVERYDAY routine stuff but with higher monthly cost.
Most people off course mocked this why would I pay you hundreds a month when I can just PAY the doctor the few times I need to see him?
thats when the system said ok lets make the ROUTINE stuff so damned expensive and costly that the average person and even the somewhat wealthy person COULD NOT afford to “just go see a doctor” or “visit the emergency room”
ie they RIGGED the system so your foolish idea (not YOU foolish THEM foolish) shared coverage NOW makes sense even though MOST should not need it.
you want to see a PERFECT example of what I am talking about?
Go look up UNDER THE INFLUENCE on cbs’s website under 60 minutes here is a link if this site permits it
http://www.cbsnews.com/stories/2007/03/29/60minutes/main2625305.shtml
you can watch the full segment there. Its an EYE OPENER thats for sure.
this and other actions like are ARE the reason we are in this mess to begin with.
NO the corporations are not going to help since they PROFIT from this and once you watch that segment you will see why most politicians are ALSO not going to help because THEY ALSO profit from this.
Socialism CAN NOT WORK in this country for most things. The reason is simple. Socialism ALWAYS 100% of the time FAILS when “greed” is in charge of it.
Same with car insurance. a perfect example of government FRAK UP.
I appose MANDATORY car insurance as we have it now.
you see they say YOU GOTO JAIL if you don’t have car insurance but do NOTHING (effective) to REGULATE the industry. So we pay through the nose and Have NO CHOICE lest we risk JAIL. so insurance companies can for the most part charge ANYTHING THEY WANT. the fact that there are many of them is the only thing keeping it SOMEWHAT in check.
Consider this. I get liability only insurance.
that covers MY medical the other persons medical and the other persons car. NOT MY CAR. Liability only.
now when I add more cars why do I have to pay more? I can see paying more for certain KINDS of cars or certain age groups as there is RISK involved that changes based on the conditions.
but why do I have to pay MORE for MORE CARS when my cars are NOT COVERED?
because THEY CAN and the law says I MUST BUY IT.
this is whats happening in ways with health care.
HEALTH CARE IS NOT EXPENSIVE
let me repeat that again
HEALTH CARE IS NOT EXPENSIVE
what is expensive is this ARTIFICIALLY AND INTENTIONALLY inflated altered manipulated system that we have today that we CALL health care.
THAT is what’s expensive.
people should not have to pay more than a few hundred bucks a YEAR (lower the younger you are) for critical health coverage for that WHAT IF situation.
if we had THAT and it was cheap enough ENOUGH people would have it that you would GET your desired “share risk” lowering the cost result.
but with out inflated manipulated disgusting system we have today its doomed to failure.
These people are DROOLING over socialized health care. it means an optional health insurance bill becomes a MANDATORY taken right out of your paycheck with a gun to your head TAX.
Not only is it wrong but they have no RIGHT. any tax outside of tariffs and sales taxes are ILLEGAL WRONG unconstitutional and fundamentally flawed rife for abuse as it is being done today.
the reason a company like WALMART is pushing for this is because they SEE what is happening as I do and many others do and they realized that a good single payer government controlled system as BAD as it will be is BETTER than giving it all to the pharma/insurance companies. ie lesser of two evils.
I will take NEITHER evil thank you.
and I WILL NOT pay a penny more in tax for any form of government health care. I will goto jail first. I will stop working so they CAN NOT take the tax and live in a god damned box first.
The solution is for people to wake the hell up and use their freaking heads.
Trust me. THEY ARE using their heads against you.
Thanks DataBob. I’ll try to reply in more detail later today but here’s a start. We don’t have to go to the Civil War — we had far less government intervention in the medical marketplace in the 1950′s and 60′s and many of us remember how that worked. People could afford health coverage, doctors didn’t have to hire additional staff just to deal with paperwork, both doctors and patients were much happier with the system, etc. The situation was actually far better than it is today (I don’t mean here the quality/technological level of the care, just the way it was delivered).
By your logic it could not have worked, since it was health care based on free market principles. But it worked, and much better than today’s hybrid system works.
As for Medicare being a great program that is supposedly efficient — the opposite is true. Medicare says what it will pay for care and that is it, and it has such large market share that few providers can say no to them. So what Medicare does is cost shift. Others end up paying more so Medicare can pay less. Of course, once Medicare, or its succesor, covers everyone, cost shifting doesn’t work anymore. That’s when the extreme rationing begins.
Medicare also sets the base rates for other insurers, who charge a certain factor more than Medicare. In other words a huge intervention and distortion of the marketplace. Medicare is part of the problem, not part of the solution.
As for single payer not being a single provider, if there is single payer that determines what procedures doctors and hospitals can do and what the cost will be, then they work for the single payer, ie the government. As the saying goes, he who pays the piper calls the tune.
Finally, what about some hard data on rescission? Is there any?
More later.
Alex, a lot of things were simpler back in the 1950s, especially medical care. Are you truly advocating ‘going back’, or just lamenting how complex the world has become?
In reality, most health insurance plans make you pay most or all of your routine care costs, through high deductibles and/or co-pays. I’m relatively healthy, and last year I didn’t even burn through my deductible so I got to pay for both of my trips to the doctor, whereas my wife had gastro surgery (and a second surgery to fix what the doctor apparently screwed up), so she used up not only her deductible, but the full out-of-pocket as well.
You can blame Medicare for ‘cost-shift’, but aren’t you arguing against your ‘free-market’ principles here? I don’t think Medicare (at about 15%) has ‘such a large market share’, and providers are free to refuse its patients – and many do.
As for Medicare ‘base rates’, I don’t believe that the health insurance companies are obliged to base their rates on those of Medicare. Can you prove that?
Finally, if all of the ills of ‘single-payer’ that you keep posting are really true, how is it that EVERY other country which you or I would consider ‘highly civilized’ has some form of ‘single-payer’ or ‘socialized’ medicine, and ALL of them seem to do at least as well as we do in caring for our people, yet at a far lesser cost?
Cheers,
Databob
Hi Databob:
In reply — my point is that the healthcare we had in the 1960′s is a counterexample to your claim that free market principles can’t apply to healthcare. They did and they can. And there’s nothing wrong with studying the past and re-learning what many seem to have forgotten.
Re the weight of government intervention, a few years ago direct government spending on healthcare in the US was almost 50% — wouldn’t be surprised if it’s already above 50%, and that’s not even counting the indirect cost of health benefits paid for with pre-tax dollars.
Re your having to pay for doctor’s visits out of pocket, that’s the way it’s supposed to be. Insurance is to cover you for unlikely, expensive events by spreading the risk. If you insure the first dollar (as we often do here in the US) you guarantee that insurance will be very expensive. In fact it’s not insurance anymore, it’s prepaid healthcare.
If you expected your car insurance to pay for gas and oil changes, new tires, and other routine maintenance, how expensive do you think car insurance would be?
And I’m not sure what you mean by referring to the ills of single-payer that I keep posting here. This is my third post — are you thinking of someone else?
Finally, I didn’t say that insurance companies were obligated to base the amount they pay on what Medicare pays, I said that they do, which is what I’ve heard from a number of doctors.
I hope to add more later about the idiocy of Certificates of Need and other damaging counterproductive government policies.
“It insures the sickest 15% of the population (by far), and EVERY ONE of it’s insureds is GUARANTEED to die while being covered”
I know what you are trying to say, but it sounds pretty scary that way: “EVERY ONE of it’s insureds is GUARANTEED to die”
That’s some really bad health care.
My poin, as your wink assures me you understand, is that while only a very small percentage of the clients of private health insurance companies will incur the usually high medical cost of dying (as Taunter’s seminal post discusses), EVERY Medicare client will.
Chris Taylor, I don’t really want to get into an argument about the constitutionality of income tax, but have you ever filled out a Form 1040?
Did you notice that after you put in your wages and other money received, you spend the rest of the page, and the top of the second page, mostly subtracting from that amount? Exemptions, deductions, IRA contributions, losses and expenses for rental properties, business expenses, etc etc etc…..
So while it may not be exact, it is certainly reasonable to consider that what’s left after deducting all expenses and losses is actually INCOME.
And that’s what you pay tax on.
Of course, if YOU just fill out the wages line, skip all the rest and pay taxes on your WAGES, then perhaps you have a case….. but whether it is a case about the constitutionality of income taxes, or a case for having someone else do your taxes…. I’ll let you argue that one with someone else.
Sorry, can’t delve into the rest of your arguments or Alex’s either…. going SAILING on the deep blue Pacific Ocean!
Cheers,
Databob
Hey Databob:
Sailing the blue Pacific — that’s a health care plan we can all believe in!
(Seriously, just the thought of it makes me feel better.)
Alex
I will tell you what is different about healthcare. In the healthcare market there is a huge market failure on so many levels.
I believe the market failure is because of the nature of the product. People who’s health is at risk want the best care and are in no position to say no to their doctor. They are in no position to bargain nor are they in a position to “price compare” with other providers.
A second source of this market failure has been reported recently and it is the highly concentrated nature of the insurance industry. Premiums are inflated because of lack of competition, ie insurance in many markets is an oligopoly with only one or two players dominating a market. (I think in no small part because the insurance is regulated at the state level.) If one or two companies dominate they can set prices.
It is appropriate for the government to step in where there are cases of market failure and or monopoly. They do so in the case of utilities and in various anti-trust measures.
The numerous posts will preclude most from reading to this one, but one objection of mine is that as a healthy young single person, the portion of your income that your employer allocates to health insurance is based on a group average, but when your company liquidates or you are seperated, you have no vested interest in the 20-30 years of premiums that paid for others health care. As a young person my employer assessed my income ~$400/mo for health insurance, but I could have then bought an individual policy for ~$45/mo with the same coverage from the same company. When the company downsized and merged out of existence, my 25 years of paying an extra ~$350/mo bought me no vested interest in being on the receiving end of the ponzi scheme as I moved into the age when I am statistically more likely to need insurance. Health insurance costs are already socialized but at a private level. Could the federal government create a bigger fraud and be less equitable?
[...] Health Insurance Russian Roulette Posted on August 5th, 2009 by mike Half of the [United States] insured population uses virtually no health care at all. The 80th percen… [...]
Well, Chris Taylor, you were at least interesting until you started on ‘illegal taxes’, but let’s look at your premises:
First off, medical care IS expensive. Maybe more than it should be, but the reality is that medical science and technology have far out-stripped your ‘go to the doctor’s office and get well’.
As for how we got to where we are, I’m not that interested. I prefer to look forward.
Your car insurance example would work except for one thing you overlooked: your multiple cars can ALL be in operation at one time, so the premium is commensurate with the risk. If you somehow managed to convince the insurance company that you’d only have one car on the road at any single time, you’d pay less.
Once again, affordable, adequate health care for everyone is only possible with everyone sharing the risk.
I happen to believe that our country will be better off when and if we advance to that level.
Cheers,
Databob
Well they are illegal as intended by the constitution when it was written. Or at the minimum immoral. They tax WAGES and claim they are income and they are anything but income except according to the IRS and “new” school dictionaries.
Throughout history wages were not income for a very simple reason. There not.
If I goto the bank and hand them 4 $5 bills and ask for a $20 have I made any income? is it taxed? off course not
so why is it when I do PRECISELY the same thing but trade “hours” for “dollars” this is suddenly income and taxable?
Wages are a direct trade of a chunk of my very life for dollars. An Exchange absolutely indifferent from 4 $5 bills for a $20 besides the MEDIUM used for the exchange.
I gain nothing. I did not GAIN a paycheck I made an EVEN EXCHANGE of 40 hours of my life for a paycheck.
Commission, Tips, Spiffs, Bonuses, 401k, Interest, etc.. etc.. THAT is income. I have no problem with that being reasonably taxed. I do have a problem with wages being taxed.
well thats enough on taxes from me.
Medical care is NOT expensive it is MADE expensive. the difference might be semantic but its a CRITICAL distinction.
Diamonds are a perfect example. They are NOT expensive. in fact they are dirt cheap and plentiful in fact they are easily manufacturered.
they have been artificially MADE to be expensive. They are not intrinsically expensive. Understand?
With diamonds I don’t care I don’t have to have diamond’s no one does.
BUT WE NEED medical services to survive.
My car insurance example? the only way I get a remotely affordable rate is by listing ONE DRIVER and if anyone else drives my cars they are NOT COVERED under my policy then need there own policy.
As long as they have there own policy under there own name my insurance will cover them. I even had to SIGN paperwork to this effect.
so no your “found flaw” in my analogy is incorrect.
Unless you have a way for me to split into multiple copies of myself then NO I can not have more than ONE of my cars on the road at any one time.
The only other person who EVER drives my cars is my pop and he has comprehensive full coverage so he is clear.
Once again SOCIALIZED ANYTHING can not coexist with GREED. to borrow an internet meem its an instant FAIL.
if you can REMOVE THE GREED or have it in “check” effectively then YES it could work.
alas its irrelevant because you can NOT remove the greed and you can NOT keep it in check in this political environment.
YES it will be better off. NO it will not advance to that level anytime soon and VERY likely not in our lifetimes.
[...] Hamm’s (CEO of Assurant) testified before Congress and used some deceptive numbers. I am shocked, Unconscionable Math To understand why 0.5% of the people Assurant covers is a lot of people – a jarring, terrifying, [...]
[...] and What I Do. Getting caught seriously, chronically ill away from a major employer has downsides. Rescissions and price increases try to drive you from the system and cause serious problems for your employer and co-workers. [...]
Perhaps I’m just restating your post, but…
What strikes me as most unconscionable is the justification of rescission based on only x% of all policies being cancelled. You’ve propbably heard it, only 0.1% of all policies are cancelled, only 0.5% of all policies are cancelled. But that is not the relevant figure. The relevant figure is the percentage of policies cancelled on which a particluar type of claim has been made. Hence, if the cancellation rate is higher when particular types of claims are made, than the average for all claims, either more people lie on their applications about conditions causing the claim, or the insurance companies are cheating. Given that insurance companies routinely trot the misleading figure, I’d wager it’s the latter.
Thanks for a very good article.
In-as-much as insurance companies are regulated at the state level, much to their consternation, might it be appropriate to compare the experience in various states? Were the Feds permitted to usurp the state regulation, we could revert to insurance companies being as financially sound as CDS paper. Think of the profits!
[...] Unconscionable Math The House hearings on rescission – the retroactive cancellation of individual health insurance policies – [...] [...]
[...] Rescission Posted in Rants by Carlos on Aug 06, 2009 This commentary by Taunter Media, ‘Unconscionable Math‘ is an incredible glimpse into one of the games insurance companies play with their policy [...]
[...] is a definite problem with the current healthcare system. If you have private insurance and get become very sick, the [...]
Interesting article on rescission — thanks.
Without getting too into it, why on earth do you think the folks running the biggest Ponzi scheme in world history are qualified, in any way at all, to coercively reform the healthcare industry?
[...] not terribly popular. But once people get the hang of having portable insurance, no risk of rescission, and realize the government is making a killing on them (they are paying at the actual loss rate [...]
How come those who understand statistics can never explain it to those who don’t? i’d like to take one more crack at the let’s make a deal scenario. in this example, we will run the monty hall experiment 1,000 times. that means there are 2,000 goats and 1,000 cars to start w/. we can all agree that the chance of picking the door w/ a car behind it on the 1st try is 1/3. i.e. you will pick a car 333 times (and a goat 666 times). We can also agree that if monty were opening the other door randomly, it would have a goat behind it 666 times, and a car 333 times. but he’s not. he’s always opening a door w/ a goat behind it, so, after the first extra door is opened, 1,000 of the original 2,000 goats have been put out to pasture, leaving 1,000 goats, and 1,000 cars. since we know there are 333 cars behind the original choice (and 666 goats), there must now be 666 cars (and 333 goats), behind the other door. so the answer is, always change your choice. note that, out of your 1,000 changed choices, you will change from a car to a goat 333 times, but will change from a goat to a car 666 times. so you have doubled the odds of winning a car by switching (i know, 666 + 333 = 999. the other car goes to nancy pelosi)
[...] Yves Smith, an important piece on “rescissions”: cases in which insurance companies retroactively cancel your health [...]
In the News MAYBE YOU’RE NEXT ON THE “RESCINDED” LIST?
JULY 29, 2009
http://www.pbs.org/wgbh/pages/frontline/story/2009/07/you-next-on-rescinded-list.html
A little more insurance rescission porn…..
Best regards,
Econolicious
[...] I work for myself. I have to buy my own independent health insurance and its cost is insane. My insurance, a PPO, and out of pocket expenses cost me more than my monthly mortgage. I am my own group and it sucks. Unfortunately people forget about the small business that just can’t afford it, or barely afford it. We have no other option; we are not protected by the same rules and we can be dropped at a moments notice if they decide they… [...]
[...] links to this gem in which Taunter argues that a 0.5% rescission rate is really a 10% rescission rate because the [...]
What a relief to encounter a thoughtful, sincere, dialog, among people with substantial views on this most vital issue. I hope everyone that has taken the time to read and to post here has also taken the time to share their concerns with their legislators. We need to keep the pressure up so that our representatives know they have our support-or not.
How about a class action lawsuit? Although the Supreme Court made the process more difficult, so many people are affected that it would gain a lot of traction.
[...] Also another interesting read is this one : http://tauntermedia.com/…/unconscionable-math/ [...]
If A pays B for insurance and B cancels the policy unilaterally when A makes a claim then the contract between A and B was a sham, and B is scam artist.
There’s nothing more to it.
`Rescission’ should be illegal.
The other day I heard a story of a doctor whose child got leukemia shortly after birth or possibly was born with it. After years of chemical torture, the parents said to the torturers, what if we stop consenting to this? The medical professionals said, “We will sue you.” The child died anyway, after a few miserable years.
As a survivor of chemo, I find this alarming. I assume as a grown person I can say no. But that people can threaten to bankrupt or imprison parents if they decline to allow torture of their children?
I have heard it said that it is only a matter of time until the iatrogenic-adverse-event ratio comes to a place where lawyers will begin pushing back and will sue if you do subject a child to doctoring.
At that point, as a parent, you will be in an interesting Catch-22, depending on which lawyers decide to attack whom.
These are thorny issues that it is tough to trust strangers about. The best defense is to be in a group with similar values and who know your wishes.
But even the Amish get attacked by the IRS. If someone wants their land or their animals, they will need allies outside the group, even though, or maybe because, their agriculture methods are amazing and productive. They require less water, e.g., because of built-up good tilth.
Though it’s tough to sue a big corporation with friends in government, it can be even tougher and scarier to sue the government itself.
The government limits its liability and can put you in prison (sometimes a private prison). There’s some small print somewhere they can get you on, increasingly so with former lobbyists and lawyers for subsidy-takers now writing so much law.
The cure for licensed torture is shaming the meanies and disallowing profit from their behaviors. It is this necessary process where we are horrifically challenged right now.
Big agriculture controls the agriculture department and the FDA. This guarantees plenty of medical issues for the medical-industrial industry.
The Obamas have a nice organic garden and know not to eat bad stuff. Probably they have seen the movies, e.g., The World According to Monsanto, and Food, Inc. And many doctors don’t give certain vaccines to their own kids. It’s how things have come to work.
The government pretends to protect us. Increasing numbers of us don’t buy it. We’ve found out from hard knocks what they are actually pushing, by noticing what they subsidize.
Ever notice those perfect lawns around some government buildings? Don’t walk on them if you have kids who crawl on carpets at home.
And don’t sue certain governments if you are harmed by their behaviors. They can really hurt you or lose you in one of their prisons.
If you sue an entity that has substantial private customers, you probably have a better chance of recovering for damage.
Does Erin Brockavich have a law school named after her yet? There are ways to fight all this, but it’s tricky.
This is why I don’t trust monopoly anything. We need less of this, not more.
[...] the chances that the insurance company will rescind your policy if you become seriously ill. Read this article to better understand conditional probability and why your health insurance company isn’t as [...]
[...] holders experienced rescission in a given year. But when you consider that 5% of the population generate nearly 50% of the medical bills, that 0.5% looms large. If insurance companies rescinded only [...]
This was a wonderful post, and it’s referenced in my son’s post at nyulocal.com today. http://nyulocal.com/national/2009/09/08/why-we-need-health-care-reform/
[...] if you are reading this, you probably caught my critique of a particularly nasty industry practice here – should at least take up the [...]
[...] you have a major illness, your odds of being “rescinded” actually approach 50%, which as this excellent summary notes, gives you better odds of winning at Russian Roulette. The insurance companies, by quoting [...]
[...] her acne, and underreported her weight. The American Enterprise Institute shill also repeats the highly misleading statistic that insurance companies only recind 1/2 of one percent of policies. [...]
[...] order to avoid paying for their clients' expensive medical treatment. The author also repeats the highly misleading statistic that insurance companies only recind 1/2 of one percent of policies. This is misleading because [...]
[...] but when does rescission kick in? That’s right: when the claims are very large; that is, when people get very ill. Half of the insured population uses virtually no health care at all. The 80th percentile uses only [...]
I googled for “rescission rates” and found some detailed information in an investigation in Texas called Primer on Post Claims Underwriting and Rescission Practices[1]. They surveyed all insurers in Texas that had more than 250 policies. They found that the rescission rate has been 0.2% or 0.3% each year from 2003 to 2007 (see page 12).
It also says: “However, from 2003 to 2007, only seven of the 6,377 policyholders known to have had their coverage rescinded contacted the Texas Department of Insurance with a complaint–and only one of those complaints was determined to be justified.”
I’m not sure what to make of that. Surely, if rescissions weren’t justified, people would complain? And surely, the people whose rescissions were most unjustified would be most likely to complain? Does that suggest that the unjustified rescission rate is likely to be less than one in seven? Or maybe the Texas Department of Insurance sucks at being available to take complaints, or has a reputation for being ineffective so consumers don’t bother.
[1] http://www.rwjf.org/files/research/texascasestudyaug2009.pdf
I think you need to adjust your numbers to account for the proportion who have individual insurance as opposed to group coverage through an employer.
Assume that health care utilization is similar for group coverage and individual coverage but employer sponsored group plans account for 66% of those under 65 while individual plans account for only 6% of those under 65
(http:// http://www.medicalnewstoday.com /articles/ 158221.php)
and rescission applies primarily to those with individual plans then you’re at a 10% risk of rescission just for buying an individual insurance plan and if your claim equals or exceeds your annual premium (greater than $6,400, top 10%) then you are practically guaranteed to have your policy canceled.
(This assumes that the CEO’s statement:
‘Rescission is rare. It affects less than one-half of one percent of people we cover. Yet, it is one of many protections supporting the affordability and viability of individual health insurance in the United States under our current system.’
..is referring to ALL those covered, not just those with individual plans.)
[...] condition is pushing 50%. One in two. You have three times better odds playing Russian Roulette. Unconscionable Math Taunter Media __________________ "Speak up; for he that withholds his opinion shall inherit the winds of [...]
Actually, according to a couple sources I’ve found, most states DO have a contestable period – typically 2 years.
Assume 10% of a company’s clients are in that a period at any point in time – sounds a bit high, but let’s go with it for now. If we assume only 5% of those clients get sick enough that the company would prefer that they had not taken them on – that’s 0.5% of total clients.
I.e. a 0.5% overall rescission rate implies that the company is able to dump 100% of those they have any desire to be rid of, and are allowed to challenge.
100% – Now THAT’s aggressive defaulting!
[...] has not investigated the health insurance industry? Hmm… That must be one powerful lobby! Unconscionable Math presents a fascinating and disturbing explanation of rescinding, the practice of denying coverage [...]
[...] practice of rescinding coverage shows that no one’s health insurance is safe. Unconscionable Math is a fascinating expose of the [...]
All Health plan have to be NON-PROFIT. I have a friend who went to the hospital por stomach pain, she was operated was send home worst than before and a bill por over $250.000.oo this was the fist time, then she went back for more repairs and now the bill es over 500.000.oo and she is still sick. who control this, why is this happening?
We have to allow the international insurance company to insure our people and allow us to look for help overseas too.
Thank you.
[...] the little things that have knock-on effects. If you are reading this, you know my perspective on rescission. But take, for example, the refusal of all parts of the political spectrum to recognize that the [...]