But it's critical to understanding the economics and seriousness of the Republican proposal for shutter Medicare and have seniors buy private insurance with the (not that much) help of vouchers. Basically, no one wants to provide that insurance. And frankly, why would they? How much money do you think there is in insuring 75 year olds? How many headaches? If you go back into the history of Medicare, one of the factors -- in addition to the politics and ideological and social push -- was that the private insurers wanted the senior portion of the population taken off their hands. And they still want it off their hands. The private insurance industry is based on getting steady premiums for as healthy as possible of population of people. That's why 'pre-existing conditions' have become such a big issue. And every person over 65 has at least one pre-existing condition: they're old...
As the Ryan plan stands today, yes private insurers are opposed. What makes me nervous though is that with some modification the Ryan plan basically becomes a way to more fully subsidize private insurance for the over 65 set. It's as simple as increasing the dollar amount that seniors will be given for their vouchers or, in the alternative, you simply have the Federal government guarantee against the amount of the vouchers and any loss for the insurers.
To me it looks like a parallel of the student loan boondoggle. Young college kids with no credit history are bad credit risks. But with Federal guarantees these kids have been able to accumulate a hundred thousand dollars of debt with a few pen strokes. Why? There's no risk to the banks - the Feds are guaranteeing the loans.
1 comment:
There is a bit more to it than you suggest. For example, most universal life insurance policies are sold to seniors, often nice fat ones. It is simply a matter of being able to price the policies appropriately and relatively modest levels of information asymmetry on the material facts (which creates moral hazards when they exist).
Medicare cost about $12,000 per senior beneficiary per year (e.g. $24,000 for a married couple), the last time I looked, with providers paid about 100% of provider cost, isn't terribly good at negotiating provider prices, and has very low administrative, marketing and investor costs. Private insurance would be hard pressed to meet the cost structure unless it was much better at negotiating cost.
But, the real trick is that there is a strong incentive for insurers in the program that is community rated to use the features of the product or the way that the product is administered to make it more attractive to healthy people and less attractive to sick people than than competition, which is the opposite of the kind of incentive we would like to see.
Post a Comment