Posts tagged with HEALTH

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For Whom Does the Health Insurance Broker Work?

Today's Economist


Largely tucked away from the view of the general public is an intense debate over the future role of health insurance brokers in the United States. Traditionally brokers have played an important role in the highly fragmented market for health insurance sold to small groups or individuals. How they will be affected by the health care overhaul remains unclear.

Brokers in general are middlemen between buyers and sellers of a good or a service. Because they are involved in many similar transactions, they can harvest economies of scale in the gathering and structuring of pertinent information. In the process, they become experts on the good or service being traded.

One would assume that brokers have played that role ever since humans abandoned one-on-one barter and engaged in wider trade. Because their economic contribution to trade is valuable, either buyers or sellers are willing to pay brokers a commission.

In modern economies, however, brokers are forever vulnerable to two developments, even in the absence of government regulations that may impinge on their economic turf.

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Audio: The Health-Tax Deal

Here are two questions — one economic, one political — about the deal between the White House and labor unions regarding the tax on health-cost health plans:

One, do the unions stand a chance of coming back to Congress between now and 2018, when the tax would start hitting union health plans, and winning another carve-out? If the answer is no, the long-term effect of the compromise version of the tax should be quite similar to the earlier version.

Two, will the compromise be a political gift to Republicans, who can now accuse the White House of exempting the unions from a tax that most Americans will be subject to?

David Drucker of Roll Call and I talked about these issues and others on “The Brian Lehrer Show” today on WNYC radio. The audio is available here.

Rich People Exercise More

Rich people are much more likely to exercise than their poorer brethren, according to new survey findings from Gallup.



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Is ‘Community Rating’ in Health Insurance Fair?

Today's Economist

Uwe E. Reinhardt is an economics professor at Princeton.

One controversial feature of the health reform bill winding its way through Congress is “community rating.” The term has a mellow ring but is apt to be divisive. It allows opponents of the legislation to claim, with a straight face, that it will substantially drive up health insurance premiums.

It also allows proponents to claim, with a straight face, that the measure will drive down premiums and provide coverage to Americans who otherwise could never have afforded it.

I will discuss this concept in this week’s post as I would teach it to a freshman economics class, ending with a question. Next week, I shall argue that community rating has long been widely accepted in the United States — especially among members of Congress — and in virtually every other industrialized country.

“Community rating” refers to the practice of charging a common premium to all members of a heterogeneous risk pool who may have widely varied health spending for the year. It inevitably makes chronically healthy individuals subsidize with their insurance premiums (rather than through overt taxes and transfers) the health care used by chronically sicker individuals.

The purpose of any insurance, of course, is to do precisely that: redistribute the financial burden from the unlucky to the lucky members of a risk pool. The crucial distinction is whether that redistribution occurs “ex ante,” through the premiums paid into the pool, or “ex post,” through the claims made on the pool. It is a subtle point.

We can use the stylized numerical example in the table below to illustrate the point. To make the example textbook-simple, we assume that individuals either will not have medical bills at all in the coming year or, if they do, these bills can have only one of three distinct sizes. In real life, of course, individuals would be spread over medical bills of many more different sizes. We assume further that there are two distinct cohorts, A and B. Once again to keep it simple, let’s assume they are of equal size — e.g., 100,000 members each — although this is not a crucial assumption. It just makes the math simpler.

If cohorts A and B were perfectly segregated by expected risk, as we assume here, then within each cohort it would be impossible to predict which member would end up in which row of the table. In the real world, an unregulated, price-competitive market for individually sold health insurance will in fact tend to segregate populations into such pure risk classes.

To continue with our illustration, suppose that the members of each risk cohort decide to form a cooperative into which each member will pay a common premium P at the beginning of the year, after which the pool will pay 100 percent of any medical bill incurred.

The premium P has two components: (1) the money needed to pay medical bills and, which we shall call the “pure premium,” and (2) an overhead allowance for managing the insurance scheme.

Let’s focus strictly on the pure premium, that is, the money needed to pay claims. Call that pure premium X. Actuaries would calculate it as the sum of the sizes of medical bills, with each bill-size multiplied (weighted) by the expected frequency of its occurrence.

For risk pool A, for example, actuaries would calculate X as
X = (.85)$0 + (.11)$5,000 + (.03)$30,000 + (.01)$100,000 = $2,450.

If every member of cohort A paid $2,450 into the risk pool and the actuary had been accurate in predicting what fractions of that cohort would have medical bills of different sizes, then the sum of paid-in premiums would be just large enough to pay the medical bills of any member requiring care during the year (abstracting, once again, from administrative overhead).

For risk pool B, the similarly calculated pure premium would be $6,600.
Now imagine a country half of whose citizens fall neatly into risk cohort A and the other half into risk cohort B. The country’s leaders would sincerely like to assure citizens of a “fair” health insurance system.
But what would be “fair”?


Or does “fairness” require that the two groups be merged into one large national risk pool A & B, whose risk profile is shown in the right-most column of the table. If each member of this merged pool is to pay the same pure premium, then the latter will have to be $4,525 to break even. Such a premium would be said to be “community rated” over these two distinct risk pools.


So what should the political leaders of this imaginary country do? It would be interesting to have your reaction. It is, after all, the very question our political leaders are tackling this moment.

Should you choose to respond, would you indicate your age?

Happy Teachers

Want a healthy, happy life? Become a teacher.

That’s not propaganda from your local P.T.A. It’s the takeaway from the Gallup-Healthways Well-Being Index, an extensive survey that attempts to measure who is leading the good life.

Of the dozen job types that Gallup keeps track of, teachers report the highest levels of over all well-being, ahead of even the self-employed, whom Gallup had previously believed to be the happiest workers. Read more…

Rich or Poor, Nonsmokers Are Happier




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Economists’ Letter to Obama on Health Care Reform

This afternoon a group of 23 prominent economists — including two Nobel laureates as well as previous members of both Democratic and Republican presidential administrations — sent a letter to President Obama about the priorities for health care reform. The letter appears below.

For another take on the fiscal challenges for health care reform, see David Leonhardt’s most recent column.

Dear Mr. President,

As the full Senate prepares to debate comprehensive health reform legislation, we write as economists to stress the potential benefits of health reform for our nation’s fiscal health, and the importance of those features of the bill that can help keep health care costs under control. Four elements of the legislation are critical: (1) deficit neutrality, (2) an excise tax on high-cost insurance plans, (3) an independent Medicare commission, and (4) delivery system reforms. Read more…