American Elephants

It’s All About Incentives. by The Elephant's Child

Conservatives recognize that people usually act in accordance with their own self-interest. Hardly a startling revelation. Of course they do. Politicians claim to have the best interests of the people at the forefront, but support for large businesses or special interests in their district may trump “the people.” That’s not a startling revelation either. Votes can be bought, influence pedaled, interests horse traded. So how do we get things done in such an atmosphere?

When the Affordable Care Act was devised in the back rooms of Congress, Democrats tried to include favors for their supporter groups. Much was made of free contraceptives, for example. Democrats wanted it for their women voters.

Sandra Fluke gained her 5 minutes of fame by speaking in favor of it before a faux congressional committee. The Catholic church objected strenuously because it included the morning-after pill, an abortifacient, which is abhorrent to their religion, and required anyone offering health care to offer it to their workers. Conservatives, who are more apt to have taken Economics 101, noted that contraceptives were available for under $10 for a months’ supply, and the taxpayers shouldn’t have to pay for them. You see the conflict of self-interest. Cases are still working their way through the courts.

The incentives created were perverse. An unnecessary favor to attract women voters has the effect of making health insurance unnecessarily more expensive. The law is loaded up with nice things for voter groups, benefits for which everyone must have coverage whether they need it or not. Because insurers were told what they must include in every policy, it meant 60 year-old women had to pay for maternity care and well-child visits. The cost of a policy is based on what is included. To keep premiums as low as possible deductibles are higher than what most people are used to, networks of doctors and hospitals skimpier, and lifesaving drugs not on the insurers’ formularies.

Under the Affordable Care Act, insurers are required to charge the same premium rate to anyone who wants to sign up, regardless of health status; and they are required to accept anyone who applies. This means that to make ends meet they must overcharge the healthy and undercharge the sick. It also means insurers have strong incentives to attract the healthy (on whom they make a profit) and avoid the sick (on whom they incur losses) by, in effect, making their plans less appealing to the sick.

Here’s how they seem to be doing it: In structuring the plans they offer on the exchanges, the insurers apparently assumed that the healthy will choose the plan they buy based on its price, while ignoring other features of the plan. It makes sense: If I am healthy why wouldn’t I shop for the lowest price? If I later develop cancer, I can move to a plan that has the best cancer care. By law, these plans will be prohibited from charging me more than the premium paid by a healthy enrollee.

Insurers also assume that people who already are ill or otherwise expect to use a lot of health care pay much closer attention to the cost of deductibles and which doctors and hospitals are in the insurer’s network. To have any hope of balancing their books, insurers must then attract the maximum number of customers who are likely to stay healthy and thus not use so much of the care they paid for, while unhealthy people in effect use more than they paid for. This is why most plans are apparently designed to attract people willing to overlook high deductibles and less access to health care in return for lower premiums.

Cities and towns have unfunded health-care commitments, and they will be dumping their retirees on the state exchanges. High cost older people. Some people are working only to get health insurance because they are uninsurable in the individual market. Their incentive is to quit and rely on the exchanges. A lot of high-cost patients will enroll through the exchanges.This will drive premium costs and deductibles higher.

The incentives are all wrong. We can do better.

The Socialist Scandinavian Paradise Is Turning Away From The Welfare State — Unaffordable! by The Elephant's Child


Trends. It’s always hard to decide what is a trend and what is just a temporary aberration, but the Nordic countries are increasingly turning away from the welfare state. Swedes in the supposed socialist paradise are  turning to private health insurance to reduce long wait times and rationed health care services. The country started cutting government spending as a percentage of GDP in the 1990s, and that has continued.

Throughout the Nordic countries the size and scope of government are being cut back as nations find themselves strapped for cash. In Denmark, when Prime Minister Helle Thorning-Schmidt’s government took power in 2011, there was little to suggest that she would make any dramatic changes to the country’s welfare state which is funded by the world’s highest tax burden.

However, the center-right government raised the retirement age and reduced the period for unemployment benefits from four years to two years. Corporate taxes were cut to 22 percent from 25 percent. Young people on  benefits are required to undertake training and student aid is withdrawn from those taking too long to finish their studies.

Finland is moving to trim similar sorts of programs. Only Norway is unlikely to tackle serious reform because of its vast oil wealth and ironically, it has a conservative government. The new center-right Prime Minister Erna Solberg has pledged to preserve the welfare state.

About one in ten Swedes now has private health insurance, and the numbers are increasing. “It’s quicker to get a colleague back to work if you have an operation in two week’s time rather than having to wait for a year” privately insured Anna Norlander told  Sveriges Radio on Friday. “It’s terrible that I, as a young person, don’t feel I can trust the health care system to take care of me.”

The Local noted that “visitors are sometimes surprised to learn about year-long waiting times for cancer patients.” Is that before or after they decide how aggressive the particular cancer is?

The welfare-state period may be regarded as a brief interlude. Until the 1970s, Sweden had strong market-oriented policies in place that increased wealth and standards of living, because of reforms introduced at the end of the 19th century. Light regulation and property rights were enforced, government was limited, and a private banking sector flourished. The cradle to grave socialist services implemented in the 1970s proved to be unaffordable.

Sweden has deregulated whole industries and encouraged the privatization of public services. Income tax in Sweden is lower than France, Belgium and Denmark, though that’s not saying much. Public spending as a share of GDP has declined from 71.0 percent in 1993 to 53.3 percent last year.

It is important to keep in mind that the Nordic States are all small homogeneous countries, though they have had significant Muslim immigration. Sweden is the largest with just over 9 million population, followed by Denmark  5.5 million, Finland 5.2 million and Iceland 308,000. Sweden’s population is roughly the same size as North Carolina, and Denmark is similar to Minnesota, if that helps to put things in perspective.


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