Lies, Maths, And Health Insurance

http://tauntermedia.com/2009/07/28/unconscionable-math/

by winanga • 17 years ago

80 31 17 years ago

daeken• 17 years ago

It constantly amazes me as to how even the simplest and most shallow of figures ("It affects less than one-half of one percent of people we cover.") can lie in a spectacular way. I tend to think of myself as a fairly well-educated person, but I wouldn't have looked twice at this statement unless I was given good reason to.

How many people are being manipulated by 'simple' and seemingly pure figures every day?

gleb• 17 years ago

Then the article "lies" in the same way: "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)." Let's assume his numbers are correct. Is 10% high or low? Who knows. What is the probability of the applicant having lied, given that they have filed that type of claim, and what is the probability for the rest of their customers?

The whole "evil insurance companies" thing is ridiculous. Companies are amoral and profit seeking. Insurance companies just take groups (as regulated by government), provide them level of coverage (as regulated by government), figure out the actuarial risks (based on factors regulated by government), spread those risks around members of the group (with a low-risk members subsidizing the high risk at the level regulated by government) and sell insurance product designed to maximize their profit within a competitive marketplace. A similar product to what he is suggesting, that covers pre-existing conditions already exists in CA as a shall-issue product, it's called a small group coverage. It's also many times more expensive than individual insurance.

Should an individual insurance product with transparent pre-existing condition coverage exist? Absolutely. It's going to be more expensive than today's individual coverage, and that's why an insurance company could not successfully sell it against existing competing products in the current individual marketplace, even if regulators allowed it to. It's up to the government to set up or to allow insurance companies to setup such a group/coverage/underwriting-criteria combination. It's also up to the government to get rid of perverse tax incentives that subsidize group policies and drive people away from individual policies. Of course, grilling insurance company executives on TV is so much more fun than actually doing work.

thras• 17 years ago

The whole "evil insurance companies" thing is ridiculous. Companies are amoral and profit seeking.

Wrong. Industries have distinct cultures, usually formed through self-selection due to the sort of people who choose careers in them. Compare police officers and firemen, for example. Similar sorts of work, but wildly different cultures due to self-selection effects.

Now, what sort of culture do insurance companies have? I think that there's good evidence that it's a sick and cancerous one.

Otherwise, good point about the necessity of government intervention in this market.

greendestiny• 17 years ago

His numbers aren't even attempting to be correct, he's pointing out that in fact 0.5% isn't necessarily low. What it shows is there is quite an obvious strategy for insurance companies to pursue which would have a level of 0.5% rescission but completely destroy the expectation that you be covered in the event that you really needed your health insurance.

bitdiddle• 17 years ago

innumeracy is a far worse problem than you think. Here's an example that explains why most doctors are loathe to quote numbers to patients

http://yudkowsky.net/rational/bayes

orc• 17 years ago

The real question here is, of those .5% who had their policy cancelled, how many of them actually lied about a preexisting condition that they then filed a claim for? Because if there's even ONE person who had their policy cancelled unjustly, then that is one person too many.

jdminhbg3• 17 years ago

The Monty Hall problem has nothing to do with his statistics, which in any case are completely dependent on his unsupported assertions, cf.:

"If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%..."

"But let’s not forget that the very nature of the forms is designed to create inaccuracies"

Not to mention:

"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."

Which pretty much sums up the problem with the current health care debate -- almost nobody involved knows the difference between insurance and care. There's no reason middlish class people need to have things like physicians' visits and normal prescription drugs filtered through an insurance company or the government, they're completely affordable and expectable on their own. You insure unexpected, unaffordable events, like crashing your car, not oil changes.

kgrin4• 17 years ago

That's true, though if you're on the hook for a person's catastrophic care, you may very well want to give them economic incentives (i.e. cheap/free doctor's checkups) to invest in preventative care.

Now, this doesn't mean that we ought to necessarily have a big, bad program (government or private) control everything.

But it does mean that the "insurance is for catastrophes, everything else should be out-of-pocket" model isn't necessarily as simple and wonderful as it sounds.

jdminhbg3• 17 years ago

That's true if the assumptions behind it are true -- that cheap/free doctor's checkups result in lower catastrophic care costs. I'm not aware of any study that shows that they are.

Empact• 17 years ago

It's actually quite common for High-Deductible plans to include payment for standard preventative care (e.g. annual physical). After all the costs covered are predictable and well-contained anyway (typically a few hundred a year).

Beyond that, the emerging "direct Primary Care" model (e.g. http://qliance.com/) is another way to remove the financial disincentive to use preventative care. With them you get unlimited around-the-clock primary care for $50+/month, so there's no additional cost to come in for a checkup. And the barriers to interacting with them are even lower than an insurance-bound doctor, as they embrace modern forms of communication so you can e-mail them about problems which otherwise would not have risen to the level of motivating an appointment.

Note that in this case, subscribers would then favor insurance which does not cover preventative care, or else they'd be paying for it twice, so it's not necessarily beneficial that all people get this support from their insurance.

jhancock2• 17 years ago

The essential problem is that the person paying the premium is not the insurance companies "customer". The health insurance company's customer is the shareholder, not the premium payer, that has to end.

I have built software for health insurance companies. I can tell you for certain they only look at the details of a policy for rescission purposes for those policies that are costing them far more than the premium has been paying. And if you watch the congress video embedded in the blog post http://www.youtube.com/watch?v=2H9ufue_1uI&eurl=http%3A%..., it makes perfectly clear that the application part of a policy is very easy to find "flaws" with retroactively if the insurance company choses.

weaksauce2• 17 years ago

That is so true. The insurance companies for health care should be non-profits with set salaries for all the employees.

The reason that people buy health insurance is for exactly the reason that the insurance companies drop the insured; They cost more money than they spend.

yummyfajitas• 17 years ago

* There's no reason middlish class people need to have things like physicians' visits and normal prescription drugs filtered through an insurance company or the government, they're completely affordable and expectable on their own.*

There is a good reason for this: tax avoidance.

"Insurance" (against everything) is paid for with pre-tax dollars. Doctor visits are paid for with post-tax dollars (ignoring HSA's, etc).

If car insurance got the same tax benefits, then car insurance which pays for gas would probably be available.

zader• 17 years ago

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 sue them in court.

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.

Lies, Maths, And Health Insurance

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