It’s All About Community Rating
The more I think about it, the more I realize that the leading contentious issue in the healthcare debate is community rating. This has become even clearer reading the blog of leading healthcare expert, Uwe Reinhart. Community rating basically means you charge all people in the risk pool the same amount, and not base payment on age or health status. Here is how Reinhart defines the issue:
““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.”
And there is the problem. Reinhart, a particular expert on international comparisons of healthcare systems, notes that community rating is completely uncontroversial all over the world, except in the United States. It underpins the systems of Germany, Switzerland, and the Netherlands, which basically rely on private insurance. And here is how Reinhart explains it:
“The vast majority of citizens in these countries view health care as a “social good” that is to be shared on the basis of need by all on roughly equal terms and is to be financed largely on the basis of ability to pay. By contrast, Americans have never agreed on a shared social ethic that should govern their health system, as the current debate over health reform has made visibly and audibly clear.
Furthermore, younger and healthier people in these countries realize that, but for the grace of God, they might become chronically ill only a few years hence and that, in any event, one day they, too, will be older and sicker. By paying more than their actuarially expected cost for health insurance, young and healthy people in these countries join a club, so to speak, that offers them a valuable call option. That call option allows them to procure at age 55 health insurance at a premium much below their actuarially expected cost.
By contrast, Americans have been taught that health insurance is largely a private consumption item purchased year to year and customized to the individual’s circumstances.”
Community rating is a reflection of solidarity, a pillar of Catholic social teaching. And so it flies in the face of the individualism inherent in American Calvinist culture. And this is at the heart of the current reform proposals - an attempt to nudge the dysfunctional US system toward something that resembles Germany, Switzerland, or the Netherlands – community rating, the individual mandate, plus subsidies for those below a certain income threshold. Community rating guarantees solidarity, and the individual mandate makes it viable. Without this, millions will be left behind and at the mercy of powerful insurance companies, which is a violation not only of solidarity but subsidiarity.
But this is what people do not like. This is what they consider “socialized” medicine or a “government take-over” of health care. They don’t want an individual mandate impinging their “freedom”. This is it, there’s nothing else. And when you look at Republican proposals, you will see them all moving in the other direction – toward health insurance based on individual risk, which of course is a great deal for the young and healthy, the rest be damned. That’s what the reliance on individual tax credits, raised again just yesterday by John McCain, is all about.
This “individual” solution is unacceptable. It is a gross violation of solidarity. It will do nothing to prevent millions being left behind, with no insurance or rationed by cost. It will do nothing to prevent millions going bankrupt from healthcare costs.
Ironically, as Uwe Reinhart notes, the American system means the government often has to pick up the pieces:
“Curiously, however, although Americans often flatter themselves with the image of being self-reliant, rugged individualists, they actually tend to rely more than citizens in many other countries on government-run health insurance and pensions in their old age, or when they fall on hard times. It is what makes the creature called “American” so perplexing in the eyes of foreigners.”
This is why I really believe this reform is the last and best chance for the survival of private insurance, if only its opponents were not so myopic, so blinded by individualist ideology.
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Would people that voluntarily smoke, abuse drugs, and act promiscuously pay the same rates as those who don’t?
I believe community rating has been cut from the bill (or watered down to the point where it is meaningless). So if it all comes down to community rating, doesn’t that make the bill a whole lot of nothing?
On the substance, if you are going to have subsidies to help the less well off get insurance (which the bill does), then I don’t see why having community rating is necessary. Having community rating increases the moral hazard costs of health care, and it can also lead to an adverse selection problem if the mandate isn’t strong enough (which it isn’t). If you’ve already got subsidies to make sure everyone can get insurance, then all community rating does is make the system more expensive and less efficient. What’s the point of that?
MM – great post. Just this:
this reform is the last and best chance for the survival of private insurance
I’d actually look forward to the system of private insurance collapsing, so that it can be replaced with a Single-Payer system.
It’s time to rein in the private sector. A system that bankrupts the sick is depraved, and not worth saving.
Would people that voluntarily smoke, abuse drugs, and act promiscuously pay the same rates as those who don’t?
I’d say, yes, simply because basing premiums based on people’s behavior becomes too tricky; what about consuming fast food? Too much salt in the diet? Number of speeding tickets incurred?
The idea here is that healthy people subsidize (to some degree) the sick, based on ability to pay.
It’s “We’re all in this together” and not “everyone for himself.”
There is a fundamental distrust that needs to be addressed.
After the last expansion of the welfare state, there was a widespread perception that some were free riding on it, and thus many are reluctant to expand it again.
Not to mention how we just bailed out a bunch of bankers.
I’m not positive this perception is accurate. But it had to be addressed in order to re-build trust that a large government program will help needy people rather than enrich entrenched interests..
This is probably not an original thought, but it has always struck me that the better a company is able to judge the risk of insuring an individual (and charge accordingly) the less that person is buying insurance. In a perfect world (for insurers), they would be able to predict what medical expenses each individual would incur during a lifetime, and charge premiums of that amount (plus a little more for profit).
I’d actually look forward to the system of private insurance collapsing, so that it can be replaced with a Single-Payer system.
I’d rather that it wasn’t replaced at all for the very reason that insurance has enabled an entitlement mentality without any regard to cost. Insurance is the reason costs are out of control, why almost nobody can afford medical care on their own and has made everyone dependent on it. Insurance should be used as a catastrophic contingency, not as the basis for the entire system.
Yes, I realize it’s a very radical position, would be painful to implement and will never happen, but imo it really is the elephant in the room that won’t go away even if we entirely replace the current private insurance system with a public insurance system.
I think that Calvinism has not very much to do with it. How do you get more Calvinist than the Dutch?
This is probably not an original thought, but it has always struck me that the better a company is able to judge the risk of insuring an individual (and charge accordingly) the less that person is buying insurance.
That’s right.
In a perfect world (for insurers), they would be able to predict what medical expenses each individual would incur during a lifetime, and charge premiums of that amount (plus a little more for profit).
In such a world there would be no insurance companies, cause who would pay a company all of their medical bills plus a little more for profit when they could just pay the bills directly.
If I was picturing a perfect world for insurers, it would be one where everyone was required to buy their product, the government gave them lots of tax subsidies, and . . . wait, this is starting to sound vaguely familiar.
To add to Steve’s comment, insurance has become pre-paid healthcare. The concept of insurance is to hedge against catastrophe. People are promoting to fix the healthcare problem with a concept they criticize – more healthcare insurance.
“I’d rather that it wasn’t replaced at all for the very reason that insurance has enabled an entitlement mentality without any regard to cost. Insurance is the reason costs are out of control, why almost nobody can afford medical care on their own and has made everyone dependent on it. Insurance should be used as a catastrophic contingency, not as the basis for the entire system.”
An interesting point, but I wonder of you realize how radical it is. The ‘moral hazard” that comes with insurance occurs regardless of the source of the insurance, be it public or private, government based or market based.
Your argument is against insurance as such.
This is similar to the argument conservatives use against Welfare (that it destroys incentive ands fosters dependence), in that it applies to private charity as well.
It seems that many conservatives are unaware of the radical nature of their principles.
Hey, Rush Limbaugh had a great experience with medical care in Hawaii – that’s proof that our medical insurance system is the perfection of God’s creation, in’it?
I think a majority of Europeans
- view health care as a social good. While there are those who exploit the system, people prefer the safety of ongoing healthcare. Public institutions in general are in far higher esteem than in the US. In the US, public tends to mean poor, bad. Parisians are proud of their institutions. Europeans view a “social net” as vital for social peace.
- there is, albeit nowhere near perfect, solidarity, a feeling that there is +/- an obligation to take care of the helpless, it’s a person’s right to receive help.
I think a majority of Americans (not 90% but well over half)
- have been brainwashed “Red Scare” style. Those Americans rather deal with “pre-existing conditions” (one of those lovely euphemisms, like “final solution”), loss of insurance etc. than “socialism”. At the mercy of corporations, well-trained by lobbyists to suspect no evil.
- see no right to, umm, life, liberty and the pursuit of happiness. You’re on your own. There was the Oklahoma Land Rush, a free-for-all Black Friday style…but you still had the Sooners. There is no feeling of obligation towards the weak and poor, rather it’s charity with a condescening undertone
- are so mobile that community is a rather fleeting thing, except maybe for the slums.
A crass and prime example for this widespread mentality is the fairly recent phenomenon of rich, mostly Republican, suburbs to form their own “communities”, with shell government, built and run by corporations. This is done to avoid paying for the schools etc. of the less desirable. It started, I believe, in Atlanta and is spreading. Even here, at the edge of the SF Bay Area you’ll find “communities” with their own private police force protecting the McMansion dwellers. Enormous, hideous houses….and no yard, except maybe for some Nazi lawn (in the desert, just like golf courses) and the neighbor six feet away. Profit maximizing has no room for yards.
- have no problem with increasingly privatizing the military, prisons, rescue efforts and so forth. If you can afford it, you’ll get help, if you can’t, off to the Superdome you go. In Florida a company offers private jets flying you to tropical paradises in case a Hurricane is on its way. Surviving in style.
“I think that Calvinism has not very much to do with it. How do you get more Calvinist than the Dutch?”
The Dutch aren’t Calvinist anymore, barely religious in general. They have guaranteed health care, legally mandated, fully paid maternity leave (mandatory in the EU) and so forth. I was in Amsterdam last summer. It’s many things, but not Calvinist :)
It’s the Calvinist nihlists you have to look out for.
Rodak,
Calvinism as a system has several species; the American variety took itself quite easily to economic materialsm and social Darwinism as forms of their Calvinist predestinationism.
Reinhold Niebhur I think explains this quite well:
The two aspects of revision in my mind were obviously related. I was never a polemical Protestant Christian, trying to score off the Jewish and Catholic faith. But I was increasingly impressed by the fact that both the Jewish and Catholic faith revealed an awareness of the social substance of man’s existence and supplied, in different ways, the norms of justice, which are increasingly required in a collective age and which some forms of extravagant Protestantism lack. The latter seem to have two forms of moral norms which stand in contradiction to each other. An ethic of sacrificial love, relevant only to the summit experiences of life, which tends to persuade Christians that they are saints, contrasts with an individualistic-economic ethic of self-reliance which teaches us how to be prosperous.
This latter ethical system became tremendously influential in the early nineteenth-century industrialism, when a moribund Calvinism, placing a prize on the economic virtues, became partner with a social Darwinism. This partnership increased the moral complacency of middle-class America, particularly when the victims of industrial injustice, mostly Catholic and Jewish immigrants, tried vainly to appeal to the conscience of the bourgeoisie.
Reinhold Niebhuhr, Man’s Nature and His Communities (New York: Charles Scribner’s Sons, 1965). 16-17.
And again
It even appropriated the biological theories of Darwin in Spencer’s social Darwinism, and promited that a rigorous competition between individuals would lead to the survival of the fittest. Thus bourgeois culture presented itself to the world, which was destined progressively to encounter the collective conflicts of modern industry, with a high religious ethic of sacrificial love and a realistic ethic of encouraging ‘private initiative.’ The confluence of social Darwinism and moribund Calvinism served to quiet consciences uneasy about the growing disparity between rich and poor under the exaggerated disbalances of power created when the power machine transferred the skill and the tool of the craftsman to the industrial corporation.
The combination of errors was in fact so great in the bourgeois age that it must be regarded as one of the wonders of history that Western democracies did not completely succumb to the Marxist rebellion prompted by the glaring injustices of early industrialism. ibid., 64-5.
And finally, as an interesting addition:
The realists, on the other hand, acknowledged interest, but denied its collective or class character, and were as afraid of political discipline of economic interests as were the idealists. They hoped that a free market would establish justice. Obviously, they were blind to the problem of the disparity of power which prevented laborers and employers from engaging in an equitable bargain. ibid. 66
Fine. But I still take it to be more a matter of “Americanism”–as described above by Gerald Naus–than of Calvinism, per se. It’s true that the Dutch, and Europeans in general, are not gung-ho Calvinists any more. Yet, they are concerned for social justice at the community level and relatively unafraid of that Yankee bogey “creeping socialism.” What does this say for American Christianity, regardless of sect? Perhaps it’s not that the Dutch are no longer Calvinist, but that the Dutch admit to no longer being Calvinist. More truthful to deny, than to observe one’s religion in the breach, eh?
Rodak
You might have missed this post, but I deal with the issue of multiple Calvinisms, and why some can become “liberal.” http://vox-nova.com/2010/01/05/quote-of-the-week-michael-allen-gillespie/
NOTE: I didn’t mean to imply above that Europeans in general were Calvinists. It is also true that European Lutherans are no longer very Lutheran; the French are no longer very Catholic; the Church of England is moribund, etc. The truth still remains that historically, the Dutch were Calvinist, and Calvinism must be credited with forming the groundwork of their current moral outlook.
I happen to come from the state of Michigan, home of the Tulip Festival in the city of Holland; home of Calvin College (which is probably a university by now); and where “the Hollanders” still compete as such in pick-up games on the public playgrounds.
I think that my point was simply that once one, or one’s community, has ceased to be “Calvinist” (or whatever) in practice, it means little, and is even, perhaps, misleading to attribute their actions to “Calvinism” (or whatever). I would prefer to use the acronym WASP (although it seems to have gone out of style) where you have used “Calvinist.” I don’t find the political behavior of American Lutherans, Baptists, or Catholics to be all that different from that of their Calvinist, or their secular, neighbors on the issues we’re discussing.
Rodak
It is because the Calvinism is cultural, and people follow the culture, being socialized in it.
“It is because the Calvinism is cultural, and people follow the culture, being socialized in it.”
That was my point about the Dutch.
Rodak
And I agreed that the Dutch was culturally Calvinist, even now; but as I pointed out, there are many ways Calvinism can and has been put into practice, the American kind is the kind which is very exclusivistic, while the Dutch became more the universalists.
An interesting point, but I wonder of you realize how radical it is.
I am aware. But I am also aware that it has only become radical because we have allowed ourselves to become thoroughly convinced that we are entitled to “free” (meaning someone else will pay for it) health care.
Don’t misunderstand me. I am not saying that we are not entitled to health care. Rather, we have allowed the cost of health care to soar by not caring what the costs are. Because insurance pays the bills which have become much to costly for almost any of us to pay, we have become dependent on insurance to the point that only insurance can provide what we need. Now we’re stuck with the choice of being dependent on private insurance or being dependent on public insurance – and those are the only choices that we are considering.
Pardon me, but I happen to think that both choices suck.
We need to start asking some different questions.
The ‘moral hazard” that comes with insurance occurs regardless of the source of the insurance,
My point.
Steve–
Your unstated opinion seems to be that the medical profession is ripping us all off by milking the insurance industry for all that it can get through the mechanism of inflated billing. This would mean a conspiracy of silence between all health care administrators, physicians, nurses, lab technicians, pharmacists, radiologists, and many other health care deliverers to defraud their patients (and neighbors.) I find that slightly far-fetched; but it seems to be the onlhy logical conclusion of your stated position.
Rodak,
No, I don’t think that there is some kind of grand conspiracy, although it is common knowledge that bilking is relatively common. You might not call it bilking, but the next time you’re treated at the hospital, ask how much the bill is going to be for the insurance company, then ask how much it will be if you pay cash.
I’d be willing to bet that most, if not all of us in this forum who have health insurance, rarely, if ever, ask how much a treatment is going to cost before it’s performed. We don’t ask because cost is not usually a factor in our decision making process. It ought to be. In basic economics, what happens when cost is not a consideration to the receiver of services?
Now, before I’m accused of being a Limbaugh clone, do I think that medical care should only be an economic consideration, treated as merely a capitalist venture? No. I happen to believe that medical care is a vocation, and in a perfect world – in a Catholic culture – it is a work of charity. But in this “Calvinistic culture” of vastly different realities, that just isn’t going to happen via politics.
Steve–
It’s a “vocation?” I’m afraid that I don’t follow that one. Can you explain how medical care is a “vocation?”
There most often is little decision making involved in getting health care. We get it because we need it. Much of it is so expensive that if we didn’t have insurance, we’d be buying it on credit (if we could get it) and paying if off at interest over time. With insurance, we “pay it off”–at least in part–up front. Do you imagine some scenario in which the price of major surgery comes down so far that most middle-class Americans could pay cash for it, when it was needed? I don’t think that’s realistic.
I meant that it is (or should be considered) a vocation to provide health care as a doctor or nurse, etc.
I understand the difficulties involved, which is why I originally said that it would likely never happen apart from a catastrophe to force us to start over. We dug this hole, and it is deep indeed. Still, perhaps we should be looking for ways to get out of the hole, as painful as it might be, instead of looking for ways to make the hole more comfortable as we wait for it to collapse.
I think that a single-payer national health care program is the way out of the hole.
I don’t. But we’ll never find out who’s right. It couldn’t even come close to a vote (nevermind passing) with a large majority of dems in the house, a super majority of dems in the senate and a dem in the White House.
Never. Gonna. Happen.
Ah, but we can observe our own “system” and we can observe the single-payer system of other nations. And we can compare and contrast.