Rock and a hard place

For seven years the Republicans have been obsessed with repealing Obamacare. Now they control the House, the Senate, and, as of next Friday, the presidency, so now they're going to get rid of it, right?

Well, it's not so simple. Now five senators are asking for a delay, of a little more than a month. As Josh Marshall writes at that link:

Republicans, through numerous public statements, have already made a huge strategic concession: that no one should lose their coverage or be worse off once Obamacare is repealed. In other words, they now agree - or to put it more crisply, are unwilling to publicly disagree - with the proposition that the more than 20 million people who've gained health care coverage under Obamacare should continue to have affordable access to coverage.

The problem is, none of the proposals Republicans are considering come close to accomplishing that.

And the reason for that is that there's no way to do it.

What we stand to lose: the ACA approach to the "uninsurables"

Health insurance is poorly understood, but pretty damn important, so I'm taking a whack at breaking it down into comprehensible terms.

In my first post on the subject, I introduced the key concepts of insurance but looking at other things we insure. (If you don't want to bother with that post, you can skip to the bottom of this one to see those items summarized.)

In the next one, I looked at what happens when you apply those concepts to health insurance. The main takeaway is that if we're thrown into the health-insurance market as individuals, rather than as members of largish groups, many of us will turn out to be effectively uninsurable - nobody will sell us a policy at a price that is remotely affordable for us.

The solution we've relied upon - employer-based health insurance - is better than all of us being out there as individuals, but it still leaves a lot of people uncovered. Hence, the Affordable Care Act.

The core of the act is three interrelated pieces:

1. A ban on discriminating against pre-existing conditions (that is, you have to sell insurance to people with pre-existing conditions, and you have to charge them the same as you charge other people);
2. A mandate for individuals to have insurance, whether through their employer, their spouse's employer, or bought on their own;
3. Subsidies to less-wealthy households who are buying insurance on their own (plus an expansion of Medicaid eligibility to take care of another group of lower-income households).

This is the natural order to walk through these pieces, because the first one addresses the problem directly, and the next two each address a problem created by the one before.

What we stand to lose: health insurance is different

Health insurance is a potentially confusing subject - Congress certainly seems to be unsure what to do about it. But at its core, it's not that complicated.

It is, however, surprising. Some of the things we think we know from other types of insurance, or even other economic situations, end up pushing in surprising directions when we apply them to the question of health care.

The previous post in this series looked at coverage for homes, cars, and lives, in order to introduce the key concepts for thinking about insurance. They're summarized here:

• Risk pooling: the average outcome for a group of people is far more predictable than the specific outcome for any individual. So when we pool a bunch of people, there's a lot less uncertainty about the average cost associated with that group than about the specific cost associated with any individual in the group. Risk isn't merely transferred by pooling; it's actually reduced.
• The lucky pay for the unlucky: if you never "get" to file a claim on your insurance, it's because nothing bad ever happened to you.
• Mandatory insurance: under certain circumstances, the government or some private entity might require you to buy insurance as a condition of something else.
• Moral hazard: when you are spared from the bad possible outcomes of risky behavior, while benefiting from the good outcomes, you'll take more risks than you should.
• Actuarial fairness: when the premium you pay is proportional to the cost you are likely to represent.
• Adverse selection: when an insurer is unable to make use of information about characteristics of its customers, that affect how costly they're likely to be. The insurer charges higher premiums to protect itself, the less costly people drop away even more, and the pool falls apart.

The weirdness with health insurance starts when we take the concept of actuarial fairness, and ask what happens when we apply it to individuals. That is, what if we figure out the health-insurance premium for each individual that is scaled to the health costs he or she is likely to incur?

It pretty quickly becomes clear that we will have a group of people who are essentially uninsurable.

What we stand to lose: Basics of health insurance

On Wednesday I was a guest in the Rural Health class taught by the nursing program at Hartwick College. For many residents of rural areas, social and economic factors are an important aspect of their health situation, along with access to health care. In that context, the professors for the course invited me in to speak about health insurance.

My goal was to make health insurance more comprehensible by setting it in the context of other types of insurance, draw general principles from those, then see what happens when you apply those principles to health coverage.

I expect this to be two posts: one on the insurance background, the other on issues specific to health insurance. We'll see how it goes.

Start with the basic idea of insurance.

You as an individual are risky. Let's say we're talking about whether you'll get hit by a car. And to keep the exercise simple, let's say that getting hit by a car brings with it $20,000 in medical expenses (along with a lot of pain). And let's say there's a 3-in-100,000 chance of you being hit this year.

So there are two possible outcomes. You almost certainly won't be hit, in which case the cost is $0. But there's a 0.003% chance that you will be hit, in which case there's a cost of $20,000.

So, almost certainly $0, but just maybe $20,000. Nothing in between.

Now take a group of 100,000 people, all with that same 0.003% chance of a $20,000 accident. You can't expect there to be exactly 3 accidents. In fact, the chance of that is only 22.4%. But there's a 99.6% chance that the number of accidents will be between 0 and 8. Which means the average cost for the group will almost certainly be between $0 and $1.6.

That's a much easier situation to plan for than your individual situation where the only possible outcomes are $0 and $20,000.

This is the magic of what's known as risk pooling.

When you pay an insurance company, you might think of it as you paying them to bear the financial risk on your behalf: if you get hurt, you won't have to pay - they will. But in some sense, when they put together a pool of people to insure, in some sense they're not bearing risk for you. They're making it go away. That's the magic part.