July 31, 2009

What Should Be The Consequences For Rescissions?

Someone who carefully reads every health care post I've written on this site might conclude I consider private health insurance companies integral to a good health care system.

Perhaps it would even appear to a superficial, quick glance over some of my posts that I think "markets" are always the solution to most problems, or the starting place for any solution.

I do not take an ideological approach.

Markets are indeed useful within certain well-bounded areas of life.

What does "well-bounded" mean?

Another phrase for this is "intelligently-regulated." (see bullet point #5 here)

For instance it's fine to have a market in labor for carpenters. It is not fine to have a market in forced sex slaves.

My attitude towards private health insurers is also..."bounded."

That is, I don't think having private health insurers in our health care system is better, or worse, or anything so simple and categorical.

Rather, I pay attention to the details.

I view private health insurers according to how they act.

They are as they act.


The way many of them have been rescinding policies when policy-holders most need them has been especially harmful.

Creating insurance application forms that cannot reasonably be completed with perfect accuracy, even with good effort (can you find the exact details of *every* health care visit or medication of any kind you've have in the last 10 years?) -- and thus can be used as a pretext to cancel policies for "fraud" if and when major claims are made is...

...a form of business practice of lower integrity than most Americans accept.

Americans are more just (fair-minded) than this.


I don't think this is redeemable.

The fact is that these types of rescissions have been effected by many major private insurers.

I don't think there is any way to redeem that.

Insurance companies that have used trivial and inevitable incompletions in their impossible applications to justify rescissions multiple times to avoid paying claims in my opinion have forfeited -- past tense -- their right to practice insurance, and should have their licenses revoked.


Revoked as in out-of-business.

So when one or more major insurers in a state must wind down and cease business in that state, what happens?

Answer: Other, better companies can take their business.

It's called a "well-regulated market."


An unpopular alternative is for there to be no regulation at all, so that consumers would know there is no "consumer protection" and thus pay close and nervous attention to the reputations of companies.

Purchasing safety in this way can be expensive. Premium brands often have significant price premiums.

This kind of caveat emptor (buyer beware) system requires journalists or consumer's unions to uncover and report enough factual information for people to be able to learn of the qualities of a company.

Without quick, effective uncovering of poor practices, we only have advertising and hearsay to go on as consumers.

Historical experience has been that laissez-faire (absence of regulation) can result in large numbers of deaths along the way, before people learn much about individual companies.

So the essential idea of regulation is to try to outlaw some of the worst abuses that can happen, so that the consumer learning curve has fewer victims.

The thing about regulation is you must either genuinely regulate, or not at all. It must be one or the other, and this understood by the public.

Either the appearance of safety a regulatory environment creates is real -- because the inspectors and regulators actually do their jobs effectively -- or the appearance of safety is an illusion.

The worst possible case is for consumers to believe there is regulation when little real regulation is actually carried out. This causes consumers to relax their vigilance and rely on an illusion.

The illusion of regulation when regulators don't act is profoundly dangerous to all of us.

Life and death dangerous.

So...we need either actual regulation and enforcement...or an explicitly unregulated laissez-faire market where consumers actually must work to learn about the quality of a company's practices.
We have a regulated market.

This means that regulators -- state insurance regulators -- must be adequately staffed and must do their jobs.

Fines are not enough.

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