Sunday, March 06, 2005

Eliminating Downsides

The Times has a story about the Medicare bill, expressing surprise that insurance companies are willing to sign up. The headline reads "Defying Experts, Insurers Join Medicare Drug Plan." But there seems to be a temporal problem with the defiance.
In 2000, however, when the legislation began moving through Congress, Charles N. Kahn III, who was then president of the Health Insurance Association of America, said: "Private drug insurance policies are doomed from the start. The idea sounds good, but it cannot succeed in the real world."
Note, though, that this is in 2000, before the bill was, well, improved. Specifically,
Insurers say they now find the risk acceptable because the government will protect them against large financial losses, at least in the first years of the program.

Under the law, the government offers subsidies to insurers, pays more for sicker patients and pays still more if the claims significantly exceed what the insurer expected.
Or, insurers make money by taking risks. The bill allows them to take risks, but the government guarantees they won't lose money. Not surprisingly, they are willing to take the business. Eliminate the downsides, and it's always a good investment.

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