If you have "no place to go," come here!

The arithmetic of rescission

Yves links to Taunter on a July 28 post I should have linked to long ago. It's wonderful to have a lucid explanation of how the numbers work (which is one thing most econoblogs are very, very good at):

The House hearings on rescission – the retroactive cancellation of individual health insurance policies – were over a month ago, but after its initial run through Daily Kos it seems to have waited a bit before popping up on Baseline and Slate. James Kwak at Baseline [quoting the testimony of an Asssurant CEO] described the practice as rare, affecting only 0.5% of the population. The faint light bulb above my head began to flicker: could that be true…that’s not rare – that is amazingly common.


To understand why 0.5% of the people Assurant covers is a lot of people – a jarring, terrifying, probably criminal lot – you need to understand a little bit of math.

Cool! Here's how the odds work (and do read the entire post, which is connects the arithmetic of recission to -- I kid you not -- The Price is RightLet's Make A Deal [even more a propos!]:

Half of the insured population uses virtually no health care at all. The 80th percentile uses only $3,000 (2002 dollars, adjust a bit up for today). You have to hit the 95th percentile to get anywhere interesting, and even there you have only $11,487 in costs. It’s the 99th percentile, the people with over $35,000 of medical costs, who represent fully 22% of the entire nation’s medical costs. These people have chronic, expensive conditions. They are, to use a technical term, sick.

An individual adult insurance plan is roughly $7,000 (varies dramatically by age and somewhat by sex and location).

It should be fairly clear that the people who do not file insurance claims do not face rescission. The insurance companies will happily deposit their checks. Indeed, even for someone in the 95th percentile, it doesn’t make a lot of sense for the insurance company to take the nuclear option of blowing up the policy. $11,487 in claims is less than two years’ premium; less than one if the individual has family coverage in the $12,000 price range. But that top one percent, the folks responsible for more than $35,000 of costs – sometimes far, far more – well there, ladies and gentlemen, is where the money comes in. Once an insurance company knows that Sally has breast cancer, it has already seen the goat; it knows it wants nothing to do with Sally.

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). If you take the LA Times estimate that $300mm was saved by abrogating 20,000 policies in California ($15,000/policy), you are somewhere in the 15% zone, depending on the convexity of the top section of population. If, as I suspect, rescission is targeted toward the truly bankrupting cases – the top 1%, the folks with over $35,000 of annual claims who could never be profitable for the carrier – then the probability of having your policy torn up given a massively expensive condition is pushing 50%. One in two. You have three times better odds playing Russian Roulette.

Splendid. Now, the advocates of the 1000 page public option bill, HR3200, will tell you that rescission won't happen under HR3200. But that's not the burden they have to meet. What they have to show is that there's no way the insurance companies can game their complex, unproven, and Rube Goldberg-esque system to make sure the practice doesn't continue under another guise -- because the health insurance companies are profit-driven (and it's the fiduciary responsibility of the CEOs to make that profit).

Medicare for All advocates, of course, don't have to show that. The "Everybody in, nobody out" policy prevents rescission by definition.

No votes yet


a little night musing's picture
Submitted by a little night ... on

AFAIK there is nothing in any of the bills we've seen to control this practice; we know that it goes on already.

There was some discussion of this in comments at Mark Thoma's blog in this recent post, because Krugman wrote [my emphasis]

Yet private markets for health insurance, left to their own devices, work very badly: insurers deny as many claims as possible, and they also try to avoid covering people who are likely to need care. Horror stories are legion...

Having brought up that point, Krugman never again addressed it. Some of the commenters at Thoma's blog wondered how common the practice is: no one came up with data.

Krugman also wrote:

And it’s thanks to these rules that employment-based insurance more or less works, at least in the sense that horror stories are a lot less common than they are in the individual insurance market.

That is because employment-based insurance, for large group employers anyway, is not subject to recission or the pre-existing condition limitations. But there are still horror stories about denial of claims.

[There is a very funny open letter to Obama in the comment here.]

a little night musing's picture
Submitted by a little night ... on

apply only to what counts as a "qualifying plan" to be sold on the exchanges. At least, this is so in the Senate HELP bill - I have not read HR 3200, but I assume it has similar language (and please correct me if I'm wrong).

There are no regulations in that bill that would apply to the plans which people have through their employers currently - the plans the bill forces them to keep.

If this abominable snowbill is going to be pushed as "health insurance reform", I think it needs to be made crystal clear that the reform will not affect the vast majority of insured's plans at all.

Submitted by jawbone on

Well, at The Seminal, "Eyes Wide Open Everyone! HR3200 is not what you think it is.

Hipparchia, hope you see this!

This point seems to support that only those plans offered through the exchanges will have stiff regulation. Which explains why BIPs (Big Insurance Parasites) share prices have gone up.

...No mandatory participation from healthcare providers.

There's much more, and Tracie is not very sanguine about the chances for a good outcome. She sees Barney Frank and Jan Rockefeller's criticism of health cooperatives as part of a tactic to get the final bill down bascially to exchanges and mandates. Ooof!

And high profits for parasites. I like this writer!

Via letsgetitdone.

Submitted by jawbone on

She said the progressives have already compromised: They wanted single payer, and they're settling for good public option. (not exact words, but I think you see the problem)

She also said the compromises on Friday resulted in $5B for setting up health cooperatives (which are essentially undefined and there are not any real models for them in the country); the public option will only get $2B.

Coops will not be required to pay back the $5B, but the public option will be required to pay back the $2B.

Somebody tell the A-Listers that HR3200 essentially killed the public option. Woolsey will not admit this.

She said there is no definition of public option, runs from Medicare-type plan to private insurance offered or run by the government. (I was listening outside, so don't have good notes on this part.) Heard clearly that she confirmed Obama said health cooperatives could under some conditions be considered a public option.

For me, just calling something a public "option" seems to undermine any firmness in what they think it will be. An option may or may not be a plan.

Woolsey did NOT mention single payer VOTE!!

Time to call this representative. Holy Shit.

Abortion issue: Ed/Labor committee just treats as a legal procedure, health care service for women. Other versions? Not clear.

Is there coverage for G-I distress resulting from FKD Party actions?

Simple answer to simple question: No, bcz it's a preexisting conditon.

Is there a cure for the FKD Party's spine problems and lack of empathy and concern for others who do not give large donations?

No simple answers....

(I need more firm wording and info to make this a post, imho. But one of those animated sirens might be a good addition.)

Submitted by jawbone on

replied that big poll showed 80% of Americans are happy with the insurance they have. But most have never had serious ailments or illnesses, and you never know what you've not got 'til you need it and try to use it.

Woman called up about Blue Dog male rep who said he wanted to concentrate on health care, not women's health issues, so abortion should be ignored. She was PO'd that women's reproductive health didn't warrant care.

Caller asked for description, definintion of health cooperatives--reporters couldn't provide any. Nor about "public option." Said that is a problem in selling the legislation to the public. Uh, d'uh.

They're now saying that Mike Enzi is the Holy Grail for the WH, and Enzi is saying that what he wants has to be in the final bill going to the prez for signature. Ballsy bastard, huh?

Diane asking what American people can do to influence the to reps while they're home on recess.... Uh...uh...uh...then reporters went on to the rumor that Dems were going require elderly to set up their deaths once every five years.

AMA getting $245B back payments left out of a previous funding bill for Medicaid or Medicare (didn't catch that, or which bill has it), and that's why the AMA is saying it will support Obama's plan. It's a thnk-you note.

Rehm asks if Obama HAS done his best to move health care whatever reform. TBD.

Audio will be available at Rehm's site. The male rep was Earl Pomeroy, D-ND. Charles Grassley's plane was delayed so he was not on the show. I missed the first 10 minutes, so don't know if Pelosi's single payer House vote promise was covered then.

mass's picture
Submitted by mass on

The Exchange will not face stiff regulations. MA Exchange can't charge more for pre-existing conditions, lumps people into age groups but can not price people based on specific age, and is supposed to offer comprehensive "affordable" insurance, but it doesn't. The newest thing exec's of the Connector are trying to do is offer more high deductible plans to keep the cost of insurance low, which of course means less people actually using the insurance. As for "this will all lead to single payer...", I have no idea why anyone thinks with all the firewalls in place, with the emphasis on "bending the cost curve" of government administered health care, anyone believes that. Again, MA has a "public plan" through the exchange and it has the same firewalls and no one here even pretends it will lead to single payer. Further, policy makers are looking every other way to keep costs down, global payments, higher deductible plans, annual enrollment dates so people can't "game the system". It's so sad to me to see people believe that the Democrats are doing such a bang up job of health finance reform simply because they don't sound as heartless as the Republicans.

a little night musing's picture
Submitted by a little night ... on

The House and Senate versions substantially agree, even at this point. The regulations cover a lot of ground: "affordability", what care has to be covered, not excluding people from coverage, control of out-of-pocket costs, controlling the minimum percentage of premiums that must be spent on actual health care, etc. (I would have to sit back down with the bills to list it all, and I'm not about to do that right now.) They are, as far as they go, pretty much good things.

My point is that it's very unclear when, if ever, those regulations would be applied to currently-existing plans: they initially apply only to plans which are sold through the Gateways/exchanges, as far as I can tell. In the House bill they are eventually, after a grace period of 5 year (from 2013), extended to all (or almost all) plans. I think. If I'm reading that section correctly. In the Senate bill, I can't figure out what they have in mind for "the rest of us" except what I wrote at that link.

I am VERY concerned about "affordability", and the subsidies, which are politically vulnerable (and future R administrations could have a field day with them).

But I wouldn't, at this point, say there is no regulation applied to the exchanges. There is, at present, the way these bills are written. It just doesn't go far enough fast enough IMO. And as for what legistlation finally emerges... we shall see.

While I'm being fair, I'll point out that there are features of HR 3200 that seem, in aggregate, to be aimed at the problem of denial of claims (speeding up the appeal process and making it more transparent, for instance).

[Much as it galls me to have to keep going back and rereading those bills, I think it's better in this debate to take a look at what's actually on offer. And to keep pushing for single-payer anyway, of course.]

Edited to add links and to say: I do think it's valid to criticize these bills by referring to the MA system, in as far as what they propose is similar to the MA system. It's just that, in this case, the analogy does not (at this point) seem to be good.

a little night musing's picture
Submitted by a little night ... on

Can you explain?

I've looked at them, and they seem, well, I wouldn't use the word "stiff", but pretty close to what I'd write myself if regulating insurers was my #1 priority (and I'm specifically thinking of the House version here): except that I'd have them apply to ALL plans RIGHT AWAY, not after a 9-10 year interval.

Except these:

1) I have concerns about "affordability" as I've already said. Too easy to define it so it's not "affordable" at all, and the subsidies are politically vulnerable.

1a) It's also very unclear to me how this would work in the case of someone whose incomes varies a lot from year to year. That was me, a lot of my adult life.

2) There seem to be provisions in the bills allowing the insurers to sell plans, not through the exchanges, which do not meet the requirements for a Qualified plan. Hmm.

3) We know insurance companies feel free to break what regulations there are, and then wait to get caught. The regulations will only be as good as the oversight. There are also mechanisms for oversight in the bill. But all of this will cost, and be vulnerable to the usual pressures, etc.

OK, there're my specific concerns.

Well, those, and the fact that I don't want the fracking insurance companies anywhere near my health care, not for basic coverage, anyway.

mass's picture
Submitted by mass on

1) I have concerns about "affordability" as I've already said. Too easy to define it so it's not "affordable" at all, and the subsidies are politically vulnerable.

Look, don't get me wrong, we've had a number of these regulations in place even before MA reform, and there are worthwhile, and it's shameful they are not in place everywhere.

Submitted by hipparchia on

medical loss ratios

the medicaid and medicare managed care plans have to meet 85% or higher mlr goals [can't remember the time frame]. for comparison: amerigroup currently has about 80% mlr. there's a good blog post somewhere in the blogosphere with a chart of the mlr for the 4 largest insurers, but i can't remember where i saw it on mys speedreading through the interwebz. anyway, the numbers range from about 78% to about 81% iirc. the chart was part of a post on how they've lowered their mlrs and raised their premiums at the same to maximize their revenues.

the private plans in the exchange have separate mlr goals they have to meet, depending on whether they're large group coverage, small group coverage, or individual plans, and they are not specified. instead the hhs secretary will set the mlr, using some [at present undefined] formula, and the formula must take into account the fact that medical loss ratios are different for each kind of plan. right now, mlrs are something like 60% for individual plans [60% of premiums goes to medical costs, 40% goes to admin costs], 70% for small group plans, and very large group plans can have 90% or better [for comparison: medicare is typically 96-98%, depending how you count it, medicaid is typically 92-93%].


the up to 12% [or 11% or 12.5% depending on who gets their way] of income is applied to premiums only. so at 400% of poverty level, you should be able to afford to spend 12% of your income on just premiums.

cost sharing

this is what you pay out of pocket. hr 3200 sets this at a max of $5000 for a single person, $10,000 for a family. ouch. but doable if yoiu're solidly middle class and this is a once-in-a-lifetime event. if you've got a kid with leukemia...

first, a definition... cost sharing is defined as copays, deductibles, and i think, co-insurance. it explicitly does NOT include out-of-network fees. so, if you're traveling far away from home, and in need of a doctor [or worse yet, a trip to the emergency room], you are almost guaranteed to visit a dr or hospital that will NOT be in your network. you will have to pay the extra, and this extra will NOT be counted in that $5000/$10,000 limit. similarly, there are at present horror stories about people scheduling operations with a surgeon in-network, only to get mongo bills later because the assistant surgeon, or substitute surgeon, or anesthesiologist, or other required associated dr is out-ot-network. if this happened to you under the new 'protections', again, you'd be stuck with the fees and it wouldn't count toward your $5000/$10,000.

also, the $5000 and $10,000 caps will increase every year according to the consumer price index or inflation or something [i forget which, but they won't stay at these already high-ish numbers, they''ll keep going up].

there is something in hr 3200 that i haven't looked closely at yet [lost the one link i had to a website that had very good explanations and examples, and i can't find it now. grrrrrrrrrrrrrrrrrr] so i'm still unclear how it applies. this is the actuarial value limits on the cost-sharing provisions for people below 400% of poverty level. theoretically a person at 200% fpl wouldn't have to pay up to $5000, but but would have a lower ceiling [$4000? i can't remember how it's calculated] and this would scale linearly, just like the premium subsidies would. again, it looks like you wouldn't be protected from out-of-network fees, because all of these protections specifically apply to either premiums or cost-sharing, and cost-sharing is explicitly defined as NOT including out-of-network charges.

the hhs secretary [or the health exchange commissioner, i forget which] is responsible for seeing that the public option has an adequate network, so as to minimize the occurrence of out-of-network charges, but i can't remember if this applies to all qualified plans or not. even if it is, it's left up to the sec or commissioner to decide what an adequate network is, it's not spelled out in the bill.

health commission

health care quality board? replacement for medpac? the appeals board? i forget what it's supposed to be, but it sounds like it's going to be invested with some power. the prez will appoint 9 members, the hhs sec will appoint 9 members, and the surgeon general [? congress? somebody else, anyway] will come up with an even number of up to 8 more members [the surgeon general will be the odd-numbered member, presumably to break any tie votes]. members are to be doctors, patient advocates, labor representatives, employer representatives, health insurers, and other [unspecified] experts. i can't remember exactly, but it looks like the board could conceivably have only a couple of actual medical experts on it [out of a potential 27 members] and meet the requirements stated in the bill.

additionally, there seems to be something about making the health exchange commissioner a cabinet-level position.

some other stuff

the no more rescissions rule will kick in early in the process [good], 2011 or 2012, i think, and so will one other reform that i can't remember off the top of my head, but everything else will wait until the insurance exchanges are up, and even then, won't necessarily be in place for the first several years.

the early adoption of the no more rescissions rule is good, but [1] we have the insurance company execs on record as saying they won't comply, and [2] there are no actual teeth in the bill that i can see, no fines, no nothing, for not complying with the no rescissions part. this will be less of a problem once the exchanges have been up and running, and everybody's covered under new plans, and the reinsurance/risk adjustment schemes worked out, but that's easily 10 years down the road.

as for their denying/delaying care, there is one sentence in the bill about following the usual standard of care [or some such wording], and that's it. my problem with this is that for the past 30-ish years, the insurance companies are all too often the ones who have been deciding what the care is going to be. an aside, did you know that the insurance companies can legally write their contract with your dr in such a way that the dr is forbidden to tell you that there might be other treatments available that your insurance company doesn't pay for?


the above comments all apply to the pdf version of hr 3200 on the house energy and commerce site and only to the main bill, i haven't looked at any of the amendments by any of the committees to see if they improve on any of the above concerns.

this is probably the only substantive comment i'll make tonight. i've got computer issues [took me over an hour to write this comment, and that's without looking anything up except the one amerigroup link]. which is why i didn't link to the bill itself -- opening that up right now will probably make my computer commit seppuku [not that i could blame it entirely :)].

a little night musing's picture
Submitted by a little night ... on

for this long comment.

Dang, the "cost-sharing" part is weaker than I realized first time I read it.

There are also requirements for certain things to be covered by Qualified Plans (and if I recall correctly, the Health Commish or whatever has some say here). and that there not be lifetime caps on coverage.

did you know that the insurance companies can legally write their contract with your dr in such a way that the dr is forbidden to tell you that there might be other treatments available that your insurance company doesn't pay for?

Yes, I actually did know this. Another thing this bill does not address.

Submitted by hipparchia on

that would preclude "wait times" like the ones here, hence my comment about deny/delay of care and standards of care. once i no longer had insurance, my dr told me that what they used to do 20 years ago was take people like me, throw them in the hospital for 2 or 3 days, and run every test known to mankind. it's expensive, but $50,000 and 2 years later i was still only about halfway through the list of what would have been done in a few days, but that's the 'standard' now.

there's a list of things that will be covered [all the things in my fdl comment are technically 'covered']. will they be approved/paid for in a timely manner? i've had an undiagnosed [and untreated] mystery illness for several years and am extremely limited in the work i can do could i have been fixed up if they'd been quicker? maybe, maybe not, but i'd have liked to have had the chance. my friend waiting on the mri has walked with an undiagnosed limp for 4 or 5 years now and is considering early retirement. my friend waiting 5 years for knee surgery is on total disability and is unemployed. the one waiting 3 years for knee surgery is on limited duty and just has to hope that their employer doesn't decide to start laying off people based on the work they can do.

these aren't just anecdata, they're illustrations of what has become the standard of care if you have private insurance, not just here, but from what i've read on the internet too.


i don't really know how many people the out-of-network exception would hit. i ran into a lot of it myself, but the area i live in is its own little black hole in a lot of ways, and not necessarily illustrative of the rest of the country, though i've seen some stuff about this issue on the internet too.


yes, the no lifetime cap on benefits is definitely a good thing.

a little night musing's picture
Submitted by a little night ... on

Another thing both bills fail to address:

If you change insurers (as my son's employer recently did) for whatever reason - losing a job, changing jobs, etc. - you may have to change doctors to stay in-network.

You know what? Single-payer would solve that problem.

(Changing doctors is not a trivial problem. I know of a case in which finding the right medication for depression took much longer than it maybe should have done, because the person being treated kept having his doctors move out of the plan. There was little to no continuity of care.)

Submitted by hipparchia on

and that this is the fault of the silly and/or greedy doctors who apparently can't work together, hence all the medical homes and accountable care organizations and other 'innovative' and new ideas.

what the health care wonks don't realize, or don't want us to realize, is that the insurance companies have largely driven this. not only do they put off paying for care, so that people get care in dribs and drabs, they keep arbitrarily jacking up prices, which causes employers to look for new insurers every year.

the wonks, otoh, look at geisinger, mayo, cleveland clinic, kaiser permanente, group health cooperative, the vha, etc and see electronic health records! large group practices! coordinated care! integrated care! medical homes! and think that these are the reforms that will fix the problems. they never notice, or don't want the rest of us to notice, that none of these model systems ever once has to argue with, or outright defer to, insurance companies, since they are all their own insurers as well as being medical practices.

yes, keeping your dr from year to year can be hugely important and your source of insurance should not rip you away from the dr who is taking good care of you.

at the same time, it's not so necessary that we have to write laws mandating [or even just encouraging] things like medical homes. most doctors can take care of most things. i traveled extensively for years and all my various [fairly minor] chronic conditions [aside from the new mystery problems] were very well managed even though i saw a string of drs in something like 10 different states. but i could do this because i had gold-plated insurance and was also making scads of money, so paying for anything [ie, getting care as soon as i needed it] was no problem. if we had medicare for all, everybody could do this [as my peripatetic 80-year-old parents can attest].

a little night musing's picture
Submitted by a little night ... on

(I can't believe I wasted this lovely afternoon plowing through that mess...)

In HR 3200, there is a provision that seems to phase in the various requirements (regulations, limits on out-of-pocket expenses, etc.) for Qualified Plans, so that they will extend to the grandfathered-in employer-based plans. I know that's an awkward sentence, sorry.

Here's what the bill says: (Sec. 102) [BTW this section is titled "Protecting the Choice to Keep Current Coverage", but it's not so much about choice as it is about making sure current employer-based plans remain as they are, at least until the following kicks in.]

(b) Grace Period for Current Employment-based Health Plans-


(A) IN GENERAL- The Commissioner shall establish a grace period whereby, for plan years beginning after the end of the 5-year period beginning with Y1, an employment-based health plan in operation as of the day before the first day of Y1 must meet the same requirements as apply to a qualified health benefits plan under section 101, including the essential benefit package requirement under section 121.

(B) EXCEPTION FOR LIMITED BENEFITS PLANS- Subparagraph (A) shall not apply to an employment-based health plan in which the coverage consists only of one or more of the following:

(i) Any coverage described in section 3001(a)(1)(B)(ii)(IV) of division B of the American Recovery and Reinvestment Act of 2009 (Public Law 111-5).

(ii) Excepted benefits (as defined in section 733(c) of the Employee Retirement Income Security Act of 1974), including coverage under a specified disease or illness policy described in paragraph (3)(A) of such section.

(iii) Such other limited benefits as the Commissioner may specify.

In no case shall an employment-based health plan in which the coverage consists only of one or more of the coverage or benefits described in clauses (i) through (iii) be treated as acceptable coverage under this division

(2) TRANSITIONAL TREATMENT AS ACCEPTABLE COVERAGE- During the grace period specified in paragraph (1)(A), an employment-based health plan that is described in such paragraph shall be treated as acceptable coverage under this division.

So the Grace Period ends 5 years after Y1, which (I think) means 2018, and only then do the nice regulations and requirements kick in for those of us "lucky" enough to be already covered by an employer-based plan.

This is HR 3200; I do not recall anything like this in the Senate HELP bill, but I'll go check later when my brain has recovered.

a little night musing's picture
Submitted by a little night ... on

Quick rereading:

Existing coverage is explicitly exempted from their regulations and requirements by section 131 (which is the equivalent section in the Senate HELP bill), and there is a somewhat murky paragraph in that section about collective bargaining. It seems to be saying that if some regulation in this bill would affect a plan that was the outcome of collective bargaining, that this would not constitute a violation of the collective bargaining agreement.

I don't see any explicit language bringing the requirements and regulations to cover all plans, parallel to what I quoted in HR 3200. (It may be there somewhere and I missed it, please let me know if you find it.)

So I guess I have to hope that the HR 3200 language is what we get, and that I won't encounter any medical condition that would lead to large out-of-pocket expenses before 2018 - I'll just about be ready for Medicare then anyhow. Dang. What's not to love?

okanogen's picture
Submitted by okanogen on

It's actually "Let's Make a Deal", not "The Price is Right".

The "Monty Hall Problem" [and wiki's description is quite good] is just an example of a broader set of counter-intuitive probablility problems. It's related to the Three-Card Swindle. It's a development of the set theory based Bayes' Theorem.

Bayes' Theorem, although immensely important, is little known or understood by the general public. It is vital to understanding testing methodology and properly interpreting results. Since it is counterintuitive, it is also a great way to hoodwink (or "bamboozle") you.

I'll expand in a post.

BDBlue's picture
Submitted by BDBlue on

it's not about the math, it's about screwing over a very high percentage of people.

I'm suffering from a cold, so I'm not all that sharp today, but something like --

"Insurance Companies Rescind As Many As 50% of Policies People Actually Use" or something like that. And you may want to sticky it. This is appalling and hidden. The latter probably not a coincidence and driven by the former.

I'd do it, but I'm half out of it and this might be crazy talk.

okanogen's picture
Submitted by okanogen on

What percentage of claim-free policies they rescind, and what percentage of policies with claims they rescind, more effective screaming would be possible.