Mitt Romney's line about enjoying the ability to "fire" his insurance company if he doesn't like the service it provides may have been unfairly taken out of context. But it was still a truly thoughtless remark - just not for the reasons most people are saying.
In a well-functioning market, consumers do welcome the ability to "fire" service providers and choose better alternatives. That's one reason they're often angry when they see little or no real alternative to a service provider - it's frustrating to recognize that you're essentially a "captive customer."
But as bloggers Aaron Carroll and Jonathan Cohn have pointed out, the health-insurance market is a prime illustration of why markets sometimes fail consumers - and why market regulation, that bugaboo of true conservatives (and of the post-Romneycare Mitt Romney), is often needed to fix bad incentives.
Romney said that if people buy their own insurance, the insurers "will have an incentive to keep people healthy. It also means if you don’t like what they do, you can fire them. I like being able to fire people who provide services to me. If someone doesn’t give me the good service I need, I’m going to go get somebody else to provide that service to me.”
Carroll says Romney is overlooking a key problem in the health-insurance market:
The idea that people might fire their insurance companies is exactly why they don’t have an incentive to keep you healthy. Insurance companies preferentially cover healthy people, and they want those who are ill to leave, or, better yet, not enroll in the first place. Captive populations, like those in the VA, or maybe plans with long-term contracts through big employers might have the right incentive, but the types of plans Gov. Romney seems to have in mind don’t do the very thing he is saying they do. Insurance companies have a vested interest in keeping you healthy when you can’t or won’t leave.
But that’s the least of his problems. The real issue, unfortunately, is that very, very few people have the luxury that Gov. Romney is endorsing. Let’s say that you are self-employed, and lucky enough to have found a company to provide you with health insurance. Then, let’s say you develop cancer. You suddenly find out that your insurance company stinks. So you fire them, right?
Of course not. You’re screwed. Now you have a pre-existing condition. There’s not an insurance company out there that wants to cover you. So you don’t fire them. You scream, and curse, and cry, but you’re stuck. Only healthy people have the luxury of picking and choosing.
Let’s also not forget that most people don’t find out that they’re not getting “good service” until they’re sick. Healthy people don’t make much use of their insurance, so they don’t know how bad it is. They only find out after they’re ill, and then it’s too late. It’s only fun to fire the insurance company if you’re sure you can go to another company to get what you need. Almost no one can.
Of course, you could be so assured if guaranteed issue was the law. It would be even better if there were community ratings, so you knew the next insurance company couldn’t gouge you for being sick. That’s the case in Massachussetts, under the law Governor Romney signed, so it’s possible he’s just thinking back to that.
It’s also true under the ACA. But if that gets repealed, as Governor Romney suggests, then very few Americans, excepting those that live in states like Massachusetts, will get to enjoy the firing he proclaims to enjoy.
As Cohn notes, the idea that insurers will promote better quality simply because it will be more profitable misses some key aspects of the health-insurance market:
Even if good care does save money, it frequently does not yield benefits for many years. (That's usually the case with prevention.)
You can see that today in the most deregulated part of our health care market: The market for individuals who buy coverage on their own. It has all the symptoms of market failure. Individuals lack decent information: Plan details are difficult to decipher and policies frequently turn out to be less comprehensive, or less reliable, than consumers realized at the time of purchase or turn out to need later on. Many individuals have few choices and those with serious pre-existing medical conditions may have no choices at all.
So Romney has the makings of a great argument for empowering consumers. It's just not the one he intended, because it's a great argument for Obamacare or Romneycare.