High-Risk Pools v. Community Rating and the Individual Mandate

Here’s a little intra-mural squabble that I haven’t gotten into much on this site: Is support for an individual insurance mandate compatible with consumer-driven health care? I’ve periodically linked to Who Killed Health Care?, a book by Regina Herzlinger, a fellow at the Manhattan Institute and professor at the Harvard Business School. It does a great job of laying out how health insurance companies, Congress, hospitals, employers, and academics have wrecked havoc on our health. I also liked its business-oriented solutions such as an emphasis on “focused factories” for health care and five-year contracts for insurance.

Though the Manhattan Institute website says Herzlinger is known as the “Godmother of Consumer-Driven Health Care,” a term embraced by many analysts of conservative or libertarian leanings, she makes some significant departures from commonly held positions. In a recent book review of The Top Ten Myths of American Health Care (PDF) by Sally Pipes of the Pacific Research Institute, Herzlinger makes that point clear.

Though Herzlinger has high praise for Pipes, she adds this:

But here is where Sally Pipes and I part company. Absent community rates (charging everyone the same regardless of age or health status), I do not see how sick consumers will be able to afford the purchase of health insurance (as she notes, they account for about 80% of health care costs). And absent government mandated universal coverage, community rates will be absurdly high because only the sick will enroll. Although she does not discuss this problem, the typical Republican solution of government-funded high risk pools for the sick means their care will be overseen by the very government whose competence she has so effectively skewered.

By this light, there will be massive government involvement in any case. So which will it be: Regulations of a high-risk pool that enroll only a small number of people (perhaps aided by general tax revenues), or an individual mandate and community rating? The high-risk pool approach affects only a few people; individual mandates and community rating affect everyone. High-risk pools bring about yet another government bureaucracy and stream of government spending; individual mandates, on the other hand, take government into new philosophical territory by imposing a tax simply for living.

Given the choice, I’d prefer to have general subsidies for a high-risk pool. Then again, if the idea of health status insurance takes off, we may not have to choose between these two alternatives.

(The review is in the Winter 2010 edition of the Claremont Review of Books.)

What You Know Isn’t True

“Almost everything you think you know about health care is probably wrong or, at least, half wrong.” So says Robert Samuelson, who offers a quick run through commonly held beliefs informing health care reform:

- The use of the emergency room by uninsured people is a huge contributor to costs problems;

- Getting more people into insurance will improve the nation’s health;

- Getting more people into insurance will reduce spending on health care.

He concludes, “Pass or not, Obama’s proposal is the illusion of ‘reform,’ not the real thing.”

Health care “reform” bill is immoral & won’t work

Here’s a summary of arguments against so-called health care “reform,” specifically, the Senate Bill, HR 3590. It might be useful when contacting a member of Congress (e.g., those on the fence). The bracketed numbers refer to the reference list at the end. (To keep your e-mail short, you can omit the reference list and link to this post.)

1. The bill coddles insurance companies with the individual mandate, the employer mandate,subsidies, regulations and limits on competition. [1]

2. So-called “reform” is a national version of Massachusetts’ “Romney Care”, which has failed. [11]

3. The Democrats’ Health-Care Proposals Promise To Entrench The Status Quo. [13]

4. Health care is not a right, or is it a privilege. We have the right *to seek* health care.[3]

5. Health care reform will increase your insurance premiums. [2]

6. Middle-class taxes will increase. [2]

7. Many people will not be able to keep their current insurance. [2]

8. It will not reduce the budget deficit. [2]

9. It’s wrong to force people to pay for other people’s health care or insurance. That’s what charity is for.

10. Insurance price controls hurt the sick [4]

11. It’s wrong to force people to buy a product.

12. It’s wrong to make people’s current insurance policy (or any insurance policy) illegal. [12]

14. Mandating employer health care is more poison, not an antidote. [5]

15. Mandatory insurance punishes low-wage workers with high marginal tax rates, which keeps them poor. [6]

16. Medicaid is a fraud-ridden poverty trap that provides lousy care and increases everyone’s insurance premiums. [7] Don’t expand it. Why not let taxpayers *choose* which charities their tax dollars fund? [8]

17. Coverage is NOT care: Having insurance does not mean you get needed medical care. [9]

18. Doctors will quit, or substitute the judgment of government bureaucrats for their own medical expertise [10]

Instead, try some free-market reforms. For example, read “Yes, Mr. President: A Free Market Can Fix Health Care” at healthcare.Cato.org or “Real reform: free-markets” at PatientPowerNow.org.

=== References ===
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Michigan Governor Says “Go Vegan”

First they came for cigarettes. Then it was soda pop in school vending machines. And then foods with trans fats, salts and now, meat.

Gov. Jennifer Granholm (D-Mich.) is calling for residents of Michigan to forgo eating meat in observance of “Michigan Meatout Day.”

Am I the only one who finds this slightly creepy? Sure, go ahead and eat a vegetarian or a vegan diet if you’d like. Try to sell me on the virtue of a soy burger as a replacement for ground beef. I wouldn’t even mind a lecture from the governor if the two of us were sitting down over a couple of beers (is that still allowed?) , if she were talking as a private individual.

An official proclamation, as meaningless as that is, crosses over the line and gets government in the business of deciding what goes in my body and what doesn’t.  But expect more of the same nanny-state nagging when governments take on an ever-larger role in paying for health care services.

Michigan Legislator Calls for “Civil Disobedience” on Health Care

Three Michigan lawmakers have introduced legislation aimed at protected their state’s residents from being forced into a health care system, either by the state of Michigan or the national government. The publication Michigan Capitol Confidential has a review. One state senator says “Where this is going, I don’t know. You don’t know until the states try to do it.”

While the supremacy of the national government over the states is widely cited as an objection to such measures, states have successfully repelled other initiatives, such as the REAL ID act.

Back to the Laboratories

Arlene Wohlgemuth, formerly a member of the Texas Legislature, calls for drawing on states rather than the federal government to come up with new policies in health care: “Now is the time for our best laboratories of innovation, the 50 states, to take the lead (PDF). There is much that can be done in Texas without federal action to lower costs and improve access.”

There are at least two advantages of relying on states rather than the national government. One is that any damage from bad legislation is limited to that state. Another is that states can benefit from watching for “what works” in other states. Wohlgemuth, for example, says that Texas is a model for tort reform. Despite the best efforts of academics and policy experts, the real-life results don’t always come out as predicted. Sometimes they end up worse; sometimes they end up better. We would benefit from smaller-scale approaches rather than a mentality that says Congress will fix something for everyone.

A Cost-savings Plan that Raises Costs

During yet another speech on health care at the White House, President Obama called on Congress to give his reform package an “up-or-down vote” before the Easter recess, with or without Republican support. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid claim to have the votes to do it.

But going it alone by resorting to the controversial reconciliation process may prove politically costly for Democrats. After all, a majority of Americans oppose their health reform proposal. The latest CNN poll showed that only 25% of Americans like the president’s plan.

If the Democrats pass some version of reform — a big if — Republicans could find themselves in a position to turn public displeasure into electoral success. The GOP should seize the opportunity by pledging to repeal ObamaCare if they take control of Congress this fall.

Not only would such a strategy represent good politics, it would be good policy, as ObamaCare is poised to bankrupt the country.

After all, the tax increases go into effect this year but the benefits do not kick in until 2014 or later.

The president puts the cost of his reform plan at $950 billion over 10 years. But the eventual price tag will likely exceed $2 trillion. And that’s just the cost to taxpayers. ObamaCare will force ordinary patients to pay ever more for health care.

Take the guaranteed issue provision — a cornerstone of the Democrats’ reform plan that would bar insurers from denying coverage to individuals because of pre-existing conditions or health status. Although popular, guaranteed issue is expensive. States that have implemented this regulation have seen premiums rise 227%.

That shouldn’t be surprising. If insurance is available on demand, only people who have an acute need for it will pay premiums. Consequently, the insurance pool will be composed exclusively of sick people with high medical costs. Insurers will have to jack up premiums to cover the cost of treating these folks.

The Democrats’ plan attempts to balance the cost of guaranteed issue with an individual mandate requiring all Americans to obtain insurance. Supporters of the mandate claim that it will lower overall health costs by drawing everyone into the insurance pool. Premiums from the young and healthy — many of whom previously went without policies or might have waited until they got sick to buy them — can subsidize care for the aged and infirm.

But the individual mandate will not lower health costs — it will raise them.

People generally go without insurance because it’s too expensive — or because they’d rather spend their money on other goods or services. Simply passing a law requiring people to buy insurance won’t make policies more affordable.

By the time the mandate is in full effect, the average individual insurance policy is expected to cost about $5,000. The fines for noncompliance are far less, $695 or 2.5% of income, whichever is higher, starting in 2016.

For most healthy individuals, it would make more sense to forgo insurance and pay the fine than to shell out thousands of dollars a year for an individual policy.

Further, if they became ill, they could get a policy right away because of guaranteed issue.

With the young and healthy exiting the insurance pool, once again only the sick will remain. Premiums will spiral ever higher.

In fact, according to Milliman, an actuarial consultancy, combining guaranteed issue with an individual mandate could achieve the “the opposite of what was intended: an increase in cost for health insurance and in the number of uninsured Americans.”

When President Obama set out to reform the health care system, he named cutting costs as one of his primary goals. His proposal would accomplish just the opposite, raising the cost of care for Americans. The president may come to regret trying to force his unpopular reform package through — starting on Election Day.

Handwriting on the Wall for Medicaid Payments of Long-term Care

I always argued that, in a rational world, families would pull together to protect Mom and Dad. If families truly had to incur the catastrophic costs of long-term care, they would save, invest or insure against the risk. In the absence of a social safety net that covers not just the poor but the middle class and affluent as well, prosperous people would plan responsibly for long-term care. Instead of fighting among themselves for the spoils of Medicaid planning, adult children would pool their resource to purchase long-term care insurance for the parents.

Nowadays, with Medicaid going bankrupt, the handwriting is on the wall. More likely sooner than later, Medicaid will be seriously means-tested to eliminate the program’s huge income and asset loopholes. If it survives at all, it will become the kind of program most people thought it always was: a financial floor protecting the truly needy from health and LTC devastation.

Approval Without a Vote or Signature

Not only is the health care bill bring pushed into being bad policy, it’s being birthed through techniques that are at best questionable. So says a writer at The Heritage Foundation: “[Congressional leaders] came up with a strategy to get Obamacare passed in the House without the House ever voting on the bill, now they have come up with a strategy and a ruling to get the Obamacare bill to qualify as law without the President signing the law.”

Disagreeing with the Experts

Nothing gets the blood flowing like internecine warfare. It is very easy to lob bombs at the left and others who want to “socialize” medicine, but it is quite another thing — a much more difficult one — to disagree with a nationally-recognized advocate for free market health care.

John Goodman of the National Center for Policy Analysis, a health care expert with far more years in the field than I, recently blogged about some of the ideas put forth by Republicans in their health care meeting with President Obama. The idea that Goodman disagrees so vehemently with is to allow all out-of-pocket spending on health care to be deductible. This, proponents (like me) argue, would ultimately undermine the third-party-payer system of health care in this country because employees would no longer have the incentive to rely on their employers for health care and would instead take the additional pay and enter the individual market, more than likely adapting health savings accounts and other consumer-driven health care products in large numbers.

Goodman argues that eliminating taxes health care expenses would create a situation in which “government would be paying almost half the cost…” With this subsidy, health care spending would rise dramatically. He instead argues for equalizing the tax treatment of health care with other goods — an ideal solution that I agree with — but I doubt that Congress or the American people would go along with such a massive tax hike unless tax rates were lowered…and you get the picture. Very complex and not likely to happen.

So, I remain supportive of eliminating taxes on health care. Why? Well, first and foremost, even if you are being subsidized to the tune of 50% for health care, you still control the money and will work to keep costs down. Pricing will become a part of the health care industry in a way that it is not today because of the third-party system. Also, the individual market will grow, thus making that a more viable proposition and keeping costs down and giving millions of Americans greater control of their health care (no more remaining stuck in a job just because of health care). Lastly, consumer-driven health care like HSA’s will take off and flourish. These all seem like good things to me. Besides, do you really trust politicians to not cave into special interests by exempting health insurance from taxation as we did in New Mexico (NM’s gross receipts tax still hits certain health care costs like deductibles and co-pays).

Ending taxation of health care costs seems to have more benefits than drawbacks. Maybe I’m wrong. What do you think?