Unholy Trinity

Kevin Grier’s take on our likely health care reform legislation fairly well sums up my own feelings:

I actually think we are going to get a reform that is both worse than the status quo and worse than a pure single payer system.

Kudos to our Congress!
As I understand it, insurance companies will not be able to refuse to cover some one, nor will they be able to charge high risk people a premium that reflects their risk. The price won’t be uniform, but the maximum variation will be well below what it would take to correctly price the variation in risks.
As I noted before, this will make premiums for healthy people extra high. And as the WSJ pointed out yesterday, at least on the margin, it will make healthy people want to hold off from getting any insurance until they are actually sick.
Problem solved, you say?
Ahh, but now it appears that the third leg of the trinity will be rule that it will be illegal to not have insurance!
So young healthy people will be forced to buy way overpriced (relative to their risk) insurance. Plus if said young healthy people make good money, they can look forward to paying more taxes to subsidize the purchase of said insurance by others.
Guaranteed Issue, Community Rating, Individual Mandate.  They sound so reasonable and innocuous, but they are freakin’ lethal.
I guess it shows that we care.

Author: Will Wilkinson

Vice President for Research at the Niskanen Center

15 thoughts

  1. I should note I'm pretty young — 24. So I suppose I should see this analysis as threatening. But I don't. To start with, asking the young and healthy to pay higher premiums than they would otherwise to make sure no American dies or goes bankrupt because of health care costs — much less those who make the most of the most to pay more in taxes for the same thing — doesn't strike me at all as unjust. Second — and this relates to my first point — I do not expect to be young and healthy forever.

  2. I really find myself torn about this … On the one hand I think universal coverage is a moral imperative, and for closely connected reasons economically much more efficient. On the other, I believe the existing employer-based, insurance-based system is a mess that needs to be dismantled and rebuilt from the ground up rather than patched. It seems economically obvious that lack of coverage, and the scantiness of the coverage that there is, have come about because costs are so high. Costs are high in turn, because the insured have no interest in keeping them down since they rarely even know what their premiums are, and doctors have every interest in pushing them up. This goes along with what seem to me as a new immigrant to be extremely confused cultural attitudes about health and medical care. It never ceases to amaze me than most of my colleagues prefer a PPO plan than doesn't limit their costs, and doesn't necessarily cover them when they get sick, and doesn't cover preventative care, to an HMO plan that does all of these things, at the (to me very slight) cost of not being able to walk into a cardiologists office every time you have indigestion. The proposed reforms do absolutely nothing to address this – if anything they make it worse by increasing the level of moral hazard. But then I consider the politics … To really fix the problems described above, you need to switch from an insurance based model to a forced savings model plus insurance and state aid as backup, in which people are constrained by what they can afford, or to an intrusive managed care model, in which they're constrained by what experts say they need. The latter usually goes alongside single payer, because its the only way to make it affordable. I grew up using the British National Health Service – I have many friends and relatives who work for it too – and I can tell you most Americans would not find it to be acceptable, although to me most of the reasons they would think that are confused. The forced savings model, a la Singapore, seems much more culturally appropriate. But I don't see how you get from here to there … Any reform that effectively controls costs is going to be extremely unpopular with doctors, who will have no trouble at all convincing patients that its bad for them too. So its democratically impossible. But again, universal coverage is an imperative. The only way to get universal coverage in an insurance based system is through the 3 horsemen of insurance reform – guaranteed issue, community rating, and the individual mandate. So we're stuck with that – it will prove to be extremely expensive and there will be many people unhappy with it because the young, healthy people being forced into the system are also usually relatively poor. That political pressure will either result in more subsidies (bad) or in effective measures to control costs (good), which will ultimately lead to more state intrusion into the healthcare system. I don't think that's good, but faced with a choice between it and the status quo, with its everyday tragedies that border on farce, I'm afraid I'll have to take it. Just.

  3. I don't understand this “shocked” reaction. I can understand that from a libertarian perspective this isn't exactly ideal, but taking money from the healthy and giving it to the sick is the whole point of universal health care. This isn't some shocking unintended consequence: this is how this is supposed to work. It would probably be more efficient to just cut out the middle man and just tax people single-payer style, but that's not politically feasible.

  4. All this depends on the magnitude of the various incentives of course, but here's a best case scenario: insurance becomes so expensive that no one purchases it until they have a catastrophic illness, but everyone who has such an illness is able to and purchases the insurance for the duration of the illness. Everyone else becomes uninsured and ends up paying the fines to be uninsured. The net result is a system where all insurance becomes defacto catastophic coverage and people pay for most medical costs out of their own pocket. The fines serve to subsidize this catastophic insurance. The high cost of insurance effectively acts as a deductible. So you end up with some redistribution to pay for guaranteed catastophic care, but the end of insurance as a means to pay for less than catastrophic conditions. This seems like a pretty decent result. Where is my scenario flawed.

  5. Probably won't happen for a few reasons:1. The final bill will almost certainly include subsidies for those who can't afford coverage out of their own pocket but aren't covered by medicare or SCHIP, but obviously won't include subsidies for paying fines. 2. Whether premiums will rise or not is debatable, contrary to what Kevin Grier says. The whole point of the individual mandate is to keep average premiums down by pulling more people into the system. This doesn't obviously mean the young and healthy would pay more than they would for invidually purchase insurance now, because the individual mandate prevents adverse selection, whereas under the current system the very fact that you choose to purchase insurance implies that you think you'll need it. 3. The health insurance industry, which is currently under far more stress than most people realise, will benefit hugely from the mandate. Even if premiums rise, they will keep up the pressure in Washington to maintain the fines at a higher level than premiums in order to keep their businesses healthy.

  6. Two reasons why this won't happen:1) Cost control is the second step of this two-step reform of health care. Cost control won't happen for another 3-4 years, probably. (Sure there are some baby steps in this iteration of reform, but only baby steps). The system has to be about to break. Then, citizens will say “don't take my health care away!”, politicians will say “we must fix this system” etc. 2) Liberals believe that subsidized preventative care is crucial to improving health outcomes. That is in tension with the notion that citizens should be exposed to non-catastrophic health costs. The tension is not irresolvable. In particular, if “excessive” non-catastrophic care can be left up to the wallets of citizens, but things like physicals and other useful preventative care can be subsidized, liberals will probably be happy. But that is not your scenario, it is just a scenario describing a particular kind of permanent insurance coverage.

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  8. Howdy PointIf it were a matter of asking people to pay higher premiums to support others, you'd have a private-sector non-profit insurance company with a sliding scale of premiums. Not aware of any in plat at the moment.The government isn't going to ask — it's going to compel. Or rather, the Dem leadership intends to do so. I am hopeful that we can block it.It is manifestly unjust to demand that anyone else subsidize you. Your second point — none of us are young and healthy forever — is why you take out insurance while you are young.

  9. Wow, so, young healthy people might have to pay some of the costs of old sick people. How incisive. I can only hope Mr. Grier will next shock us by pointing out that high earners pay more income taxes than low earners.I wonder if it has occurred to the people who continually make this argument (that young healthy people will be overcharged) that old sick people, for the most part, used to be young healthy people. One might think that the fact that the proposed reforms would all help young healthy people actually keep their coverage once they become sick would bear mentioning.I'm further baffled as to how this would be worse than single payer – don't healthy people subsidize sick people in a single payer system as well??

  10. I think the main reason my scenario is flawed has to do with the magnitude of soem of the effects I have posited, e.g. (as simon alludes to) if fines are high enough (although it is hard to see how they could exceed the cost of coverage and be politically paletable) people will just get even really expensive insurance that would now seem like a bad deal.What is interesting to me about my scenario is that the practical effects of a given “reform” plan have more to do with things like the magnitude of fines and other smaller features than the features of the system that much of the debate focusses on. But perhaps that is inevitable with 1000+ page bills.

  11. 1. Everyone dies.2. You are welcome to donate your money to whomever you choose. However, you are not welcome to stick a gun at my head and demand my money.

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  13. Because single payer gets ride of the insurance, subsidy and tax penalty bullshit. All that deadweight loss is an incredible waste. Single payer would take from the rich and give to the poor without all those stupid mechanisms.

  14. Because single payer gets ride of the insurance, subsidy and tax penalty bullshit. All that deadweight loss is an incredible waste. Single payer would take from the rich and give to the poor without all those stupid mechanisms.

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