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Universal health care passes in America!


Really! Well not in all of America but one little part. Massachusetts passed a universal health care initiative yesterday based on an individual mandate. Yup, that means that citizens will need to show that they have health insurance!

The politics behind this are pretty interesting. Massachusetts has a very powerful hospital community, and hospitals suffer if more uninsured people show up in their ERs because by law they have to treat them, and usually eat the cost. So they’ve been pushing for it. The local Blues plan has a big market share and would like to have more members. And there’s a Blue-state Republican governor who wants to run for President and show that he can solve the burgeoning health care uninsurance crisis without raising taxes.

So the answer is they pass an mandate forcing individuals to show that they have health insurance. There’s also a small per capita tax on employers who don’t provide insurance as a shove to make them do so (although as written in the law it’s way too low to be a real incentive). Theoretically there’ll be subsidies to cover the insurance costs for those with (very) low incomes, so the working uninsured who can afford it will have to buy insurance.

Theoretically this might be a decent way to get to universal insurance. Here’s how it might work in practice. You tell everyone to buy insurance, and you mandate it. Then you tell insurance companies that they have to sell insurance at a standard rate to all comers, and they can’t price discriminate between good and bad risks, and can only slightly discriminate between different age groups if at all. (My preferred version is not at all, but traditionally American community rating has age band differentials). Then you give some kind of subsidy based on graduated income so that lower wage workers can afford to buy in.

The problem is that if you don’t do those regulatory and subsidy parts of the equation, you are just extending the problems of the current individual insurance market to the newcomers. The healthy ones will buy cheap underwritten high-deductible plans which they don’t use, and the sicker ones will be unable to afford insurance if they are offered it at all—because it may be be 10 times the price of that offered to the healthy. And “sick” gets very loosely defined in the individual market—in a study researchers at Georgetown University found that even an applicant with just hay-fever only received a “clean” acceptance only three out of sixty times. The rest of the time they were asked for higher premiums or their illness wasn’t covered at all. So either you need to subsidize these people (some free marketeers are talking about chronic illness risk pools) to buy the underwritten policy, or you need to ban underwriting, which means that the “healthies” will be paying more—much more than the $1,000 a year being discussed, given that the average cost of care is closer to $5,000.

This of course ignores the problem of those who are in such low wage jobs than another $1,000 a year for insurance is just more than they can afford. They too will need some type of subsidy to purchase insurance. More recently some states including Massachusetts have gone some way to getting them care by giving some of them Medicaid coverage, but again that’s both a subsidy and a piecemeal solution that cannot cover enough of the uninsured to make a difference in its present form.

But if you did put all those solutions in place (mandated insurance purchase, community rating, guaranteed issue for the sick), you’ve now got everyone in the pool. Then the next step is to put those cross-subsidies in place from within the health care spending that’s already happening. In other words people in generous employer plans will find that their plans are “taxed” to cover the extra costs of the public mandated plan if it’s too full of sick people who can’t afford enough between them to pay the overall costs. This is basically how it worked in Japan. There the three steps were one: make employment based health insurance compulsory: two, put all the old and poor people in a government based plan; three, make the employer-based plans pay a tax based on their risk profile to the government plan. So the workforce at Toyota is paying for their own care, and paying an extra amount to subsidize the care of the poor and elderly.

And the magic is that you don’t have to call this a tax! OK, of course it is a tax, as it’s a payment and a compulsory one. But I can see a rational political centrist—and we have to assume that what’s Mitt Romney is—putting this type of a plan in place, and saying “I’ve solved the uninsurance problem without a tax increase”, as he grins to the cameras. Even though he’s lying about the tax part. And a true conservative libertarian would argue that this is single-payer via the back door (and I’d be inclined to agree with them!)

Of course, this could all just be a head-fake. If there is no available plan for $1,000 in Massachusetts, then there may well be a revolt when people getting by on say $25,000 a year find out that they are being told to buy a $5,000 plan. That’ll lead to the same problems with mandating auto insurance—it’ll be widely ignored and not enforceable.

If there is a $1,000 plan available to the healthies but no provisions are made to stop medical underwriting, then when the healthies buy those plans, we’re just adding to insurance company profits, without actually getting enough extra money into the system to treat the sick. The sick uninsured won’t be able to afford to buy a plan anyway, and so they will still turn up at the hospital uninsured—which is the major symptom of the problem in the first place. But again a rational centrist politician can say that “I’ve solved universal health care without a tax increase”, except that this time he’ll be lying about the “solving the uninsurance problem”.

Share  Posted by Matt Holt at 3:01 PM | Permalink

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