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rant

health care reform

So I read a blog entry and followed a link to a blog entry where there was a link to a blog entry where there was... you get the idea.  And I ran into an interesting article written by a couple of "thinking conservatives" (remember them?) entitled How to Replace Obamacare.


It starts, of course, with the usual right-wing axioms that government is the root of all problems, that state government is always less bad than Federal government, that Obamacare is a massive government takeover of the health care system, and that anything done through a free market is guaranteed to be more efficient than the same thing done through government.  But it does identify a lot of real problems, both with Obamacare and with the status quo ante Obamacare, and recognizes that those problems need to be solved -- in many cases through government action, just a little less prescriptively.

For example, a major problem before Obamacare was that, since most people get health insurance through their employers, people who left their jobs (voluntarily or not) also lost their health insurance.  Those with expensive pre-existing conditions might never be able to resume coverage.  This was only slightly improved by HIPAA and COBRA, and then again by Obamacare's guarantee that employers have to "take all comers" at a price independent of individual health status.  The authors feel (and I tend to agree) that a better answer would be for fewer people to get their insurance through their employers in the first place.  (A simple alternative is single-payer... but we're not talking about that here.)  The "free-market" alternative says that if most people bought insurance in the individual marketplace, losing a job wouldn't mean a loss of insurance.  (Naturally, it would still mean a loss of income, which would make it harder to pay premiums... we'll get back to that.)  One way to discourage employer-based, and encourage individual, insurance is to gradually eliminate the open-ended tax-exempt status of employer-paid insurance premiums.  (Which actually makes sense to me.)

So, about that pre-existing condition thing: the authors recognize that before Obamacare, it was possible for somebody with an expensive condition to be "locked out" of the insurance market.  Obamacare solves this by telling insurers they must "take all comers", and to avoid the moral hazard of people not buying insurance until they get sick or injured, it likewise tells individuals they must have insurance.  The "How to Replace Obamacare" approach tells insurers they must "take all comers" who have maintained continuous coverage (as well as during an initial sign-up period); it doesn't formally mandate individuals to have insurance, but in practice it does, by authorizing insurance companies to exclude or soak those who don't.  One possible problem: their definition of "continuous coverage" means "at least catastrophic coverage", so people might maintain cheap, high-deductible insurance until they get sick or injured, and then abruptly upgrade it.  But I think that's a problem with Obamacare too.

What about poor people?  The authors recognize that even with the enormous cost savings guaranteed by a profit-driven free market (!), some people won't be able to afford insurance, so they offer Federal tax credits of a fixed value, regardless of how much you choose to spend on health insurance: the theory is that if you want an expensive plan, you can pay the extra cost, and if you want a cheap plan, you can pocket the savings.  They call this "defined contribution" public financing.  They take the same approach to Medicare and Medicaid: basically replace them with tax credits that you can use to buy whatever health insurance (or none) you wish.

In short, this plan (although described as a wholesale replacement of Obamacare) is actually a collection of incremental tweaks to it, preserving Krugman's three pillars of "insurer mandate, individual mandate, low-income subsidies" -- not surprisingly, since Obamacare was basically invented by the previous generation of "thinking conservatives", who "were for it before they were against it."  Much of this could conceivably be enacted as amendments to Obamacare... except that if Obama said he was willing to consider them, every Republican on Capitol Hill would suddenly turn against them.

I do see a couple of problems with their plan.

  1. What happens to people who, despite the "continuous coverage" incentive and the subsidies, choose not to carry any insurance at all?  When they get sick or injured, do they get cared for?  If not, are the American people willing to see people die in the streets for lack of insurance?  If so, who pays for it, and how do we deal with the "freeloading" moral hazard?

  2. The authors put a great deal of faith in individual choice as a way to cut costs and improve efficiency.  Individual choice for all may work very well for buying groceries or clothes or even cars, but how well does it work with something as complicated and jargon-laden as insurance?  Remember Harry and Louise, the couple invented by the health insurance industry to persuade the American people that the gummint was out to take away their God-given freedom to choose a health insurance plan.  Harry and Louise needed a life: in the real world, nobody looks forward to reading dozens of different insurance-plan descriptions in legalese, trying to figure out the differences, and choosing one of them.  The more there are, and the more complex their descriptions, the less confidence the customer will have that (s)he's made a good choice.  It's an axiom of free-market economics that more choice is always better, but in real human psychology, choice comes at a cost; it's quite possible that beyond some point, more choice actually produces worse outcomes for the chooser.  At the very least, we'd need some kind of standardized checklist (analogous to nutrition labeling on food) allowing people to easily compare one plan to another.

  3. More specifically, I'm not convinced individual choice helps at all for insurance.  The whole point of insurance is to distribute risk, which is another word for ignorance of the future.  The more you know about the future, the less risk there is to distribute.  In particular, if you know which medical problems are most likely for you, you have an incentive to buy an insurance plan that covers those and nothing else.  The authors' dream of a rich, varied market with lots of alternatives for people to choose from means that plan is likely to exist, so if you're a savvy shopper (and insurance companies are required to accept you, not pricing based on your individual medical status), you'll underpay for your insurance.  If only a few people do that, the system can work, but (in the authors' dream of 300 million savvy shoppers driving competition) it drives the system to bankruptcy -- unless the insurers raise rates to compensate for it.  Which means the few non-savvy shoppers left over will overpay for their insurance.


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