Sunday, November 07, 2010

An issue, guaranteed

I don't mean this in a partisan way, but it is really distressing to read this New York Times article about Republican plans to dismantle parts of the recent health care bill by using the appropriation powers of the House of Representatives. I say this because of the unintended consequences that will result if they are successful in this approach. Let me give an example.

I think one of the most important aspects of the law is "guaranteed issue" of health insurance: Insurance companies will no longer be permitted to use pre-existing medical conditions as a bar to coverage. A concomitant of guaranteed issue is the individual mandate, the requirement that all people purchase health insurance. Why?

Left to their own, insurers will impose pre-exisiting conditions types of restrictions because they understand the moral hazard aspect of insurance. Healthy people provide an actuarial balance to sick people. If people only buy insurance when they need care, the risk profile of the insured population rapidly swings, upsetting the actuarial calculations used to establish premiums. So, if these restrictions are outlawed, everybody needs to be in the risk pool. Accordingly, you have to ban optional insurance.

But look at this quote from the article cited above:

Republican lawmakers said, for example, that they would propose limiting the money and personnel available to the Internal Revenue Service, so the agency could not aggressively enforce provisions that require people to obtain health insurance and employers to help pay for it.

I think the Republicans know that guaranteed issue is popular with Americans, and so they do not directly want to repeal that provision of the new law. But what will happen if healthy people start to opt out of getting insurance, only to return when they get sick? The system will quickly get out of balance. Ironically, this will only cause premiums to rise. I don't understand why the Republicans would want that to happen, and I fail to see a strategic political advantage arising from that result.

This makes me wonder if they have thought this through completely and whether they understand the unintended consequences of their proposed actions.

14 comments:

Anonymous said...

That was a very restrained and thoughtful post. I think the Republicans will now have to rapidly shift from being the 'party of no' to an equally thoughtful governing body with recognition of real responsibility. Our future depends on it.

My concern, and perhaps as a hospital CEO you can shed some light on its legitimacy, is that if various provisions of the bill - not just those you address - remain in limbo or are not funded or are legally challenged(all of which could drag on past 2014), how are health care providers and insurance companies supposed to know how to proceed? How to make any strategic projections and therefore any concrete plans? It seems chaos could result.

Nonlocal MD

Anonymous said...

A few political advantages:
- being able to say "we set you free from government intervention" and "we kept our promise"
- being nice to big business in exchange for all the election bribes
- most importantly, the resulting imbalances and failures will be blamed squarely on Democrats; it will be a lie, but so was everything they said about healthcare, and people just keep believing. The consequences are understood and fully intended.

windingmywatch said...

Paul... You live too close to Cambridge to have an open mind.

Plenty of time after the Browns beat the Pats for you to study up some different talking points.

Barry Carol said...

Paul – I agree with your post. However, my understanding is that the Republican answer for people who are uninsurable due to one or more pre-existing conditions is high risk pools instead of mandating that everyone be forced to buy insurance. High risk pools have not worked well historically due to both high costs and often inadequate coverage. Before reform, they covered only about 200,000 people nationwide as compared to something like 4 million people who couldn’t buy insurance at any price. A plan to make insurance available at standard rates to people with pre-existing conditions would require hefty state or federal subsidies per policy. However, the total cost might be significantly less than the reform approach of income based subsidies coupled with a mandate to buy insurance or pay a relatively modest financial penalty if you don’t.

This is a difficult issue, I think. Subsidies would encourage people to hide or otherwise underreport their income in order to qualify for the maximum possible subsidy. As income rises for people within the subsidized portion of the income distribution, the effective marginal tax rate is extremely high if you add the regular marginal federal income tax, payroll tax, possible state income tax and the reduction in the amount of the subsidy one qualifies for. On the other hand, the high risk pool approach, in my opinion, effectively says to insurers: you insure all the healthy people and taxpayers will cover the excess cost of insuring the sick. Both approaches are far from ideal.

Renatta said...

From Facebook:

Why apologize before stating the obvious? Read what Mayor Mike has to say in the WSJ on my FB Wall. He doesn't make excuses for addressing nonsense front/center and more need to do so.

Stephen said...

From Facebook:

I think the Republicans have thought through their strategy, infortunately. They want to destroy Obama's health-care program--and Obama himself. Of course you're right that they realize repealing guaranteed issue would be unpopular. And I'm sure they realize that subverting the individual mandate will bring down the whole package. But if guaranteed issue fails, they can blame the failure on Obama and Democratic "overreach," even if the Republicans ensured the problem by subverting the individual mandate. Cynical but probably effective.

@dankennedy_nu said...

From Twitter:

Calling out insanity is never partisan. At least not in a bad way.

Anonymous said...

Paul
So naive. Have you not forgotten your school days:

http://allaboutfrogs.org/stories/scorpion.html

The answer is right there.

Brad

Scott said...

From Facebook:

Yes, the Republicans seem to be acting just like the Democrats.

From the Politico 1/23/09 at http://www.politico.com/news/stories/0109/17862.html ...

President Obama listened to Republican gripes about his stimulus package during a meeting with congressional leaders Friday morning - but he also left no doubt about who's in charge of these negotiations. "I won," Obama noted matter-of-factly, according to sources familiar with the conversation.

Anonymous said...

Paul
If I was going to look for accurate information on the Republican position on virtually anything- the New York Times would not be my "go to" source. Partisan journalism is a fact of life these days.
However-
The current bill is not what large numbers of the american people wanted and the cost of what you describe will have a negative impact on employers.
How about we put healthcare reform in the hands of healthcare experts instead of career politicians- that is putting subject matter expertise in front of politics.

Paul Levy said...

I won't get into the issue of the Times' veracity, but I will agree that objective journalism is a rarity.

That being said, the health care experts certainly haven't fixed things over the years, either.

Anonymous said...

Paul, you are right, and it is going to get ugly. See Harvard School of Public Health's new news forum on Friday "The Impact of the 2010 Elections on U.S. Healthcare Refort". The Republican speaker was quite frank, and the Democratic one quite depressed:

http://www.hsph.harvard.edu/forum/impact-2010-elections-on-us-healthcare-reform.cfm

Engineer on Medicare said...

Anonymous at 8:46 pm on Nov 7 said:
"How about we put healthcare reform in the hands of healthcare experts instead of career politicians- that is putting subject matter expertise in front of politics."

I will accept that, but there must be 3 requirements:

1. Congress shall set a total cost for all health care, adjusted annually for increases in population and inflation.

2. The system and all health care provisions shall apply equally to every person, including all members of congress, all government employees, and all health care providers.

3. The program shall explicitly require competitive procurement of supplies and services, and shall require fully audited disclosure of of every aspect of pricing and quality of care.

KEN said...

"But what will happen if healthy people start to opt out of getting insurance, only to return when they get sick? The system will quickly get out of balance. Ironically, this will only cause premiums to rise. I don't understand why the Republicans would want that to happen, and I fail to see a strategic political advantage arising from that result."

Are you kidding me? Premiums will rise and how in the world will we explain to Americans that it was because we took out the requirement that people buy health insurance? No, Republicans will say "prices have gone up, Obamacare doesn't work" and everybody will believe them. This is their MO.