“Every health-care system in the world rations care in some way, either through bureaucratic fiat (Scandinavia, the U.K.), waiting lists (Canada), or price (that’s us). One can argue about which of these rationing mechanisms is fairest or most efficient, but let’s not pretend that it won’t occur.”
Installment #3 of Components of Optimal Health Insurance will discuss how regulatory and tax policy has contributed to the health care insurance crisis by promoting “job-lock”. Tax laws and insurance regulatory policy need to change in order to affect real health insurance reform.
This butchery didn’t come about without a lot of government assistance along the way. Collectively, the taxpayers have loaned the co-ops more than $2.4 billion spread over just 23 health plans. Now, Uncle Sam stands to lose a good chunk of that money as the plans start filing for bankruptcy. In Iowa, the bankruptcy of just one co-op will likely cost taxpayers all of the $180 million they flushed into the insurer.
The New York Times blamed the failure of that Iowa plan, which went by the name CoOportunity, on the co-op’s success. The newspaper’s healthcare reporter reasoned that the plan proved so popular with consumers, it exhausted its budget.
Another way to look at it is that the co-op robbed its customers. They knowingly underpriced their product, took in more revenue than they could service, and then hid behind bankruptcy proceedings when they couldn’t meet the obvious demand. In business vernacular, this is a variation of the age-old Ponzi scheme. In the New York Times, it’s sadly portrayed as an inspiration – the co-op a victim of its own munificence.
Progressive architects hailed co-ops when the plans unveiled amazingly low rates last year. It seems that was the last political gasp of a dying dogma. Measuring the risk of a population of beneficiaries, and pricing an insurance product, turns out to be a hard business after all. The profit motive is a reasonable way to ensure that beneficiaries actually get the services they’re promised.
The reason we have so many problems in health care is that almost everywhere we look, people face perverse incentives — patients, doctors, employers, employees, etc. When they respond to those incentives they do things that make costs higher, quality lower, and access to care more difficult than otherwise would have been the case.
At the root of those perverse incentives is bad public policy.
Pre-ObamaCare Distortions That Affected Important Choices
Insurance or Uninsurance? Because we were spending far more on free care for the uninsured than we were spending on subsidies for individually-purchased insurance, millions of people had an incentive to be uninsured.
Public or Private? Because we spent far more on such public programs as Medicaid and CHIP than we spent on subsidies for individually-purchased insurance, millions of people had an incentive to choose public insurance rather than private insurance.
Individual or Group? Because employer-provided insurance was generously subsidized through the tax law while individually-purchased insurance received almost no tax relief, the vast majority of people with private insurance had non-portable, employer-provided coverage.
Third-Party or Self Insurance? Because employer-provided insurance was liberally subsidized through the tax law while people’s ability to get similar subsidies for Health Savings Accounts (HSAs) was greatly restricted, people had too much of the former and too little of the latter. This in turn led to third-party payer domination of the entire medical marketplace and the elimination of real market-determined prices.
Choices in the Market for Risk Avoidance. Because normal market forces had been so completely repressed, outside the individual market real health insurance simply didn’t exist.
The proposal I suggest would achieve four remarkable things: It would be more progressive than Obamacare, because it would involve more distribution from higher- to lower-income households. It would provide genuine protection for people who have a preexisting condition, as opposed to the bait-and-switch promises of Obamacare. It would provide genuine access to care for everyone, as opposed to leaving 30 million uninsured, as Obamacare does. And it would work in practice, primarily because it would confine the role of government to setting a few simple rules of the game, leaving individual choice and the marketplace to do the heavy lifting.
I call this reform a “consensus reform” because it draws not just on such right-of-center think tanks as the Heritage Foundation, the Cato Institute, and the American Enterprise Institute but also on such left-of-center think tanks as the Brookings Institution and the Urban Institute, and various scholars including President Obama’s former and current economic advisers, Peter Orszag and Jason Furman. It takes the best ideas these folks have offered and combines them with an important principle: No plan designed by those at the top can ever work unless people at the bottom have an economic incentive to make it work.
Myth: Before Obamacare, there were routine plan cancelations in the individual market.
Many Obamacare defenders blame the discontinued policies on “bad apple insurers,” claiming that it was typical in this market to have plan cancellations and that they are not a result of Obamacare.
For instance, former Obama Administration official Van Jones called the individual marketplace a “‘wild, wild west’ where people were denied coverage for pre-existing conditions and policyholders were continually dropped by insurers offering thin, sketchy coverage.” In addition, President Obama said, “Before the Affordable Care Act, the worst of these plans routinely dropped thousands of Americans every single year.”
But since the enactment of the Health Insurance Portability and Accountability Act of 1996 (HIPAA), insurers have been broadly prohibited from canceling or refusing to renew coverage. One of the few exceptions to that prohibition is if an insurer discontinues a particular plan or type of coverage. In such cases, the insurer must provide the affected individuals the option to enroll in any other applicable coverage that the insurer offers.
That is largely what happened with the 4.7 million plan cancelations that were reported at the end of 2013. The insurers were discontinuing their pre-Obamacare plans and offering policyholders replacement coverage that complied with Obamacare’s wide variety of new mandates and regulations.
by Rituparna Basu
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