The Cost of Reforming Our Health Care System
Posted by Chris Martin at 7/12/2008 1:15 PM 
Categories: Health policy, presidential election, Health Insurance
Categories: Health policy, presidential election, Health Insurance
So John McCain's advisors are revising their estimates of the costs of his health policy reform. It appears that his pledge to help states pay for health insurance for people who are rejected by the private sector will turn out to cost far more than his economic 'brain trust' had anticipated.
If Wonks Anonymous wrote about politics and economics for a living this would be the point where he would have invoked the law of unanticipated consequences, meaning that somehow a brilliant plan has run afoul of the the mysterious workings or the economy and who could tell in advance?
Except that Wonks Anonymous has a hard time believing that anyone with a rudimentary knowledge of Health Insurance could have failed to anticipate this one. McCain's health reform is intended to force those who have employer provided group insurance onto the individual insurance market while offering small subsidies to those who have no insurance. For details see an earlier post on this blog.
As anyone who has followed the individual health insurance market, or reads this blog, knows: Health insurers make money by discriminating against sick people. They charge them more, provide them with less coverage, require them to make higher out of pocket expenditures and refuse to cover them. Employers purchase insurance for groups of people, sick and healthy together and insurance companies are unable to discriminate.
Health insurers naturally find this frustrating and 'inefficient'. If it were not for group insurance they could do a much better job of making profits. By pushing us out of group insurance McCain's plan enables Health Insurers to more effectively discriminate against sick people.
For most of us this would just mean higher rates and greater out of pocket expenses. The sick, however, will be unable to get insurance. Because of this, states that have insurance programs for the sick will need to expand these programs and those that have no programs will need to create them. Hence the unanticipated consequences.
Wonks Anonymous finds the Democratic plans for health reform far more attractive because they leave the system of employer provided group insurance mostly intact and this system prevents insurance companies from discriminating against the less healthy. He feels bound to say, however, that the Democratic plans will suffer from similar unanticipated consequences.
Health insurers want to insure only those who do not need health insurance. The money comes in and it never goes out. All the Democratic plans will make the government the insurer of last resort, Under these plans the private sector will offer cheap attractive plans to the young and healthy and expensive low quality plans to the less healthy. The demand for government provided insurance will surpass expectations. Because the people who the government insures will be among the less healthy the per capita cost of this insurance will also be higher than anticipated.
A note to the disgruntled Clintonistas out there: Mandatory health insurance will not improve this situation. The private sector will happily provide policies for and take profits from the young and healthy who we force to buy health insurance leaving the government to pick up the tab for those who have real health issues.
Those of us who are serious about health care reform need to begin to think the 'politically' unthinkable. At least initially this is not going to be free. How will we pay for it?
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