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MICHAEL HILTZIK

Is fine in healthcare bill big enough to ensure coverage?

October 15, 2009|MICHAEL HILTZIK

Healthcare reformers tell a wry joke about one of their number who, called to heaven, is given the opportunity to pose a single question to God.

"Will we ever have universal health coverage in the United States?" the reformer asks.

"Yes," comes the answer from on high, "but not in my lifetime."

The simple truth implicit in this joke is underscored by the landmark healthcare bill passed this week by the Senate Finance Committee: America is walking up the driveway of universal coverage, but hasn't yet made it through the door.

It also reflects the one important truth buried within the insurance industry's oafish assault on healthcare reform via a consultant's study claiming that the bill by Senate Finance Committee Chairman Max Baucus (D-Mont.) would drive premiums much higher than they would be under current law. The study observes, accurately, that the bill's weak enforcement of its mandate that all Americans buy insurance will undermine efforts to restrain health costs.

Since its release Sunday, the report prepared by PricewaterhouseCoopers for the health insurance lobby has been widely vilified. Among the criticisms: It ignores numerous provisions in the bill aimed at reducing premiums.

"They blew it," Jonathan Gruber, a healthcare economist at Massachusetts Institute of Technology, told me this week. "If they'd said premiums will be much higher than they would be under the original Baucus proposal, that would be valid. But they said premiums in the Baucus bill will be much higher than they are today, and that's just wrong. Even under the current version, they'll be lower than they are today."

Yet the report was correct in identifying the bill's "weak coverage requirement" as a flaw.

What's at issue is the individual mandate -- the requirement that all Americans have health coverage, a central provision in the Baucus bill and other congressional proposals with which it is likely to be melded as the reform debate proceeds. Baucus enforces the mandate by imposing a financial penalty of up to $750 per adult in households without coverage. (To compensate, the bill subsidizes premiums for those earning up to four times the federal poverty limit, starting in 2013.)

Is a penalty of $750 per adult enough to overcome the resistance of someone facing the expenditure of $5,000 for an individual or $14,700 for a family, even counting the benefits of health coverage? (The figures are projections by the Congressional Budget Office for mid-range policies in 2016.)

Many economists don't think so. They prefer Baucus' original figure -- a maximum of $950 per adult or dependent, with a cap of $3,800 per family, which he reduced in a fruitless effort to get conservatives on board the reform train. Indeed, the CBO estimates that the penalties and subsidies in the Baucus bill would cut the uninsured population by slightly more than half by 2019, leaving 25 million persons still without coverage.

There's little doubt that a higher penalty successfully drives more people to take insurance. The best evidence comes from Massachusetts, which enacted an insurance mandate in 2006.

In the first year, when the penalty for violating the mandate was only $219, the ratio of those uninsured dropped only modestly, to 5.7% of residents from 6.4%. But it fell sharply in 2008 as the penalty rose to a maximum of $1,068, or half the premium of the minimum qualifying health coverage. By the end of that year the state's uninsured ratio was only 2.6%, representing a gain of 421,000 insured people.

"The size of the penalty is definitely an issue," acknowledges Len Nichols, an economist at the New America Foundation in Washington. "Would I like to have stronger penalties and higher subsidies? Hell yes. We would all prefer airtight, no-exemption, 100% coverage."

Why is the individual mandate important? Those most inclined to voluntarily forgo insurance are the young and healthy -- "young invincibles" is the industry term. Their underuse of healthcare, on average, subsidizes the older and sicker enrollees in the insurance pool. (As they grow older, of course, they benefit from the same phenomenon.)

Allowing this group to remain outside the insurance pool means that older and sicker customers become overconcentrated among policyholders, which forces premiums higher. There's no point in blaming insurance companies for this trend -- it's what comes naturally to commercial entities trying to preserve their profit margins in the face of higher costs.

As premiums creep higher, insurance becomes more unaffordable for more people, and more drop out of the pool, which forces premiums even higher, and so on. The only options for fighting the trend are to defray higher premiums with greater subsidies, which raises government costs, or expand the customer pool through an ironclad mandate, paired with regulations to keep the insurance industry from exploiting its captive clientele.

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