Dump the Health Insurance Mandate

( – promoted by buhdydharma )

You know, for a party that has spent the last three decades cowering in Centrist fear at even the echo of a whisper of the word ‘tax’, and is so afraid of offending right wing civil libertarians that they don’t say peep when teabaggers bring loaded guns (including assault rifles) to Congressional Town Halls and Presidential rallies, I find it incredible that Congressional Democrats are seriously considering a massive government program that would soon force every American citizen and legal resident (but not illegals, ironically) to pay a substantial amount of discretionary income most of them don’t have directly to a large private insurance corporation. What’s worse, if people don’t it fork over, the government fines them even more money.

In this economy? Pay those guys?? Or you’ll fine us? For getting sick?

Are they nuts?

(Okay, now that I’ve gotten that out of my system.)

Look, before we pass something that has the potential to be perhaps the most unpopular US law since the Alien & Sedition Acts, don’t you think we really should have an open and honest debate about whether a universal health insurance mandate is actually such a good policy idea in the first place?

The Free Rider ‘Problem’

The general consensus among those with only financial skin in the game (as opposed to the rest of us who also have real skin to protect) is that, yes, we do indeed need a health insurance mandate. The main reason, they argue, is that a universal health care mandate is the only way to counter what is commonly known in insurance parlance, game theory, and MBA dogma as The Free Rider Problem.

If we want insurers to cover people with pre-existing conditions — without penalizing them for being sick by charging them sky-high premiums — then we must require that everyone have insurance.

Otherwise, many would wait until they were sick before applying, secure in the knowledge that when they needed it, insurers would have to provide it without charging them more. As a result, the rest of us would have to pay higher premiums to fund insurance for these “free riders.”

The argument here is that, because there are people out there who don’t buy health insurance until they are sick, premiums for the rest of us who do buy insurance will have increase to make up the difference. On top of that, since the government will soon require private health insurers to cover everyone regardless of pre-existing conditions, and will no longer let insurers get away with refusing to pay legitimate claims. Currently, many people who have had legitimate claim rejected have had to take the insurer to court or hire a public adjuster to make sure the insurer pays what is owed. However, the cost of this better insurance will probably increase premiums even further.

The insurers therefore claim that Free Riders need to fully participate (ie. pay their share into the private insurance system) in order to keep everyone’s premiums from skyrocketing under this new, potentially more expensive universal regime. This will probably mean that they will add a clause saying that they will not cover the first month or so since starting the policy. But that may affect those who genuinely get sick in the first month of starting their policy.

Insurance is based on the idea of pooling risk. No one knows who might suddenly become sick or involved in an accident. That is why we need a mandate: everyone in, no one out.

Mandates Need to Be Strictly Enforced

Getting ‘everyone in’ apparently requires some pretty heavy handed government enforcement tactics:

How would we enforce the mandate? A study by the Urban Institute, published in the most recent New England Journal of Medicine points to “enforcement through the tax system” as “the most efficient approach” to enforce a mandate: “We believe that those who do not enroll in a qualified plan should receive care when it is sought (as if they were enrolled), but should then have to pay back-premiums for the calendar year, plus a penalty, possibly as much as 25 percent.”

…Others have suggested that everyone should have to show proof of continuous health insurance when applying for an automobile license or registering a car.”

In other words, the solution to mandate enforcement is to have the IRS and DMV tag team Baron von Free Rider in a Health Care cage match. Let’s get ready to rumble!

Mandates Require Massive Government Subsidies

Of course, the big reason the health care system already has so many Free Riders is because many folks simply can’t afford to buy health insurance in the first place. And while you can force a Free Rider into a Mandate, you can’t make him pony up cash he doesn’t have.

So if you want a government mandate that says everyone must sign up, you are also going to need the government to financially backstop the people who can’t pay for themselves, otherwise the cash flow through the system will not be enough to pay for all of the new enrollees and the whole attempt at universal coverage will fall apart.

From the NEJM article linked above:

Two thirds of the uninsured have incomes below 200% of the federal poverty level (100% being $10,830 for an individual and $22,050 for a family of four in 2009). With the average employer premium today running approximately $4,800 for an individual and $13,300 for a family (with estimates based on average premiums for 2006 with adjustment for inflation), such an expense would amount to 22 to 30% of income for those at 200% of the poverty level – much too high to be considered affordable. For people with lower incomes, such expenses would be even more crushing. As a consequence, the inclusion of everyone in the health insurance system will require substantial government subsidies to Americans with modest incomes. Without such assistance, a requirement to participate in coverage would be unfair and unjustifiable. A requirement for all to enroll in coverage must therefore carry with it a government commitment to make adequate coverage affordable at all income levels.

So to sum up so far, our benevolent, for-profit insurance industry argues that in order for the private sector to provide universal, non-rescissionable health insurance coverage for every American, it will need the government to:

1) intrusively police and coercively enforce enrollment

2) inject massive amounts of public subsidies into the system

And you thought the Lenin’s Socialist Paradise was dead.

Damn you Free Riders!!!!!!

The Free Rider Problem is a Red Herring

There are a number of major fallacies with the insurance industry’s Free Rider justification for individual mandates.

First, the argument severely overstates the cost impact of Free Riders on the system.

But how big is the free-rider problem, really? First, we should note that not all free riders are uninsured. In fact, people with insurance consume almost a third of uncompensated care. Second, not all care received by the uninsured is paid for by others. Analysts at the Urban Institute found that the uninsured pay more than 25 percent of their health expenditures out of pocket.

So how much uncompensated care is received by the uninsured? The same study puts the number at about $35 billion a year in 2001, or only 2.8 percent of total health care expenditures for that year. In other words, even if the individual mandate works exactly as planned, it will affect at best a mere 3 percent of health care expenditures.

Free Riders tend to be younger and healthy and so do not consume as many health resources as their elders. Their relatively light impact on costs (3%) in no way supports the claim that Free Riders are responsible for the projected doubling of health care expenditures in the next ten years, nor that the forced inclusion of these Free Riders in the system will have anything but a negligible impact on premiums for everyone else.

The Urban Institute estimates that cost-shifting from the uninsured increases private insurance premiums by “at most 1.7 percent.”

Yet for a measly 1.7% savings on private insurance premiums, the US Government is currently considering the implementation of a massive, multi-agency payment enforcement apparatus that has the ability to fine you, peek into your tax records, and even keep you from renewing you driver’s license. On top of that, the Government will also be funneling extra tens of billions of your tax payer dollars every year to private insurance corporations under the fiction that free riders are costing the system far more than they actually are.

Free Riders Aren’t Criminals; They Just Don’t Like Crummy Insurance

The Free Rider argument also assumes that the only people who use the Health Care system are those who get sick, and that preventative care and other non-catastrophic benefits play no role in an individual’s decision to buy Health Insurance. As we all know, our current, for profit system places very little emphasis on preventative care, so there is every incentive for people to hold off buying health insurance because the benefits are simply theoretical – that is, they are not realized, if at all, until you actually get sick. When that happens, many people will often turn to companies similar to Curo Financial to get insurance cover for their needs.

The free rider problem is thus a far bigger issue in the private health insurance market precisely because the polices are so expensive and the coverage is so bad. Simply put, it’s not as if most Free Riders don’t want health insurance; they just don’t want to pay for overpriced, under benefited private insurance that waits for them to actually get sick before it covers anything.

Blaming free riders for double digit increases in private insurance premiums is a classic red herring argument which blames the victims of this royally screwed up system for their own misfortune in not getting sick often enough to justify paying for junk insurance that does them no good.

The Real Free Rider

Finally, and most importantly, the industry’s Free Rider argument for an individual insurance mandate completely ignores biggest Free Rider of all, the for-profit insurance companies that siphon 1 out of every 5 health care premium dollars out of the system in ‘administrative’ costs.

The reason our health system is in such trouble is that it is set up to generate profits, not to provide care. We rely on hundreds of investor-owned insurance companies that profit by refusing coverage to high-risk patients and limiting services to others. They also cream off about 20 percent of the premiums for profits and overhead.

In addition, we provide much of our medical care in investor-owned health facilities that profit by providing too many services for the well-insured and too few for those who cannot pay. Most physicians are paid fee-for-service, which gives them a similar incentive, particularly specialists who receive very high fees for performing expensive tests and procedures. Nonprofits behave much like for-profits, because they must compete with them. In sum, healthcare is directed toward maximizing income, not maximizing health. In economic terms, it’s a highly successful industry, but it’s a massive drain on the rest of the economy.

Not only doesn’t the private insurance industry add any value to Health Care delivery in this country, its relentless drive for greater profits distorts market incentives so badly that cheaper, more efficient systems are forced to adopt the same ‘inefficiencies’ in order to compete.

Simply put, Free Riders are not the real problem; private insurance companies are. This is shown most clearly by the fact that administrative costs for private insurance programs are exponentially greater than for comparable government programs.

The public Medicare plan’s administrative overhead costs (in the range of 3 percent) are well below the overhead costs of large companies that are self-insured (5 to 10 percent of premiums), companies in the small group market (25 to 27 percent of premiums), and individual insurance (40 percent of premiums)

Administrative costs for private insurance make up whopping 40% of an individual premium, while free riders account for only 1.7% increase in overall premium costs. Remind me again why Free Riders, and not for-profit insurers themselves, are the real problem here?

And for what? There is absolutely no legitimate reason for the massive discrepancy between what it costs the government to run a health insurance program and what it costs private insurers to do the exactly the same job.

In international perspective, the United States spends nearly six times as much per capita on health care administration as the average for Organization for Economic Cooperation and Development (OECD) nations. Nearly all of this discrepancy is due to the sales, marketing, and underwriting activities of our highly fragmented framework of private insurance, with its diverse billing and review practices

Yet despite the fact that the United States’ for profit health care system is by far the most inefficient in the developed world, the Democrats’ plan for reforming this system is to force every single one of us sign up for it and then dump billions of good tax payer dollars after bad to keep it afloat.



I’ll say it again:

Are they nuts?

x-post: Big O