October 30, 2009

Health Insurance Question...

Hatched by Dafydd

I was reading a blogpost by my favorite blogger on my favorite blog, and what appears to be a revelation just bit me right in my damascus.

The most significant objection that the vast majority of Americans have anent health insurance involves how it treats people with pre-existing conditions, particularly those that are completely outside individual control. For example, people with genetic conditions, or who have had heart attacks, or who have severe allergies and asthma, and so forth. We rightly say there is something unAmerican about telling a child born with juvenile diabetes that he's just going to have to go without insurance -- and when he gets sick, he just has to die and decrease the surplus population. It sounds so... mediaeval.

But I just thought of what appears to be a much cheaper solution to that problem, one that does very little damage to the American capitalist system, comparatively speaking. I'd like to see what you all think.

The Pre-Existing Lizard Plan

The plan is of course a compromise between a completely free-market system -- in which we don't concern ourselves with what happens to those who, through no fault of their own, have prohibitively high medical-insurance premiums -- and a completely regulated system, à la mode d'ObamaCare.

Note, this plan does not apply to Medicare, Medicaid, SCHIP, or military health care or insurance, nor does it require any of these programs be looted for cash, as all versions of ObamaCare do:

  1. Require insurance companies to accept all applicants, regardless of pre-existing conditions.
  2. Allow insurance plans to charge any premium they want for such applicants. Bear in mind, they will be competing with other plans; so if they charge absurd premiums, they'll lose business to their competitors.
  3. Allow insurance companies to deny coverage for treatment of such pre-existing conditions for up to six months after the policy begins (such "exclusion periods" are fairly common in group plans). Insurers can, of course, start coverage earlier, if they think that will give them a competitive edge.
  4. Because it's good public policy for people to be insured, even if they already have medical problems, the federal government offers a defined-contribution subsidy for patients with pre-existing medical problems. The subsidy consists of a refundable tax credit in a specified amount, the same for everyone who has that particular pre-existing condition.
  5. Because it's bad public policy to encourage bad health habits, there is no subsidy for increased rates due to risky or damaging behavior -- such as smoking, drinking to excess, using drugs illegally, becoming a skyboarder or NASCAR driver -- or for patients who are not following their doctor's advice.
  6. The tax credit is entirely voluntary; nobody is obliged to file for it. If a person chooses to file for it, he must sign a waiver saying that he understands that his private medical information will be sent to the federal government for consideration in deciding to grant or withhold the tax credit.

Note several points:

  • The plan is completely separate from any other reform; we can do this in addition to allowing cross-state competition, tort reform, tax incentives for switching to a combination medical-savings account (MSA) and catastrophic care, prohibiting insurance companies from using DNA testing to set rates, or any other reform we ultimately decide to enact.
  • The plan adds no government mandate that anybody buy insurance. Any reforms to close the "free rider" loophole are separate from this plan.
  • The insurance companies are forced to accept bad-risk customers, but they can charge them extra to make up for it.
  • They can set their own rates, compete with each other, and administer their plans as they choose. They can offer discounts for healthy lifestyles, offer any kind of policy they want, and so forth. This is not creeping socialism.
  • Most employer health-care plans would be unaffected, since most are group plans... and most group plans don't charge individual members of the group extra money for pre-existing conditions anyway; that's one of the selling points for group plans.
  • Because the tax credit is calculated on the basis of the average premium increase for that particular pre-existing condition, everybody with that condition gets the same credit, regardless of how expensive his particular insurance is. Thus there is very little market distortion: Expensive insurance will still be more expensive and cheap insurance will still be cheaper, even with the subsidy.
  • The plan would be much cheaper and vastly less tyrannical than ObamaCare.

On that last, according to the census, as of 2005, the percent of Americans who had employer-sponsored health insurance was 59.5%, and the number with individually purchased health insurance was 9.1%. That adds to 68.6%.

Assuming we have about 300 million people, that would mean 205.8 million people are covered by private-company insurance. Let's get wild and suppose that 15% of those people have pre-existing conditions for which they sought treatment in the six months prior to enrollment, the usual standard; this is probably a gross overestimate. That would mean 30.9 million of the insured might have pre-existing conditions.

Assume every last one of these people is eligible for, and applies for the subsidy -- again an overestimate; many would not qualify for various reasons, and many would not apply. Assume the average premium increase is $100 per month per insured. That works out to a total premium increase for the whole kit and kaboodle of $37 billion per year. If the subsidy is calculated to cover 75% of that amount, the feds would be on the hook for considerably less than $28 billion per year.

And that would actually be the ceiling: There is no incentive for people trying to fake pre-existing conditions to get the subsidy, since it's less than 100% of the increased premium cost; and the market will prevent companies from declaring everything from slight overweight to breathing to be a "pre-existing condition."

Administrative costs would be very low, since it's just a tax credit you can apply for when you file your 1040, and decisions are fairly automatic based on data supplied by the insurers. Enforcement of the regulations is by the IRS. And some of that money would be recaptured by taxes paid by the insurance companies on the profits from the increased premiums.

Is this a workable substitute for the monstrosity of ObamaCare? Or is there some hidden trap that I have missed?

Hatched by Dafydd on this day, October 30, 2009, at the time of 4:26 PM

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The following hissed in response by: BlueNight

Sounds good to me. As described here:
* It would eliminate the reason most people support health care overhaul (for other people).
* It would insure people currently uninsured.
* It would keep a free-market ideal in place.
* It would allow the federal government to be (for once) in the position of actually helping people, and getting due credit.

In addition, it would bring the world of health insurance closer to the sanity of car insurance.

As you might already know, in some states, everyone who applies for auto insurance MUST be covered somehow. New Mexico has worked out a deal with insurers which assigns really, really bad drivers to the companies in such a way that it's somewhat affordable for the person to get auto insurance, and not horribly unprofitable to the companies, either.

Another aspect is that independent insurance agencies might start offering comparison quotes at a single location (or with a single phone call). This one-stop marketplace competition has allowed auto companies to keep their rates relatively low; it would do the same for medical insurers, and benefit everyone.

This idea just might work! It solves major problems with the system while being both conservative and progressive. (Sorta like FairTax.)

The above hissed in response by: BlueNight [TypeKey Profile Page] at October 30, 2009 6:06 PM

The following hissed in response by: snochasr

Nothing terribly wrong with it, but I am wondering if even more free-market might just solve the problem as well. Specifically, if you had portability, including passing the tax credit to the employee and permitting cross-state competition without the price-boosting effect of state regulation, total costs might come down enough that most pre-existing-condition policies would be affordable without the subsidy. This would eliminate any involvement by the IRS, and of course the shifting of individual health care costs to the taxpayers. With government already covering 50% or so of all health care expenses, they have enough to do without granting them more. Government is one of the biggest drivers of cost, and they need to reform their own "house" first so that all of us can benefit.

The above hissed in response by: snochasr [TypeKey Profile Page] at October 30, 2009 6:42 PM

The following hissed in response by: Mastermind2much

Your missing the whole point. Health care is about the democrats getting graft and power, it has nothing to do with healing people.

The above hissed in response by: Mastermind2much [TypeKey Profile Page] at October 30, 2009 7:43 PM

The following hissed in response by: Dafydd ab Hugh


Ah, but the Democrats must at least maintain the fiction that health-care "reform" is about solving the few remaining problems we have with our health-care system.

Thus, if the GOP was to propose all these common-sense solutions -- easily explained by congressmen, easily understood by voters, and clearly less expensive and intrusive -- it would put Democrats on the spot, as they try to explain why we need to completely upend the system just to fix a few problems.


The above hissed in response by: Dafydd ab Hugh [TypeKey Profile Page] at October 30, 2009 8:31 PM

The following hissed in response by: Dick E


The problem is that insurance companies don’t want to insure people with serious pre-existing conditions at any price. How do I know this? Personal experience. When I first applied for an individual plan, the insurance company denied coverage for one of our daughters due to a supposed pre-existing condition. Not an increased premium, just no coverage. Nada. Rien. Zilch. I checked into alternatives and there were none, other than our state plan that doesn’t cover much and charges a high premium. (Although the state plan is quite generous if you’re poor.)

Fortunately, it turned out to be a misunderstanding. The same medical term is used to describe two conditions -- one really bad and one really minor. A letter from our daughter’s doctor straightened it out, and we all got coverage.

I’ll give another example, also from personal experience: Me. At the time we first obtained individual coverage, the insurance company decided one condition I had put me at slightly higher than normal risk, so they charged a slightly higher premium. That supports your thesis. But…

Fast forward to today. I now have two very serious and totally unrelated diseases, both of which will, over time, be extremely expensive to treat. (I’m not looking for sympathy here, just trying to address your issues.)

Believe me, if I wanted to change insurance companies today, no one would accept me. If we adopted your plan and forced someone to issue a policy, the premium (without your tax credit) would bankrupt me in very short order.

Then there’s the issue of how to calculate the tax credit. Both of my diseases are, according to my doctors, “borderline.” They can’t give a specific diagnosis for either. Plus, they are both very rare conditions. My Mayo Clinic specialist is one of the top doctors in the world on one of my diseases; she sees only about 30 cases per year.

So you’ve got multiple, very serious, very expensive, but very rare conditions with unclear diagnoses. How in the world can you figure a tax credit for this? A sliding scale based on however much premium is charged? With the sky the limit? Oh, and I don’t suppose our leaders would want to make the credit need (i.e. income) based, would they?

And the case doesn’t have to be that complicated to be problematic. After yesterday’s news from Pelosi, our local yellow rag published a number of sob stories about people who couldn’t get insurance. One was about a boy with a condition that puts him in the hospital frequently, but that his doctors couldn’t specifically diagnose. His mom says because of that nobody will insure him. She’s probably telling the truth.

It was a good thought and a useful exercise, but I don’t think your plan will work.

The above hissed in response by: Dick E [TypeKey Profile Page] at October 30, 2009 10:09 PM

The following hissed in response by: snochasr

Dick E has a couple of good points. The one I am most interested in is that all of this sturm and drang on Capitol Hill has become about health insurance, and having health insurance doesn't do a blessed thing to provide you with health CARE. The government can, in its infinite idiocy, declare that everybody in the country gets free Cadillac-grade health insurance, and the amount and quality of our health care won't change by a single aspirin. We've got a supply and demand problem, radically distorted by government purchases of almost 50% of all health care. The solution is NOT to give government 51%, 75% nor 100%, but to give them LESS power to distort the free marketplace.

Government mandates not only stifle competition, but actually create abuses like Dick E. reports, because they can only compete as government permits and must therefore exercise what little freedom they do have. Give insurance companies the freedom to compete for pre-existing condition patients and to write "no-drop" clauses into their contracts, and they will. You will get what you pay for.

The above hissed in response by: snochasr [TypeKey Profile Page] at October 31, 2009 5:56 AM

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