Friday, October 26, 2007

Fixing Health Insurance

A recent Bloomberg/LA Times poll tells us that those surveyed preferred the health insurance policies of the Democratic presidential candidates over those of the Republican candidates:

Americans also back Democrats when presented with specific plans to deal with these issues: Just over half those surveyed say they favor requiring everyone to buy insurance; barring insurers from turning people down or charging extra for medical reasons; and subsidizing those who can't afford coverage. Those proposals have been offered by Democratic front-runner Hillary Clinton and former North Carolina Senator John Edwards.

Even many Republicans like the Democratic ideas:

Almost half of Republicans surveyed say they like the idea of requiring large businesses to either offer insurance to their workers or pay a tax to help cover the costs of those who can't afford it on their own, a plan put forth by Clinton, 59, Edwards, 54, and Illinois Senator Barack Obama, 46. More than seven out of 10 Democrats and more than six out of 10 independents support that approach.

Americans back Democrats' ideas partly because the Republicans haven't been as detailed in their proposals, said Jason Furman, director of the Hamilton Project policy initiative at Brookings Institution, a Washington research group.

It's true that the Republicans haven't explained in any detail what their plans might be, assuming that they have such plans. Giving some people more tax cuts without fixing anything else in the current patchwork system of health insurance is not the best way to address the three major problems I see when it comes to health care access: the gaps in employer-based group health insurance system, the treatment of pre-existing conditions and the lack of alternatives for those too poor to afford private sector coverage but too rich to qualify for Medicaid.

The problems I listed are the major avenues people travel to the dismal land of the uninsured. How the poor get there is pretty obvious, given lack of money and the fact that low-paid jobs usually come without the fringe benefit of health insurance. A pre-existing condition makes health insurance much more expensive to acquire if not unavailable altogether, because a person with such a condition is not likely to make a profit for the health insurance companies. Indeed, one group of the uninsured consists of those who are "medically indigent", with illnesses or chronic conditions so expensive to treat that no private health insurance provider would ever offer them an affordable policy.

The gaps in health insurance tied to employment are the final way to turn into an uninsured person. Many small firms offer no health insurance benefits at all and the number of firms offering this benefit keeps declining. Why is this a problem? Can't the workers of those firms just buy policies on their own?

Of course they can. But individual policies, sold separately from the group plans that are available for employers, tend to cost considerably more. The reasons for this are partly to do with the economies to scale that exist in writing just one policy for hundreds or thousands of workers, when compared to the costs of writing a separate policy for each individual seeking coverage. But the main reason is a phenomenon sometimes called "cream-skimming" or "cherry-picking": The workers covered under group policies offered to corporations are at least healthy enough to go to work every day. These group plans pool relatively low health risks together, whereas the pool for individual policies is more likely to include those who are not well enough to work. This raises the average cost of individual health insurance, and for some individuals the price becomes so high that going uninsured is the preferable option.

Any realistic proposal on how to fix health insurance should address these gaps in the coverage, together with how to control health care costs in general. The Republican proposals I have seen do not achieve this. I'm not sure if they even attempt it.
Cross-posted on TAPPED.