Tuesday, April 04, 2017

How the Health Insurance Game Can Be Played: On Who Can Afford Insurance

A New York Times article addresses a wonderful magic trick, proposed by some Republicans,  which might give birth to a health insurance system where people with pre-existing health conditions can buy insurance in theory, but not in practice.

The trick goes like this:  First, get rid of the community rating:  the requirement (in this context) that people of the same age must be offered the same health insurance policies at the same prices.  Second, do away with a required minimum list of health care goods and services which the insurance policy must cover.

These two, in combination, can easily equal denial of coverage for individuals with pre-existing conditions:

The ability to opt out of the benefit requirements could substantially reduce the value of insurance on the market. A patient with cancer might, for example, still be allowed to buy a plan, but it wouldn’t do her much good if that plan was not required to cover chemotherapy drugs.
The second opt-out would make the insurance options for those with pre-existing conditions even more meaningless.
Technically, the deal would still prevent insurers from denying coverage to people with a history of illness. But without community rating, health plans would be free to charge those patients as much as they wanted. If both of the Obamacare provisions went away, the hypothetical cancer patient might be able to buy only a plan, without chemotherapy coverage, that costs many times more than a similar plan costs a healthy customer.

Don't you just love the ingenuity of this trick?  It would turn most health insurance into a market for virgins:  those who have never ever been ill.  That would mean low premia for the healthy and miserable care for the sick.

Given that almost all of us are one day going to belong to the groups "sick," even the healthy shouldn't be overjoyed by this way of getting cheap health insurance.

Sigh.  The fundamental theoretical problem is that the health care needs do not fit well into the insurance paradigm.  Few illnesses are like lightning from a blue sky, never to reappear in exactly the same form, and most individuals need more and more care as they age.

National health insurance systems do away with this problem (and several others*) by simply offering all citizens health insurance which is usually funded from progressive income taxes.  In such systems the healthy and the young do subsidize the sick and the old, but the healthy and the young will one day turn into the sick and the old and then they get their turn to be subsidized by the new generations.**

But, alas, Americans do not want single payer health coverage in sufficient numbers.
*  Other examples:  Good health coverage is not tied to one's work, so entrepreneurship is more likely because it is less risky, the severely ill do not have to try to recover from expensive care while simultaneously battling the myriads of bills insurance companies, doctors and hospitals send them,  and medical bankruptcy is pretty much unthinkable.

Such systems are not perfect.  But then no method of covering health care needs is without its problems.

** One could argue that the rich also subsidize the poor in those systems. But that depends on how we view the burden of taxation:  Because a dollar is worth less to a rich person than a poor person, progressive taxes, properly set, could equalize the actual felt burden of taxation.