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Monday, October 12, 2009

The Mandate Conundrum

The health insurance companies have been demonized for not covering those with pre existing conditions. Most of those that demonized them, however, didn't understand why health insurance companies did this. If you can get health insurance any time, you'll wait until you need it to get it. So, a lot of people will wait until they're sick to get health insurance.

Health insurance companies were on board with laws mandating that they must cover everyone even if they had a pre existing condition. They wanted something in return. They wanted a mandate that everyone get insurance. This way no one could wait to get sick to get insurance.

The health insurance providers and the lawmakers were each trying to thread a very sharp needle. This became a very complicated policy making version of a jigsaw puzzle. Lawmakers wanted to make a mandate but they needed to figure out how to apply it.

Health insurance companies knew that if a mandate would force millions of 30 and under to get health insurance that would bring them billions in premiums for mostly healthy people. Young people by and large would pay their premiums and use very little health care. So, that new profit would more than offset the losses that health insurance companies would incur from covering millions with pre existing conditions that would get sick far more often.

So, the Baucus plan included a mandate and it included a rather onerous fine to not get it, up to $3900 yearly. It even went as far as potential jail time for non compliance. Of course, news of this set off a firestorm. So, Baucus, and the committee, cut the fines significantly. Now, they're as high as only $750 yearly. That won't go into effect until 2017. Of course, with fines that low, most young people would still rather pay the fine then get the insurance.

That's the crux of the analysis done by Price Waterhouse Coopers that received so much attention today. What the report found essentially was that the fine wouldn't be onerous enough. As such, most young people would choose to pay the fine and still not get insurance. So, the insurance industry would be faced with millions of new sick people they would have to insure and they wouldn't have millions of healthy people they collect a premium for to offset. That's the main reason why the report concluded that the Baucus bill would increase premiums an EXTRA $4000 yearly over the next ten years.

Of course, there's still a conundrum. The way to fix this is to make the penalty so much that it forces young people to get insurance. Doing that would of course amount to a tax on millions of young people. Most young people do NOT make $250,000 and more. So, first, that would break Obama's pledge. Second, it would be a disaster as a policy. Millions of young folks would pay for health insurance they never use or pay a fine they can't afford. How does that sound, especially in a recession?

The problem is of course a fundamental lack of understanding the problem. The president and the democrats see two problems: 1)far too many people get denied coverage for pre existing conditions and 2)far too many people don't have insurance. They see this problem and they think that to fix it you simply mandate it. Instead, they should think about why this happens. In my opinion, it happens because of a fundamental lack of competition in health insurance. Health insurance providers don't cover those with pre existing conditions because they can. In each state, there are very few providers. Since all don't cover those with pre existing conditions, none need to. If we could improve competition, the market would find a way to cover those with pre existing conditions. The problem is the perverted market in health insurance. That far too many go without coverage and aren't covered due to pre existing conditions is a symptom of the problem. It's not a problem itself. The current plan misses the fundamental problem.

3 comments:

Anonymous said...

The market will not solve it. Ideological dogma

The health insurance companies have run the numbers for years on pre-existing condition groups and clearly see some people aren't good risks.

Having more companies looking at these SAME group of people is not going to change this. Its a risk reward analysis.

Health insurance and the profit motive just dont go together for certain groups.

Anonymous said...

No amount of competition among private companies can fix what you're talking about. You'd still have several companies who all have denial of pre-existing conditions built into their business model.

There is no alternative to an individual mandate if you want to prevent companies from denying pre-existing conditions. The real question that needs to be answered is how to keep insurance companies from jacking up the price. A public option can do exactly that.

Anonymous said...

Good competition will help lower prices to a certain extent.

But it wont get those people covered who are not profitable to the insurance companies.