Friday, August 07, 2009

"Cafeteria Plans" Are Socialism?

After sticking his foot firmly into his mouth less than a month ago, Michael Kinsley's back with another healthcare column:
But there can be differences in how much care insurance plans will pay for. You should not be surprised if people who expect to have more medical expenses are attracted to plans that pay more of your medical expenses.

If there are multiple plans (as some of the reform bills require), healthy customers will drift toward the cheaper plans and sick or potentially sick customers will drift toward expensive ones. This trend will feed on itself. The cheap plans with healthy customers will be able to get even cheaper, while expensive plans, burdened by hypochondriacs in the mood for an MRI body scan as well as with the truly sick, will get pricier.
Employers typically offer group health insurance plans, often "cafeteria style", allowing employees to choose between plans and often between insurers, to try to find the best plans for their individual circumstances. Yes, quite obviously, people who expect to undergo a lot of routine care for a chronic condition, and who expect to be paying for equipment, medication, or both, to treat that condition, will typically choose a plan that minimizes their out-of-pocket costs. Yes, couples planning a pregnancy are likely to pick a plan that covers prenatal care and pregnancy more completely than one that does not. And so it goes.

It might astonish Kinsley to learn that major employers, probably including his own, offer this type of choice to their employees, likely including him, and that they have no real problem getting insurers to sign up to offer their plans as possible choices. But apparently it does? Granted, in the employment-based model, insurers get some protection from the fact that most people in the active workforce are reasonably healthy, and people can only switch plans once per year.
To prevent this "death spiral," some of the reform legislation calls for a sort of tax on lucky insurers, with the money going to the unlucky ones.
Kinsley doesn't mention any specific legislation, and I'm not aware of any that fits this description. I have heard proposals for health insurance "co-ops" instead of a public plan, which involve subsidies for sicker enrollees, but I haven't heard anything about taxing other insurers to finance those subsidies. And yes, if you can walk into an office any day of the year, no matter what the state of your health, and buy health insurance at the same rate as somebody who's in great health, some form of subsidy will be necessary or the system fails. And there are a lot of potential devils in the details of how the subsidy might be calculated. Kinsley's arguing that such a system would be divorced from market forces, which is true. But what are his solutions?
If the government requires insurers to accept all customers and charge all the same price, regulates all aspects of their marketing to make sure they aren't discriminating, and then redistributes the profits to make sure that no company gets penalized unfairly, in what sense is the industry still "private"?
The easiest thing for a columnist to do - swat down a proposal that nobody has made. Or is he describing what he believes the insurance companies have proposed as their alternative to the public plan?
And as long as the forces inherent in medicine - such as your natural reluctance to haggle over price with the doctor who will be conducting your brain surgery tomorrow - haven't disappeared, in what way will health care resemble a "free market"?
Kinsley's correct, neither healthcare nor health insurance are, or realistically can be, models of the "free market" in action. But what's his point - what direction does he believe reform should take?

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