Tuesday, January 25, 2011

Why Waiting Periods Can't Substitute for a Health Insurance Mandate

One of the arguments raised in relation to the mandate is that, rather than requiring people to obtain insurance, we could resolve the problem of free riders by limiting when people would be able to obtain insurance if they had a pre-existing medical condition. For example, Ross Douthat recently suggested that people should only be allowed to obtain insurance without regard to their pre-existing conditions during enrollment periods held every two years. I'll assume this rule would not apply if you had continuous coverage - for example, if you were on your parents' health insurance, you could transition to a different carrier without waiting for an enrollment period.

There is an inherent arbitrariness to the concept of enrollment periods, in that somebody who chose not to acquire health insurance and discovered a potentially expensive health condition a few weeks before the enrollment period would face little or no penalty, while a person who discovered the problem or was catastrophically injured after the enrollment period would be penalized for close to two years. But let's say, for now, that the arbitrariness doesn't matter - that the average period of non-insurance would be about a year. Will that fix the problem? Nope.

First, even if we assume that the population that will choose not to carry insurance will be almost entirely young and healthy, the fact remains that some young, healthy people will develop acute or chronic medical conditions that are very expensive to treat or manage. Just as presently occurs, many of these people will not be able to pay for some (or perhaps any) of their medical treatment. Some subset of that population will undertreat their conditions, potentially resulting in the deterioration of their conditions as well as acute phases that require emergency treatment and hospitalization - costs that won't be covered by insurance. Recall, that one of the goals of this reform is to avoid the over-utilization of emergency medical services, and to reduce the cost to hospitals associated with the treatment of uninsured patients. Also, patients with chronic medical conditions usually don't get either good continuity of care or good management of their conditions through emergency departments. They're more likely to keep cycling through emergency rooms until they either qualify to obtain insurance or end up on Medicaid.

Young people are also at risk of catastrophic injury. A serious car accident can easily result in acute medical care costs in the six figures, followed by the cost of rehabilitation. The acute portion, again, will trigger EMTALA - the patient will be taken to an emergency room and the hospital will be legally obligated to treat the patient and stabilize his condition. If we attempt to punish the patient by providing inadequate follow-up care or rehabilitation, we risk transforming that healthy younger worker into somebody who is partially or fully disabled at significant cost to society. Further, their medical bills remain unpaid.

Although the libertarian will argue that an individual is entitled to take the risk, that only holds true if the individual can't pass the cost of a bad gamble onto the rest of society. As the system is structured - and nobody is suggesting the repeal of EMTALA - the individual will pass those costs on to the rest of us and it's thus fair to ask that he obtain at least catastrophic coverage - and that's actually all that the Affordable Care Act requires.

Second, some of the people who decide that they "can't afford" health insurance will not be young or healthy. They will be people who already have health conditions or are at high risk for developing them. Over the year or two during which they're ineligible to insure, their conditions may deteriorate. Diabetes could go out of control, leading to the need for more expensive management, or even serious complications such as limb loss, vision loss or kidney failure. Hypertension, already too often untreated in parts of our nation's population, can develop into congestive heart failure. Part of the concept of the ACA's reforms is to get early diagnosis and better management of chronic health conditions. By allowing people who misjudge the seriousness of their condition, something that's pretty common for people in the early stages of a chronic health problem, to go uninsured, we lose that benefit and are likely to end up paying significant future medical costs that could have been reduced or avoided with proper early care. Again, some of these people will become disabled, potentially increasing Social Security costs, Medicaid costs and reducing their productivity.

Third, the insurance companies are going to balk at the idea that the population of younger, healthier workers will potentially be able to avoid purchasing insurance. If it needs to be explained, insurance works by pooling risk. You need lower-cost patients in the system for insurance to be able to pay for the care of higher-cost patients. The assumption behind the waiting period seems to be that medical costs are roughly equal from person to person, and that even if people who don't buy insurance are a bit more profitable the insurance company can make up for that by... picking up the cost of their care after the waiting period, when they may be even sicker. The fact is, a small portion of medical patients comprise the majority of costs to the system. The uncontrolled diabetic who keeps presenting at the emergency room, the car accident patient, the cancer patient.... Insurance companies need a lot of healthy participants in the pool to reasonably distribute the cost of those patients medical costs in a given year are into the six figure range.

Fourth, if we create this waiting period we also create what amounts to a look-back period of up to two years during which we can expect insurance companies to try to claim fraud by a recipient of insurance in order to deny coverage or revoke the policy.
Under the current system, something as relatively simple as seasonal sneezing can jeopardize your financial security, HHS argues, citing a 2001 study for the Kaiser Family Foundation.

“Even when offering coverage, insurers can exclude whole categories of illnesses related to a preexisting condition. For example, someone with a preexisting condition of hay fever could have any respiratory system disease – such as bronchitis or pneumonia – excluded from coverage,” HHS said.
Part of the goal of this reform is to end those games, but it it quite likely that insurance companies looking at a new enrollee whose medical costs are going to be in the five to six figure range will continue to try to revoke coverage once the "enrollment period" loophole is created.

And that's off the top of my head.

I do sympathize with the notion that this is a novel form of taxation by the federal government. I've argued for years that there are better approaches than an individual mandate, albeit the best being to simply impose a tax balanced by some form of tax credit to be used toward the purchase of insurance - you don't want to buy insurance, fine, but you don't get the tax credit. A big part of the problem here is that nobody wanted to be honest about what was going on - "How do we pass a tax without calling it a tax". But let's try to find workable solutions to the idea. If you're going to require insurance companies to cover pre-existing conditions, something Douthat concedes that many Republicans support and that it appears he personally supports, "enrollment periods" not only won't be effective, they will undermine many of the cost-saving aspects of the Act.

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