Sunday, January 20, 2013

As Long as the Health Insurance Industry Stands to Profit....

George Will has passed along the notion that, as the penalty for not buying insurance under the PPACA has been declared a tax, it will inevitably fail to inspire people to buy insurance. I'm not sure if he's still up to doing cartwheels down the halls of the Washington Post building, but you can sense a certain smugness, pleasure at the idea that legislation intended to help uninsured, underinsured and sick people obtain health insurance - and thus health care - at an affordable cost might fail. Will's argument appears to be the latest iteration of the position Michael Gerson was pushing some months back, that if the mandate is called a "penalty" people will pay it but if it's called a "tax" they will not. Gerson's idea was that if you call something a tax, people will apply a cost-benefit analysis and decide "I'm better off paying the tax as compared to buying insurance". Will proposes,
The point of the penalty to enforce the mandate was to prevent healthy people — particularly healthy young people — from declining to purchase insurance, or dropping their insurance, which would leave an insured pool of mostly old and infirm people. This would cause the cost of insurance premiums to soar, making it more and more sensible for the healthy to pay the ACA tax, which is much less than the price of insurance.

[Chief Justice] Roberts noted that a person earning $35,000 a year would pay a $60 monthly tax and someone earning $100,000 would pay $200. But the cost of a qualifying insurance policy is projected to be $400 a month. Clearly, it would be sensible to pay $60 or $200 rather than $400, because if one becomes ill, “guaranteed issue” assures coverage and “community rating” means that one’s illness will not result in higher insurance rates.
Dean Baker responds,
There are two problems with Will's logic. First, the insurance will likely pay for many non-serious illnesses that even healthy people would otherwise have to cover out of pocket. in other words, it is not a question of paying $400 for nothing as opposed to paying $200 for nothing. It is a question of paying $400 for insurance or $200 for nothing. It is not clear that many people will make the choice that Will wants them to make.
Baker also suggests that an economic consequence could be imposed upon people who don't buy insurance:
The more important problem with Will's thinking is that there are an endless number of ways to slice and dice the restrictions so that the option of not buying insurance is less attractive. For example, the cost of buying insurance can be made higher for those who had previously opted not to buy into the system. Suppose the cost of later buying into the system rose 25 percent for each year that a person opted not to buy in. (Medicare Part B works this way and the vast majority of beneficiaries do chose to buy in when they first become eligible.) This would make the arithmetic of opting out much less favorable.

The rules can also be changed to make pre-existing conditions uncovered for the first 2 years after buying insurance for those who opted to pay the penalty rather than buy into the system. Neither of these measures would in any obvious way run afoul of Justice Roberts' argument for the constitutionality of the ACA.
I agree that such consequences could be created, but I'm not sure that they would work or that they wouldn't be self-defeating - at least the ones proposed by Baker. When applying for Medicare, most people recognize that they will eventually need Medicare Part D, and the penalties are such that it makes little to no sense to put off enrollment. I'm not sure that the populations who are being targeted by the penalty view significant health costs as that inevitable.

Similarly, one of the goals of universal health insurance is to help society avoid the increased cost of care for a manageable or preventable medical condition. If you deny somebody care for a chronic condition for a couple of years, most likely the period of years after it becomes sufficiently severe that the person wants insurance, you create the risk that excluding the condition from insurance will increase the applicant's long-term healthcare costs, and you risk their condition worsening to the point of disability, perhaps taking them out of the workforce or shortening their careers.

It may be possible to work out penalty provisions that could work, and I don't want to treat a couple of "off the top of my head" ideas as the end of the discussion, but we would have to take care not to create a penalty that would undermine the goals of universality and perhaps even increase the overall cost of care.

Baker correctly points out that if a problem develops and the Republicans in Congress refuse to address it, "that route would have nothing to do with the constitutional restrictions put in place by Roberts". History tells us that Will's belief that "Republicans will ferociously resist exacerbating the nation’s financial crisis in order to rescue the ACA" is nothing more than a fantasy - when it comes to budgeting, Republicans are good at three things: Spending money, cutting taxes and thereby reducing revenues, and then whining about the fact that due to their policies we "can't afford" to pay the bills they ran up. Will confuses their "talking the talk", insisting that we must cut Social Security and Medicare in order to balance the budget, with "walking the walk", proposing actual, concrete cuts. When you look at their actions, you have... Medicare Part D, the unfunded prescription drug benefits that the Republican's leading fiscal scolds endorsed.

I continue to believe what I said in response to Gerson's column: That if the insurance industry finds that not enough people are responding to the penalty, such that their profits are at risk, the Republicans will adjust the mandate to increase participation. I find it exceptionally unlikely that they will tell insurers, "Be patient and take the losses, because in a few years we may be able to repeal the entire law." Let's not forget, there's a reason the Republicans favored this approach back in the 1980's, and why the insurance company agreed to get out of the way of the PPACA when it was proceeding through Congress: They believe that they will profit from the reform. Going back to the status quo ante may sound good to Will, but it takes away the anticipated profit. Losing money for years, in the hope of getting back to the status quo ante? Get real. Insurance companies didn't go to Congress and say, "We can't make money with Medicare Advantage", they said, "Give us a subsidy!" And they got it.

Will argues that by virtue of the penalty's having been declared a tax, "the penalty for refusing to purchase insurance counts as a tax only if it remains so small as to be largely ineffective". That's the argument that Baker was addressing when pointing out that Congress has more options than simply making the penalty larger. But I disagree with Will's conceit that the penalty tax can't be onerous - if it's reasonably related to the actual cost of providing care to the uninsured. Also, it's not a binary issue - if the tax is increased, it will not go from "too low" to "onerous", but will be ratcheted up until it becomes sufficiently effective.

The Roberts Court pointed out that by statute the penalty can never be more than the cost of insurance - but at that point, surely even Will can understand that most people will opt to acquire the insurance they're effectively already paying for, and the tax revenues from those who do not will be more than sufficient to ensure the continuation of the program. If everybody pays a premium sufficient to pay for health insurance, but some aren't receiving benefits, the result is that there's some extra money in the system. Also, as Baker points out, the threshold at which it makes more sense to buy insurance, as opposed to paying a penalty and paying for your own care, comes well before the amount of the penalty matches the cost of insurance.

The fact remains, if the penalty proves ineffective the insurance industry will come to Congress not to argue, "Repeal this program," but to say, "Fix things so that we're profitable." And just as the Republicans were happy to subsidize private competitors in the Medicare Advantage program, they will oblige the insurance industry by increasing the penalty - whether directly or through other measures along the lines of what Baker described - or by providing a subsidy.

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