Saturday, January 16, 2010

More health care

One of the initial goals of the health care writers was to allow people with pre-existing conditions to get insurance. This really is a big deal for a lot of people, and is a really thorny problem. Someone who has, say, a heart condition and loses insurance for whatever reason will be hard-pressed to get new insurance. The proposed legislation ostensibly will fix this problem by requiring that insurance companies not nix people for these conditions.

This leads to a lot of problems and certainly expands the scope of the bill dramatically. If you just change this one thing, then insurance companies will go out of business. Many people will simply dance through life with no insurance until they begin ailing, at which point they will run out and buy a nice, comprehensive policy. The insurance folks will forgo years of premium income and then have a bunch of expenses. Clearly, this will be bad for their solvency.

So how to solve this problem? Obviously, you could require that people buy insurance. This would eliminate the free rider problem and guarantee that insurance companies get the premium income they need in order to pay the bills when they come due.

But wait! If people are required to make this large purchase, the poor are going to be in a pickle. How can they justify buying expensive insurance if they don't already have many thousands of dollars per year in disposable income? This, of course, can be solved by providing subsidies to people below a certain income level.

And there we go: a triangle of solved problems. are some more problems. Adding subsidies to the poor really increases the cost (to the government) of the legislation. Maybe some of this cost can be recouped by the fines on people who don't get insurance. However, the Senate version of the bill makes the fine uselessly small, $95 in the first year. Not only will this not bring in a lot of dough, but it will not enforce the individual mandate very well. A young, healthy person might very rationally conclude that a $95 (or whatever it increases to over future years) is less than $8,500, which is the average cost of an individual policy per year.

Well, now we are back to just having insurance companies losing a lot of money. My prediction is that, if this health care legislation as I understand it passes, an actual public option will be inevitable in about 10 years.

1 comment:

Mom said...

Golly, David, you explain this stuff very interestingly, and really point out how tricky it is! Your dad keeps thinking that a committee of Republicans, Democrats, doctors, and insurance workers, and regular consumers could spend six months sequestered on an island and figure it out. It looks like they should have a couple of actuaries along, too!