23 March 2010

Well, we passed it, now let's start working on fixing it

Let it be noted: I have never claimed that the HCR bill is perfect. Far from it.  However, despite its many flaws it provides a framework for the future health care financing system, and now that it is law it is time to begin work on fleshing out the details, filling the gaps, and fixing the bad bits of the bill.

One which commenter Peter points out is this:
[HCR] basically ensures that adverse selection will happen on a massive scale. If everyone can buy the same level of insurance, regardless of their health condition, the people who are most likely to buy it are those with preexisting conditions who expect to undergo expensive procedures.  As high-cost patients sign on, the insurer must cover these costs by increasing its rates, thus making health insurance a worse and worse deal for relatively low-cost healthy people.  As healthy people drop out, premiums must rise further.  After several iterations of this, the equilibrium is a series of very expensive insurance pools covering the sickest and most costly-to-treat patients, with everyone else priced out of the market.  What this really means is that the winning strategy is not having health insurance while you’re healthy, and then signing up for it when you come down with an expensive ailment – there’s no way the insurance company can turn you down, and they have to foot the bill.
A very legitimate concern.  The penalties for not purchasing insurance are not strong enough.  (I should point out that the more liberal House bill had stronger penalties, but water under the bridge...) There is a risk that people will game the system like this, and based on the current numbers they will win:

An individual who is not eligible for the subsidized exchange plans would be making 400% of the federal poverty level -- or around $44,000 in today's dollars.  The 2016 penalty for an individual who is unsubsizided is $695 or 2.5% of income, which for this person would be $1100. The bronze level annual premium is estimated to be $5800 in 2016.  While most people will prefer to get something (insurance!) for their money, a certain number of (healthy) people will choose instead to pay $1100 for nothing and bank the difference.

The CBO did take this into account, and their estimate (PDF, page 19) of the number of people who will do this is low, based on the fact that for most people the cost of insurance will be subsidized.  I found it difficult to quantify, but the CBO also estimates (PDF, page 8) that 95% of the adult, non-elderly, legal population will be enrolled in some health care coverage when the plan is fully implemented.  About 20 million will remain uninsured.  Of those some will be medicaid-eligibles who for whatever reason do not manage to sign up, but about 4-5 million will be people who would be in the non-group market, in the exchanges, who would not have received subsidies, and chose not to sign up  (if I am reading the chart right). The CBO estimates that there will be some 30 million people covered in the exchanges.  If there are 5 million people who are truly part of the risk pool for then exchanges but are not contributing to the premium pool (understanding that they are able to opt in when they need it), is that enough to induce an adverse selection death spiral?  I dunno -- I an not an actuary.  But it's concerning that a sixth of the risk pool can choose not to sign up.

My take: now that we've gotten over the idea that the individual mandate and universal coverage is part of American law, the mandate should be strengthened to the point that it is effective.  Ideally, the penalities for not signing up should be more or less equivalent to the premiums that person would have paid under the bronze-level plan in the exchange, taking subsidies and what-not into account.

Fortunately, we have a few years.  As the partisan rancor dies down and Congress moves on to less ideological, technical legislation over the subsequent years, perhaps this item can be addressed in a bipartisan manner to ensure that the system actually works.


24 comments:

Anonymous said...

i'm reading that as many as 38 states will try to exempt their residents from the individual mandate. how would that change things?

shadowfax said...

Probably not possible. The supremacy clause is pretty settled law. the only risk is that the Activist judges [tm] on the SCOTUS might use this as an opportunity to kill two birds with one stone -- slap down health care AND restrict the use of the commerce clause, a long-time conservative goal. That actually has me a little concerned, but I am not too worried about it. Scalia, Roberts, Alito & Thomas would probably enthusiastically sign on, but I quite doubt Kennedy would,

storkdoc said...

Why does the government have the power to make me purchase something that I may not want? How can they make me purchase something just for being alive.

Everyone forgets that our Congress is only supposed to have those powers delegated to it by the constitution. No where in there does it say that Congress can force me to buy health insurance.

If we want national health insurance it should be done the right way. That way would require a constitutional amendment that gives Congress that power, much in the same way that it required an amendment when Congress wanted to regulate alchohol

Elise said...

i'm reading that as many as 38 states will try to exempt their residents from the individual mandate. how would that change things?

Depends on whether at least 34 of those 38 States are serious enough to call for a Constitutional convention.

I know that the conventional wisdom is that the individual mandate will pass muster as far as Constitutionality goes but I really don't understand that. That would seem to mean that if Congress decided everyone had to buy a car (or a computer or a dog or weather-proofing for their house) or else pay a penalty, that would also be Constitutional. I just can't quite make that line up with my understanding of what the Constitution says the Federal government can do to me.

Anonymous said...

agree that not everyone should be required to buy health insurance. they should make it like car insurance. you're only required to buy it if you drive a car.

conversely you only have to buy health insurance if you use the health care system.

in other words, the penalty to not having insurance? emtala no longer applies to you, and you have no legal recourse if you are turned away. think that would be a harsh enough punishment to deter people from going uncovered?

shadowfax said...

I like the metaphor -- you are only required to buy auto insurance if you own a car; similarly you are only required to buy health insurance if you possess a body... ;)

Seriously these objections are misguided on so many levels. First of all, the government can coerce you to do lots of things. Checked your pay stub lately? FICA and payroll taxes compel you to buy retirement pensions and old-age health care insurance. For that matter, the government has lots of coercive power -- they can coerce you to pay for nuclear weapons or abortions or public schools or all sorts of things that you may not ever use or want. Never mind conscription!

Second, nobody is required to buy insurance in the way that you are required to pay for Soc Sec and Medicare. You can choose not to, and the only consequence is a tax penalty. Hardly being marched off to internment camps. It's a incentive -- and I thought conservatives loved incentives!

The constitution also has lots of wiggle room. Article 1, Sec 8 gives Congress broad powers to (among other things) lay and collect taxes, provide for the general welfare, to regulate interstate commerce, and to make all laws "necessary and proper" for the execution of these powers. Not terribly restrictive. There are countervailing vague clauses as well including the bit reserving powers not specifically enumerated to the states or the people. This is why people who claim to be "strict constructionists" are stupid or dishonest (yeah, I have some opinions). The Constitution is inescapably and deliberately vague.

So I go with the last 200 years of common law and stare decisis -- the federal government has lots of power and the HCR bill is way less intrusive than the other elements of the New Deal and Great Society.

Anonymous said...

The alternative to not forcing people to buy insurnace is to tax them and give them the service for "free".

I wasn't initially crazy about forcing people to buy insurance, BUT it's better than taxing them. At least this way the consumer gets more control over their destiny.

Consider the flip side: What if the government permitted us to NOT pay SS **IF** we put the same amount of money in another fund that couldn't be accessed until retirement no matter what.

We'd be ecstatic over that, right?

Same deal here.

The way to deal with the deadbeats is not a tax, but a waiting period for existing conditions. For example, if you crack your head open, get sewn up, and then buy insurance adn then a week later have bad headaches and need an MRI, then that's great, but there's a 3 month waiting period.

Seriously, if someone avoids buying insurnace, it shoudl be very possible that they could lose their house or other property if they incur medical bill they cannot pay.

storkdoc said...

the analogy about auto insurance doesn't work. You can choose not to own or operate a car. If you do that then you don't need insurance.

You can't choose not to have your body unless you chosen suicide....

Furthermore auto insurance covers the catastrophic things that you can do with and to your car. It DOES NOT cover routine maintenance.

If something is predictable then you don't need insurance for it. If you want health insurance to be like auto insurance then it should cover those catastrophic things that can occur in your like; like being diagnosed with cancer. It would not cover your routine preventative maintenance.

And finally Shadow, the constitution grant of power to Congress is actually quite limited. As we have failed to protect our liberties over the last 200 years Congress has assumed power that is not really theirs. Remember that unless a power has been granted by the constitution to Congress then it is reserved to the states or the people.

Elise said...

Seriously, if someone avoids buying insurnace, it shoudl be very possible that they could lose their house or other property if they incur medical bill they cannot pay.

That's the way the system works now and people who support the health care bill have screamed bloody murder about it for the past year.

First of all, the government can coerce you to do lots of things. Checked your pay stub lately?

Sure but that's requiring you to pay taxes for government-provided benefits. We can - and if we had a decent second party rather than the Republicans, would - have a lively discussion about what services government should be providing but the health care bill is something new: it requires you to purchase something from private companies or pay a fine to the government. (Here, BTW, is the solution to the death spiral problem: the government should distribute the non-compliance fines to the insurance companies.)

The appropriate analogies to what the government is doing now are not FICA or Medicare; they are the ones I offered: the government can now require everyone to buy a new car (which must include features like OnStar) or pay a fine. Or - to use the example of the draft - the government can now require everyone to go to work at General Motors (at military inductee wages) or pay a fine.

Finally, those of us who are stupid and dishonest enough to kind of like the idea of dual Federalism also note that auto insurance is required by States not by the Federal government.

litbrit said...

First of all, the government can coerce you to do lots of things. Checked your pay stub lately?

Sure but that's requiring you to pay taxes for government-provided benefits.


Well, a significant percentage of us wanted single-payer from the get-go, which would have (hugely) reduced administrative costs and taken the profit motive out of health insurance, to name just two pluses. But that notion was stomped all over by insurance-industry-owned Republicans and Blue Dog Democrats--so much so, it wasn't even the starting point. What we got yesterday was a fairly conservative HCR bill, more conservative even than that which Richard Nixon proposed back in the day.

Either we have a market-based solution or we have the service provided by government; you can't have it both ways, and it's intellectually dishonest to fight against the latter, and when it fails--just the way you wanted it to--complain that government is forcing you to buy something that government itself is not providing, even though you never wanted government to provide it in the first place.

Because with a market-based solution, the mandate is, sadly, needed if the pre-existing condition requirement exists, in order to balance out the pools. Otherwise, you have a dysfunctional market that no insurer in his right mind would enter (and who would be derelict in his fiduciary duty to shareholders if he did).

shadowfax said...

Storkdoc,

The constitution grant of power to Congress is actually quite limited. As we have failed to protect our liberties over the last 200 years Congress has assumed power that is not really theirs. Remember that unless a power has been granted by the constitution to Congress then it is reserved to the states or the people.

This is the logical error/dishonesty that makes me nuts about "strict constructionsts." I just quoted to you the clauses which clearly give Congress broad powers. You ignored them. There is a (valid) conservative political ideology of limited government, but in this case it drives an outcome-oriented interpretation of the Constitution in which the bits that they don't like (Art 1, Sec 8) are conveniently ignored and the equally vague bits (10th amendment) that they do like are emphasized. But since both provisions are essentially undefined, to pretend that the Constitution affirmatively restricts or grants some specific power is simply wrong. Since 1819, the "Necessary and proper" clause has been held to give Congress the authority. Since the 1930s the Commerce clause has been interpreted to bolster this authority. If you wish to claim that the Constitution means something different, you need to acknowledge that it represents a radical change in settled law and relies upon an activist judiciary to impose their own interpretation on a document that does not say what they claim it says.

Conservatives only dislike activist judges when they disagree with their actions.

shadowfax said...

If something is predictable then you don't need insurance for it. If you want health insurance to be like auto insurance then it should cover those catastrophic things that can occur in your like; like being diagnosed with cancer. It would not cover your routine preventative maintenance.

If something is predictable but its expense is so large that it is beyond the means of an individual to pay for it, then that is exactly the purpose of insurance. And sickness is predictable -- indeed 100% of us will get sick and die eventually -- but the cost for many or most is way way beyond their means. We don't know which one of us is going to get lymphoma, but one of us will, so you pool your risk & your resources (premiums) to cover the unlucky soul who draws the short straw, and eventually we all draw the short straw. Now if you want to buy an insurance policy which does not cover some routine services (or catastrophic policies), then that is still your option to some degree under health care reform -- see "bronze-level plans."

Elise said...

Either we have a market-based solution or we have the service provided by government; you can't have it both ways, and it's intellectually dishonest to fight against the latter, and when it fails--just the way you wanted it to--complain that government is forcing you to buy something that government itself is not providing, even though you never wanted government to provide it in the first place

Actually it's perfectly intellectually honest. You are beginning with the assumption that the only two choices are single-payer and what we got and that therefore if I opposed single-payer I'm not allowed to oppose what we got. Sure I can. There are a lot of other options out there - from truly free-market health insurance to government-provided catastrophic insurance combined with HSAs - that people can reasonably believe are preferable to either single-payer or what we got.

I believe single-payer would have been as Constitutional as Medicare and I have said repeatedly that single-payer would have been preferable to what we ended up with. Why? For a lot of practical reasons but also because I believe process matters more than outcome. A bad outcome through a Constitutional process is far less dangerous than a better outcome through an unConstitutional process. With the health care bill we get both: a bad outcome (worse than single-payer) through an unConstitutional process.

I am perfectly willing to accept that the Constitution has been interpreted to grant more and more powers to the Federal government. Had single-payer been put into effect it would have been a further step along the same path. I wouldn't have liked it but there are a lot of things I don't like that are perfectly Constitutional. However, empowering the Federal government to force people to buy a product from a private business or pay a fine is not a step along the same path but a leap to a whole new roadway.

litbrit said...

If something is predictable but its expense is so large that it is beyond the means of an individual to pay for it, then that is exactly the purpose of insurance.

That's exactly right.

In fact, if I may put on my daughter-of-a-shipowner hat for a moment, the entire notion of insurance grew out of gentlemen's agreements among ship owners and merchants, back in the late 1600's, in a London coffeehouse owned by Edward Lloyd. At the time, piracy was a known threat, causing the loss of approximately 1 in 5 full cargoes (if I remember my dad's lesson correctly), and the cost of such a loss was indeed beyond the means of any single merchant. So, with full awareness of the pretty high odds that they could lose their shirts (or spices or ores etc.) on any given voyage, the men devised a way to spread out and share that loss when it inevitably occurred by pooling their money into a fund which would cover whomever was attacked. And thus, the first "premiums" were born, and many years later, the first formal insurance company was named after Mr. Lloyd.

storkdoc said...

Shadowfax, before I sort of disagree with you again, let me state that I enjoy your blog. I also believe that we somehow need to reform how we pay for medical care.....

So that being said I think that you miss my point about auto insurance vs health insurance. I agree that everyone will get sick. That's why everyone should have some sort of catastrophic health insurance. (That's just like everyone will probably be in a car accident someday. I have been in 2 small ones in 46 years)

But my auto insurance does not pay for my oil changes and brake jobs. These are foreseeable events that are routine, that's why insurance won't pay for them.

In the same way an annual exam or a visit for a cold are foreseeable events that everyone should plan for. Insurance probably shouldn't cover these "routine" visits.

But you get a catastrophe and now you have diabetes or some other chronic condition then insurance should help you pay for the extra visits that you'll need. If you need your gallbladder out, it should pay in full.

I have also reread my constitution and Article 1 Section 8 lists essentially 17 Powers that Congress has (I made each small paragraph a power as some list more than one). The necessary and proper clause states "To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers" That is Congress can make all laws needed to carry out the 17 or so powers that it has.

You state "I just quoted to you the clauses which clearly give Congress broad powers. You ignored them. There is a (valid) conservative political ideology of limited government, but in this case it drives an outcome-oriented interpretation of the Constitution in which the bits that they don't like (Art 1, Sec 8) are conveniently ignored and the equally vague bits (10th amendment) that they do like are emphasized."

I didn't ignore them. I reread section 8 several times and there is no part that states anything similar to the following:
"To compel the people of the several states to buy anything that Congress may desire that the people purchase; whether from the government or from a private source" I missed that.

I don't deny that health care reform is important. It is just that we are treating our Constitution as just the paper it's written on...... We'll become like all the other countries who ignore and rewrite their constitutions over and over again.

As Gerald Ford one said, "A government big enough to give you everything, is also big enough to take it all away."

That's why an amendment that grants the power is so much more useful. This would show that there was more consensus than we have now.

Peter said...

I think this presents an overly pessimistic view of the adverse selection problem. It's possible to game the system today. How many do? Not that many. The well-off uninsured person is mostly a myth.

It is perfectly reasonable to say "I'm 25. I probably won't need care for heart disease this year." But is it so reasonable to say, "I'm 25. I'm going to take the chance of economic catastrophe if I'm injured in an auto accident, or break my leg playing Ultimate Frisbie."

Economists need to think a little harder. It's not so much the long averages that matter for the individual.

Anonymous said...

Adverse selection is very real...Look, I was in grad school for most of my 20s and chose not to buy health insurance (I could split hairs and say, "I couldn't afford it", which is fair enough on a TA's salary, but, ultimately, I chose to value it less than other things). With the risk of anything chronic low, I chose to take the risk of injury, figuring anything truly catastrophic would be taken care of, and I could deal with the consequences later. Irresponsible attitude in hindsight, but one that was fairly common among my peers. That's why the mandate is the best part of the bill, and why it should be strengthened. However, I'd want more choice in terms of what was covered--as a single male, for example, maternity coverage would be of no interest; as a science-doing guy, most alternative medicine is of no interest. Maybe I'd rather pay for checkups myself and have the coverage only for something serious?

I did get a reality check when one bicycle versus car (I was bicycle)accident ended up being treated by dragging my bleeding carcass into the pharmacy for bandages and antiseptic. Turns out later, I probably broke a couple of ribs...had it been more serious, I would have been hosed.

Elise said...

As far as I can tell, true catastrophic insurance (very high deductible, no coverage for preventive maintenance) is *not* one of the options under the health care bill. That is, you may be able to buy catastrophic insurance outside the exchanges but that will not be considered "acceptable" coverage and so you will be subject to the penalty.

Under the House bill, the penalty was a tax and anyone failing to pay the tax was subject to the usual penalties for such failure, including large fines and/or jail time. Under the Senate bill, the penalty is a fine. I have not read what enforcement mechanism, if any, is provided for use against those who do not pay the fine. I also do not know if the House's tax is to be substituted for the Senate's fine via the reconciliation bill.

As for Article 1 Section 8, it depends how you read it. Those in favor of an expansive Federal government read the first line as one of 18 powers granted to Congress; those who favor a less expansive Federal government read the first line as a general description of what Congress can do and read the next 17 lines as specifying exactly what power that general description includes. Neither view is stupid or dishonest; they're just different. (Note to self: Read the Federalist Papers some day.)

Finally, in favor of dual Federalism, surely a situation such as we have now where the country is fairly evenly and rather bitterly divided over what the Federal government should be doing would be less serious if States had more power. Then States that want more government control of health care can have it (like Massachusetts) and States that don't can reject it. It was and is a very sensible approach to gluing together an extremely large and politically divided country.

Elise said...

Just ran across this. If correct, there is no enforcement mechanism for the penalty incurred by not purchasing health insurance.

I'm beginning to think watching this get implemented might actually be fun.

shadowfax said...

Elise,

1. I think the Bronze level plans would roughly correlate to the idea of catastrophic coverage. I have not delved deeply into the details of the policies. Preventative care is covered, though, because people will often defer that if it's out of pocket, which is a poor long-term investment.

2. Federalism -- your solution is sort of funny. The debate is whether the federal government should be strong or weak. So just giving the power to the states is not a compromise, it's conceding the point to those who favor limited centralized government.

Storkdoc --

I reread section 8 several times and there is no part that states anything similar to the following:
"To compel the people of the several states to buy anything that Congress may desire that the people purchase; whether from the government or from a private source"


Article I does not explicitly give the Congress the power to regulate the environment, education or to create compulsory retirement plans either. In fact, most of the activities of Congress probably arose from the deliberately broad "necessary and proper" clause.

I remember one of Orwell's slogans - Everything not forbidden is compulsory. It seems that some readings of the constitution flip that on its head - Everything not enumerated is forbidden. I don't agree with that interpretation.

Elise said...

I think the Bronze level plans would roughly correlate to the idea of catastrophic coverage.

Not according to this. The Bronze Plan is just a 60-40 split rather than a more generous 70-30, 80-20, or 90-10. Plus once you include preventive care you are already past the idea that catastrophic coverage means people pay for anticipated, routine, and small unexpected expenses out of their own pocket, reserving insurance for health situations so expensive they cannot afford them from savings and income.

There is a dispute about whether more preventive care would decrease the amount we spend on health care as a country. (The humanitarian issue is a separate matter.)

Federalism -- your solution is sort of funny

I re-read it and you're quite right. The point I was trying to make was that issues where the country is split about what government should provide would be less divisive nationally if it was the State governments doing the providing.

shadowfax said...

I don't think that means it's a 60-40 spit, but 60% actuarial value.

What is Actuarial Value?
Actuarial value is a measure that indicates the percent of covered medical expenditures that a plan is likely to pay, based on the cost sharing provisions. For example, an actuarial value of .86 means that a health plan is estimated to pay 86% of covered medical expenses for a standard population.
Importantly, the percentage that an individual patient might pay could be very different from this average. In a typical covered population, most enrollees are low users and a few enrollees are high
users. Low users typically pay a higher share of covered expenses, as they may not have met the plan’s deductible.


The bronze level plans will have a 60% AV, but that just means that they will cover 60% of the typical user's expenses. Plan designs can be anything they like, but I strongly expect that the only viable bronze plan design will be the catastrophic high-deductible types.

Elise said...

I don't think that means it's a 60-40 spit, but 60% actuarial value.

Ah, thanks. That makes more sense based on other stuff I'm reading.

From looking at the examples in the article you cited it's not clear to me that what I consider true catastrophic health insurance will be possible under the HCR bill. (By true catastrophic coverage I mean something like this plan where the deductible can be as high as $10,000; 50/50 coinsurance; OOP $15,000; nothing paid for until deductible is met.) This is one of the things we can watch unfold over the next almost four years.

Thank you for engaging on this - it's been interesting and educational.

medicine for real said...

I hadn't thought about the gaming of the system that this blog points out. It's a very good point, and likely some of that will go on. The greater issue is that, indeed, the penalty for not having insurance is likely smaller than the financial output for having it. That's a big problem.
Shirie Leng, MD
medicineforreal.wordpress.com