Tuesday, April 3, 2012

Some Thoughts on the Affordable Care Act - ObamaCare Part 2

In my last post I referred to two links that describe possible alternative solutions to Obamacare and I addressed the first.  The second provides a more interesting critique of Obamacare and I'll take that one on here.  In the second link, Cochrane makes the very good point that the reason our current health care system is so dysfunctional is because of the rules and regulations already in place:
But if "multibillion dollar subsidies" for the employer-based group market are what killed the individual market, maybe, just maybe, the answer is to get rid of those subsidies?
 Why is individual health insurance "unaffordable?" Because both Federal and State regulators have salted it up with mandated coverage that people wouldn't buy on their own. Young, healthy, uninsured need simple catastrophic coverage, or even just a contract that allows them to buy insurance later if they need it. They can't buy it because it's regulated out of existence.
And best yet:
 Those same people could pay cash for their non-catastrophic expenses.  In a functioning market, like car repair, or vet services for your dog, you can pay cash and receive services. Lack of insurance is only a problem for a small sliver of people who don't have enough money for an unexpectedly large  needed service. But it's essentially impossible to just pay for health care.
Finally, here's the suggestion offered briefly here:
But there  is a simple economic answer: individual, portable insurance that includes the right to buy insurance in the future.
 But flushed out with much more detail here.  This link basically introduces the idea of health status insurance, something I haven't heard of before.  It describes two sets of health insurances:  traditional insurance where the premium goes up or down based on your health status; and health status insurance that helps pay the cost of higher premiums when your health status changes for the worse.

For health status insurance to work, it seems to me that everyone would have to opt in.  If some people choose not to buy it, but then became chronically ill, something that is more and more likely as we age, then their premiums increase or worse, they are kicked out of the market altogether.  For a free market system to truly work, we have to be willing to kick people like this to the curb.  Will we as a society tolerate this?   

I'm not sure to what extent health status insurance will work anyway.  Some people are considered uninsurable at any price.   Health status insurance may not work at all for these unlucky people.   But something like this could work, if you just coupled health insurance with health status insurance and paid the combined premium to the same company.  It would be a way to guarantee a consistent premium no matter what happened to you.   But again, near universal coverage would make this work more efficiently.  To keep such rates affordable, you would need enough consistently healthy people in the insurance pool to offset those who are unlucky.

Finally, everyone's health status degrades as we age.  This is predictable right up to the point we turn 65 and become eligible for medicare.  Will an insurance market really cover predictable health care cost increases?  It would if enough of the young and healthy opted in.

You can never get truly universal opt-in to anything without some kind of government intervention.   Combining health status insurance with traditional insurance, in some ways, evens out premiums and gets you closer to Obamacare style exchanges - where everyone pays the same amount.  Finding a way for near universal coverage requires mandates.

Again, I'm not sure how you get there without something similar to Obamacare.    Cochrane suggests we should at least try and see.  Deregulate and let the markets work their magic.  If it doesn't work, people will suffer.  It's an expensive experiment to try and I'm not sure we really have the stomach for it.

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