Tuesday, January 18, 2011

Come on, Kathleen

Cross-posted from Critical Condition on National Review Online.


This morning, the Department of Health and Human Services released a report headlined, “At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans: 129 Million Could Be Denied Affordable Coverage Without Health Reform.” Get the implication? Without Obamacare, half of America would be left without health insurance.

Well, admits the actual report, maybe not exactly. The HHS estimates that anywhere between 50 to 129 million non-elderly Americans have “some type of pre-existing condition.” Between 50 and 129 — I’ve gotten more reliable estimates of next year’s weather. But the real laugher is in how the HHS takes the term “pre-existing condition” and mutates it beyond all recognition, in order to prop up our benighted new health-care law.

Let’s understand first what the problem of preexisting conditions is.

Because our World War II–era tax system allows employers to buy health insurance tax-free, while making individuals buy it with after-tax dollars, the vast majority of those under 65 get health insurance from their employers. This, in turn, creates the phenomenon of job lock: Individuals who fall ill at one job (or have family members who fall ill under their health plan) are afraid to leave that job, because switching jobs means switching insurance plans, and a new insurance plan is likely charge more to cover someone who is already sick.

Note that the words “denied coverage” are not present in the preceding paragraph. Indeed, as Michael Cannon points out, a 2001 HHS survey found that only one percent of Americans had ever been denied health insurance for any reason. Cannon brings us to two other studies, one by a Wharton economist and one by the RAND Corporation, both of which echo the HHS data. As Cannon writes,
It is true that insurers charge higher premiums to many people with pre-existing conditions — and it is crucial that they have the freedom to do so.  Risk-based premiums create virtuous incentives for people to buy insurance while they are healthy and to be cost-conscious consumers.  They also encourage insurers to develop innovative products that protect against the risk of higher premiums.  The real problem here is that the government has created an employment-based health insurance system that denies consumers the protections that unregulated markets already provide, as well as additional protections that insurers would develop absent this government intervention.
Our health-care system, pre-Obamacare, was far from perfect. But it’s exceptionally dishonest to say that half of Americans are at risk of losing their coverage without Obamacare’s blizzard of mandates and controls. Instead of creating two new entitlements and hundreds of thousands of pages of new regulations, we could have done something much simpler: equalize the tax treatment of individual and employer-sponsored health insurance.

There are lots of ways to do this, depending on if you want to increase or reduce taxes. You can eliminate the employer loophole altogether, raising taxes by over $300 billion a year, making a huge dent in the budget deficit. Or, you can extend the tax break to all individuals, whether employed, self-employed, or unemployed. Finally, you could split the difference: reducing the tax break for employers, but increasing it for individuals.

Once people are buying insurance for themselves, rather than depending upon their employer, their insurance stays with them. If you lose your job or change jobs, your insurance will still be yours, just as your auto insurance and your life insurance stays with you regardless of where you work. And if you have insurance, like most Americans do, the issue about preexisting conditions is irrelevant: If you are sick, your insurance provides the coverage it is meant to provide.

Sebelius and her HHS colleagues try to morph the definition of “preexisting conditions” into “conditions.” Take this random sample of Sebelius’ assault on the English language:
An analysis of a survey that follows people over time found that, among healthy people—reporting very good or excellent health with no chronic conditions—today, 15 to 30 percent (depending on their age) will develop a pre-existing condition within the next eight years.
So, let’s get this straight. Fifteen to 30 percent of Americans will, in the future, develop a preexisting condition. This only makes sense if the HHS has also invented time travel.

A person who has health insurance, and later becomes ill, does not have a preexisting condition. He has a condition of the plain old “existing” kind—one that his insurance will help pay for. This is exactly how insurance is supposed to work.

Millions of young, healthy people who can afford health insurance today choose not to buy it. Obamacare will allow them to buy it after they get sick — because, aha! They now have a “preexisting condition.” This is exactly the opposite of how insurance is supposed to work.

Obamacare’s advocates want you to believe that, without their 2,300-page, trillion-dollar extravagance, half of America would lose their health insurance. The reality is that preexisting conditions is a problem affecting a minute fraction of Americans, a problem that could be solved with a simple, one-page bill.

If Republicans repeal Obamacare and replace it with a straightforward law that equalized the tax treatment of employer-sponsored and individually-purchased health insurance, they will have done more for real health-care reform, and for people with real preexisting conditions, than the last forty Congresses put together. Let’s hope they get their chance.

16 comments:

  1. I know people who have been unable to get insurance because of their illnesses. It really happens.

    Steve

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  2. No one's claiming that there are folks who don't qualify for underwritten polices. But riddle me this: how come they're not all flocking to the ObamaPools© which are guaranteed issue and cover pre-existing conditions?

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  3. Tying premiums to tax breaks makes no sense for the unemployed because they don't pay taxes. I posited this question to several conservative bloggers and never got an answer:

    Working family man with employer sponsored health care gets laid off. He has a kid with juvenile diabetes. His COBRA payment would be $1,400 a month. His unemployment is $900. So he has access to insurance but it's totally unaffordable. Are he and his family entitled to care beyond the ER? Who pays for it and how?

    And he can't shop around because his kid is sick. So he's stuck between a rock and hard place. The conservative response is "Tough luck, I got mine..."

    Sebelius is an idiot and the Conservatives are heartless. Pick one...

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  4. "Tying premiums to tax breaks"

    I don't recall making that case nor, AFAIK, has Avik proposed it. OTOH, it's not necessarily the case that "the unemployed ... don't pay taxes;" I can cite several instances of those who do.

    "Working family man...gets laid off"

    First, you're making a very strong case for uncoupling health insurance from employment, a position I have advocated for many, many years.

    Second, there are many "safety net" programs already in place (SCHIP, Medicaid, etc) without destroying the entire system.

    Finally, I agree with your penultimate point and find no evidence to support your final one.

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  5. Re: Henry - From the body of the blog text:

    "Or, you can extend the tax break to all individuals, whether employed, self-employed, or unemployed."

    So yeah, Avik is making that inexplicable case.

    And about SCHIP and Medicaid, Conservatives don't like those either.

    BTW, I am neither a Liberal nor a Conservative because both normative ideologies are inchoate.

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  6. Hi guys,

    Just so no one has to speculate as to what I think:

    I believe that the employer tax exclusion should be eliminated, so that individuals are on a level playing field with employers, and so that we aren't subsidizing excessive health spending.

    http://www.avikroy.org/2010/09/tax-increase-conservatives-should.html

    You won't lose your insurance if you own it yourself, just as you don't lose your auto insurance when you lose your job. If you can no longer afford insurance, that is a different matter from losing it as a result of losing your job (i.e., even someone with substantial savings loses his health plan today if he loses his job).

    I don't like SCHIP and Medicaid because they give their beneficiaries extremely poor care at extremely high prices. Much better to give a straight cash subsidy to the poor, as I describe here:

    http://www.avikroy.org/2010/07/medicaid-reform-in-one-easy-step.html

    Hope that helps.

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  7. Avik,

    Thanks for the reply. Let's apply your subsidy to the employed Working Guy. If he can find a COBRA like policy on the open market at $1,400, with your recommended subsidy, ($7,631) he'd still come up $786 a month short. Which would leave him $114 from unemployment after paying the premium to provide for his family.

    Say he is still working and making 10 bucks an hour. Subtract out FICA and state/local/sales taxes so he nets $8.50 and hour. Then he takes home about $1,428 per month. His health care premium with your subsidy would consume half his take home pay.

    And again, that's assuming he has access to a COBRA like policy. If he has to shop around and admits his kid has juvenile diabetes, he could be priced out of the market place all together.

    But say he can find a less expensive high deductible policy, (like the conservatives recommend). And say a family member has an acute health event. All of a sudden he has to come with 5 grand to pay the deductible. If he can't pay what happens?

    About pre-existing conditions. The fact is that the Conservative plans would price ration. I.e., those with pre-existing conditions could indeed buy insurance, but it would be unaffordable for most.

    Moreover, for anyone over 50, not having a pre-existing condition is probably the exception. So older people in between young health and medicare coverage are screwed once they admit to the common fralities of life even apart from lifestyle induced illness. E.g., from the insurance company PoV: 52 yr old has medical history of chronic arthritic knee pain => possible knee replacement => high premium.

    Let me close with lifetime caps. Well they make sense from an economic perspective, but from an ethical perspective, what do you do with the poor slobs who have expensive, lifetime maladies and reach the cap? Not treat them?

    In all of these types of cases, sick people generally do get treated, but the health care providers have to eat the expenses. Like it or not, already sick people are going to need some kind of extraordinary subsidy to participate in a rational health care market. (The ER service model is not rational.)

    I'm all for capitalism. But sick people are not rational consumers and the idea that someone with appendicitis would shop around for a surgeon does not make sense.

    The people at NRO are all fat and happy spouting Darwinian logic regarding health care. Which is easy if you already have insurance. With a tanked economy and nearly 20% real unemployment, the numbers of real people getting hammered by health costs is only increasing. Telling them to fork over possibly a couple grand month or pound sand is not my idea of solution.

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  8. Avik, put down the Atlas Shrugged and look at the issue rationally. Or, better, irrationally. Because you're acting as if leveling the tax-treatment playing field somehow generates just the kind of rational action you need to really change how health care is deployed - when 1/3 of health spending is generated by 1% of the people.

    Once you've wrapped your mind around the power law-ness of that reality, you'll probably recognize that your tax-tweaking proposals are equivalent to finding JUST the right angle for your deck chair on the RMS Titanic. Pre-ex is political entertainment, and non-covered Elvis has left the building.

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  9. SteveM: A liberal conceit that you should try to discard is that only liberals care about the poor. We have a disagreement about how best to serve the poor -- but making ad hominem attacks rather than arguing policy is pointless.

    I believe we should move to a Swiss system, in which everyone buys private insurance on the individual market, and we subsidize the insurance of lower-income people. This pretty much addresses everything you write about above.

    Anonymous: I'm no Objectivist, so no need to ask me to put down the Rand. The statement that "1/3 of health spending is generated by 1% of the people" isn't that informative: the real question is, is that concentration unusual, compared to what see in different industries or different societies?

    To me, it doesn't matter who is spending the money or consuming the care. What matters is we do so as efficiently and fairly as possible, by allowing individuals to make decisions for themselves.

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  10. Who is this guy who loses his job (and therefore his employer provided health insurance) and only gets $900 a month in unemployment? Your guy was only making $23,000 a year here in Washington state and probably wasn't getting a $1400 per month medical plan from his employer.

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