Tuesday, August 18, 2009

Interesting questions on health insurance

Megan McArdle has some trenchant questions on health insurance reform:

Interesting questions remain. Will the health-care co-ops be exempt from the tangle of state regulations that have resulted in near-monopolies in many areas? I presume that Democrats still want guaranteed issue and an individual mandate, but aren't these the parts that are actually going to anger constituents? In Massachussetts, more people seem to think they've been hurt by the plan than helped by it. Meanwhile, the costs are skyrocketing, and control has so far been elusive.

The core problem is this. You have four groups of uninsured people:

Immigrants, who probably aren't going to get insured anyway. This is presumably why Massachussetts spending on the uninsured has only fallen by 40%, even though the number of uninsured people has plunged about 80%.

Young healthy people who don't need much health care

Working poor sick people

Affluent people who are uninsurable because of some pre-existing condition

Advocates of reform believe that the number of people in Groups 3 and 4 who are not receiving needed care is large. The idea of a mandate, combined with guaranteed issue, is to force Group 2 into the insurance pool. This is supposed to pay for the care of the people in Groups 3, 4, and (arguably) 1. But the people in Group 2 don't have that much money; most of them are working marginal jobs, which is why they don't have insurance. They're also Obama voters who think that health care reform will give them cheap health insurance, not force them to shell out $500 from a meager paycheck to cover someone else's high-risk pregnancy.

That means we have to dip into the pockets of Group 5: people with insurance. Either they have to pay higher premiums, or they have to pay higher taxes, or they have to get less stuff. This makes them anxious. Unfortunately, most of them are satisfied with their insurance, so the only thing that you can offer them is the relief from the fear that they'll lose their job and their insurance coverage. That's not nothing. Options are valuable. So is peace of mind. But is it worth hundreds of dollars a month to the average family?

Good questions.

A big part of why it's hard for the average family to know whether health insurance reform will make them better off or worse off is that so much of the costs of the current system are hidden.

The cost of health care in this country averages over $8,000 per person, but many people don't realize how much of those costs they are already paying under the current system, because our health care pricing system is so opaque.

The costs of health care are borne in many insidious and invisible ways--it's not just the tip of the iceberg that people see explicitly deducted from their paychecks in the box labelled "payroll deduction for health care premium." That's just the employee's share. The employer's share is typically much greater--and economists believe that workers actually bear that cost in the form of lower wages than they would otherwise get. In addition, people pay for health care in countless other ways. There are the Medicare taxes they pay quite visibly, but there's also the employer's matching contribution to Medicare as well (again, the burden is ultimately probably borne by the worker.) Then there's the significant share of income taxes, property taxes, and sales taxes that goes to pay for other government health programs--everything from health care for the poor (Medicaid) to health care for veterans (the VA) to health care for government employees and retirees.

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