Higher Premiums, Less Coverage?

Could health-care reform actually lead to fewer people being insured? Harvard economics professor Martin Feldstein argues that the answer is yes:

A key feature of the House and Senate health bills would prevent insurance companies from denying coverage to anyone with preexisting conditions. The new coverage would start immediately, and the premium could not reflect the individual's health condition.

This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums. (Separate accident policies might develop to deal with the risk of high-cost care after accidents when there is insufficient time to buy insurance.)

The higher premium level would cause others who are currently insured to drop coverage, pushing premiums even higher. The result would be a spiral of rising premiums and shrinking numbers of insured.

Now, as Feldstein explains, there are already fines built into the bill to prevent this. But for many people, those fines won't be enough to keep them in the insurance pool:

Consider: 27 million people are covered by health insurance purchased directly, i.e. outside employer-based plans. The average cost of an insurance policy with family coverage in 2009 is $13,375. A married couple with a median family income of $75,000 who choose not to insure would be subject to a fine of 2.5 percent of that $75,000, or $1,875. So the family would save a net $11,500 by not insuring. If a serious illness occurs—a chronic condition or a condition that requires surgery—they could then buy insurance. Since fewer than one family in four has annual health-care costs that exceed $10,000, the decision to drop coverage looks like a good bet. For a lower-income family, the fine is smaller, and the incentive to be uninsured is even greater.

Feldstein thinks all of this could lead to greater subsidies, or perhaps a more dominant public option. I think it's possible he's underplaying the psychological cushion of having insurance, as well as the fact that people like having insurance to help pay for routine care (as I've noted before, many people in the U.S. understand health insurance as essentially a form of medical pre-payment). But no matter what, the larger point seems pretty clear (if not surprising): The potential unintended consequences for this version of health-care reform are huge.

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  • anon||

    More Taste, Less Filling?

  • ed||

    The solution is an obvious one: increase the penalty. Let's say, 10% instead of 2.5, and a year in prison. Because people who don't want help must be forced. For The Children™.

  • ||

    Ha, For The Children, awesome.

  • Bill||

    Well if you don't have the budget for it? Duh.... Fines, who cares, Just don't pay it either way. What? Put me in jail when they can put a killer there instead. Whatever... Maybe if they lower the premiums (I mean really lower them), more healthy people WILL Join in... You can take that to the bank and cash it.. Lower = More, Raise = Less.. Simple elementary people...

  • Bye Bye Obama||

    Pssst...ixnay on the uthtray.

  • ||

    Wait $1000/yr fine? Do faith healers have to pay this fine?

  • Bye Bye Obama||

    I raised that question a while back regarding people who don't believe in medicine such as member of the Church of Christ, Scientist.

  • Bill||

    Why go to the mechanic (Doctors) when you can go straight to the manufacture (God) for a Fix... :-)

  • ¢||

    Predictable consequences are not unintended.

  • ||

    Sweet, cent sign. I believe you have just coined a new Iron Law.

    So let it be written.

    Query: Should that be "predictable" or "foreseeable"?

  • ||

    "Foreseeable" is more definitionally correct.

  • ||

    Adopted as amended. Iron Law No. 7:

    7. Foreseeable consequences are not unintended.

  • James||

    We just need a law to say that you must buy insurance and be done with it.

  • Rich||

    This has been discussed before -- but some reduction in cost/demand might result if people didn't have to go to the doctor to obtain drugs they know how to use. Why should (educated) medical self-treatment be different from, say, DIY power-tool-based home-improvement?

  • Ron||

    I've thought about that before. Here's the only concern I can think of -- and feel free to set me straight -- but there's always been a danger in the over-prescribing of antibiotics due to the nature of bacteria developing resistences, thereby creating superstrains that cannot be treated. What is the non-governmental solution to protect against that?

  • Cracker Jack||

    "Why should (educated) medical self-treatment be different from, say, DIY power-tool-based home-improvement?"

    I still have a scar on my arm from where the drill bit went in...

  • Rich||

    I gots to know: Did you have medical treatment for that?

  • Cracker Jack||

    No. Not too much can be done for a puncture wound.

  • Rich||

    IOW, you flushed it out with peroxide and packed it with amoxicillin powder you bought in Mexico?

  • Bill||

    It was a lesson learned wasn't it? I bet you'll do even better next time.

  • Xeones||

    Predictable consequences are not unintended.

    You may be overestimating the predictive intelligence of Congress by several orders of magnitude.

  • hmm||

    You may be overestimating the predictive intelligence of Congress by several orders of magnitude.

  • hmm||

    Or the intention of Congress, either way.

  • hurly buehrle||

    This is precisely why 20% of Massachusetts residents are still uninsured in spite of the individual mandate here. You can only pay so much for crappy coverage before going without starts to make a lot of sense. Removing exclusions or differential premiums for pre-existing conditions would only make going without more attractive.

  • hurly buehrle||

    Interesting side question that just occurred to me: what about people whose religion forbids them to seek medical care? Will these folks be able to argue their way out of the ObamaCare mandate, sort of like conscientious objectors?

  • nebby||

    Unintended consequences are always possible with new plans. That is whyt we should adopt one of the versions of universal health care (Switzerland's is my personal choice, but Germany and several other countries would work as well) that have already proven themselves to result in better society wide outcomes than the failed US system.

  • ||

    When someone like you proposes this I always have to ask: what problem(s) are you trying to solve? And why not just address those problems instead of wholesale conversion to a socialist medicine regime?

  • relaxing||

    The problem is forcing insurers to cover preexisting conditions will drive healthy people to the loopholes described above, bankrupting the system.

    How would you address the problem?

  • ||

    Awww, nebby, naivete that deep is just so darn cute!

  • ||

    As a citizen of this medical paradise that is Germany, let me spell it out for you: Our health care system sucks ass.

  • ev||

    Can you elaborate on that Thomas? I even lived in Germany for six-seven months and I am embarrassed that I know almost nothing about Germany's system.

  • ||

    The german "public option" is mandatory if you earn less than approx. 47000 Euro/year. It's mandatory even if private insurance would be cheaper, which it almost always is. Without private insurance, it takes months to get an appointment for a medical examination. Therefore, public officials are NOT on their own "public option", but they all have private insurance. It's just sick.

  • ||

    I also understand that private options are not on the table unless you earn about 50k EUR/year.

    I keep coming back to this Kaiser Family Foundation study that shows that virtually none of the OECD states (okay, Sweden and Italy, see Exhibit 3 about halfway down the page) are containing cost growth. What none of the single-payer/socialized medicine types want to tell you or are blissfully unaware of is that the same third-party-pays dynamic pushing cost growth in the U.S. is also doing the same thing in France, Germany, Japan, the U.K., and Canada. (I understand Sweden has outright rationing, but I haven't looked into it that closely. I wouldn't be too surprised if Italy has a highly rationed medical sector, and another, informal sector for medical care that is much more responsive but considerably more expensive.) Of course, this doesn't get into the AMA's collusion to limit the number of new physicians minted each year (also a signficant factor), but it's a big, big reason.

  • ||

  • BakedPenguin||

    How about this: we create a free market health system, along with a public one funded by taxing other countries' use of medical and pharmaceutical innovations produced here in the States by the free market system.

  • Mike in PA||

    Nice to see a Harvard professor fiannly come out and say what we've been saying for months about this "stop denials based on pre-existing conditions" bull shit.

    We know what the true intention of that is.

  • relaxing||

    ...not fucking over people who get unemployed and then seriously ill?

  • ||

    those people are screwed over by the government and the regulations put into place. Removing those would go a long way. Have you ever wondered *why* someone loses their insurance when they lose their job? Maybe we should address THAT before instituting one of these mad schemes coming out of congress. Just a thought

  • Joe||

    "Fucking over". Insuring people with pre-ex conditions is not insurance, but rather charity. Charity is not a proper function of an insurance company...it will cause an adverse selection spiral. If you think that "insuring" people with pre-ex conditions is a moral necessity, then why don't we work to build a charity to handle this?

  • ||

    mandating that you can't be denied coverage for a pre-existing condition is typical of congress, trying to legislate away reality.

  • Rich||

    what about people whose religion forbids them to seek medical care?

    What about people whose religion forbids them to pay taxes?

  • hmm||

    I always wondered about the Amish and what exemptions they have to get.

  • Rich||

    Here ya go.

    Guess we gotta come up with a better religion.

  • ||

    You should talk to some cancer survivors or kids born premature before spouting your failed system bullshit.

  • relaxing||

    What would I learn if I did? Sorry, don't have a survivor or premie handy.

  • ev||

    Our system is fucked, but if you have cancer or AIDS or something...the US is right where you want to be. Cancer survival rates here are much higher.

    (I can't remember the figure, can anyone help me out?)

  • MP||

    The average cost of an insurance policy with family coverage in 2009 is $13,375.

    I see these type of figures all the time and I just don't get it. I spend $3650 for a high deductible (2500/year/person) policy. That means that even if all three of us got seriously sick and maxed the deductible, we'd still be paying less than the national average.

    I just don't get why anyone would pay 13000 up front for coverage that they'll likely use 1000 of.

    Kill the employer based insurance system and watch the mass transition to high deductible policies (and the mass savings that will come from that).

  • ||

    But how will the neo-Fabians in charge extend their reach of control over the populace that way?

  • Cracker Jack||

    My employer (with ~8,000 employees) has already transitioned to high deductible policies. They pay for the whole thing and put $500 in my HSA.

  • whappan?||

    "I just don't get why anyone would pay 13000 up front for coverage that they'll likely use 1000 of."
    Because many are paying that through there employer, and don't see it, and would get nothing if they forgo the coverage. Also many states (such as New Jersey where I live) outlaw policies such as yours. It's either incredibly expensive, all inclusive, low/no deductible insurance, or nothing.

    As almost everyone knows, but many won't admit, the solution is to let people to buy across state lines and get rid of most, if not all regulations, eliminate the AMA's stranglehold on the medical profession and restrictions on the supply side, and remove the tax code distortions which tie health insurance to employment.

  • creech||

    My company just recently finished the renewal process for next year's health insurance. The difference in annual cost between the high deductible plan and a lower deductible plan was almost exactly the difference in the deductible - that is, if every participant hit the deductible, and the company self-insured the deductible, the annual cost of the company (I know, the employee is the real payer) would be equal. But we know that 100% of the employees would not hit their deductible. Even though it made sense to go with a high deductible plan, and insure the difference, the boss said "no" because of the perception and the fear that someone might start a unionization drive if their "dollar one" health benefits were cut.

  • Colin||

    What they'll eventually do is what other countries with socialized medicine do: they'll deduct the premiums directly from your paycheck.

    You will obey.

  • Pat in va||

    Why not do for pre-existing conditions like auto insurance does for high-risk drivers, i.e. an SR-22 to spread the high risk cases across different insurance companies. Then after a couple of years on the high-risk policy they automatically be converted into a regular policy.

  • MP||

    A pre-existing condition is not a risk. It's a given.

  • ||

    Realistically, however, we'll need to have a grace period or something where we have to give people an out who have been screwed by the current employer-based system. We MUST transition away from it eventually and the transition has to be fair to those who have been screwed by it.

  • OMG||

    What he didn't mention in the article (and what no one else has caught) is that the latest proposal is to not only levy a charge on anyone who chooses not to be insured, but to also have a 6 month waiting period (regardless of how dire the condition) for those without insurance wishing to join the public plan. This is their sad attempt to prevent people from gaming the system by staying uninsured (cheaper) until they get sick.

    But wait ... wasn't the argument for compelling people to purchase insurance that if they are uninsured we pay for them in the emergency room anyway? (and that as a compassionate society we couldn't allow people to just die out in the streets even if they made bad choices)

  • ||

    That's one argument for it. And that argument is beyond stupid since all uncompensated health care in the US -- including those ER visits -- is under $40 billion per year. That's a third what the insane legislation running through Congress will cost per year over the next decade.

  • ||

    It's not actually true that we pay for people in the emergency room.

    At least last time I went to the emergency room, I still had a bill afterwards.

    There is a tiny, almost miniscule, percentage of emergency room patients who get treatment and then never paty the bills. Mainly homeless.

  • ||

    This well-intentioned feature would provide a strong incentive for someone who is healthy to drop his or her health insurance, saving the substantial premium costs. After all, if serious illness hit this person or a family member, he could immediately obtain coverage. As healthy individuals decline coverage in this way, insurance companies would come to have a sicker population. The higher cost of insuring that group would force insurers to raise their premiums.

    It took a Harvard economics professor to explain this to the Post's readers?

    Isn't it blindingly obvious?

  • OMG||

    Well, technically, under the latest proposal what he says "... he could immediately obtain coverage.." is not true: the latest proposal requires a 6 month waiting period. So, the gov't is going to tell someone who has opted out and paid the penalty who develops cancer, "sorry come back in 6 months".

    Does anyone think that will happen; I'm of two minds. On the one hand, I can fully believe the gov't saying go die in the streets once they get the control over 1/6th of the economy that they want, while on the other I think there would be hell to pay if the MSM ever decided to report a few such instances.

  • ||

    What they will do is transfer all those uninsured people to a public plan. Which will probably suck more money out of the treasury than the fines bring in.

    You'll end up on the public plan for at least the six months it takes until the private company will take you.

    So the same dynamic will still take effect. More people will go uninsured, knowing that they at least have a government-run safety net in case they get seriosuly ill. And then, if they can afford it, they buy private coverage. But private coverage will get increasingly expensive.

    So we still end up with everyone on the public plan. Which will suck money out of the treasury, and still require some kind of government rationing.

  • OMG||

    That makes sense. My wife and I are planning on escaping to Hong Kong ... if we do, we will pay the penalty (still US Citizens) but obviously, if one of ever got really sick, come back to the State and opt into the gov't plan.

    This is a real sick joke

  • ||

    Can I drop my employer coverage (which costs me money) and be on the gov't dole? (And still contribute to my HSA?)

  • ||

    As a former health insurance underwriter, this is incredibly obvious stuff.

    Note that a majority of Congress is either too stupid to figure this out, or it is not in their personal interest to publicly recognize that this is the likely outcome.

  • ||

    The entire medical system is one monopoly from A to Z. Eliminate prescription laws, allow people to purchase their drugs from the lowest cost provider, develop medical diagnosis computer software, develop and improve "medical tourism" and a whole lot of problems suddenly "go away". The reason medical care cost so much is because it is a total monopoly. Force it to become "free market" and the prices will drop a whole lot!

  • ||

    There's no way the big Insurers are going to accept new sick patients, without some government compensation. Maybe that will be the "compromise" that brings insurance company whores like Lieberman on board. People that actually use the benefits will either be on Medicare, the Public Option or heavily subsidized by taxpayers through some king of payment scheme to insurers. Younger and healthier people will still be welcome to be on private plans.
    The Insurers want the same deal the banks got: private profits and socialized losses/expenses. They may have to pony up more in campaign contributions, but it will be worth it.

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