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What If They Had a Health-Care Reform Bill and Nobody Could Support it?

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I'm firmly on the record as being willing to support all manner of compromises on health-care reform. Policy dogmatism has not, over the long history of this issue, proven a successful strategy. But there's an increasingly evident path by which health-care reform begins to hurt the very people it's meant to aid. As Jordan Rau reports, making health-care reform affordable for the centrists in the Congress could make it unaffordable for the people.

The basic structure of the bill has three main planks working in conjunction with each other: The individual mandate creates a mechanism for a universal, or near-universal, system. A universal, or near-universal, system creates the conditions for insurance market reform. The subsidies make the individual mandate affordable for people to follow.

There are a few ways to destabilize this system. The most likely way is to reduce the subsidies so that the individual mandate isn't really affordable. That seems to be happening even as we speak. At that point, reformers have two options, both of them bad.

The first option is to reduce the value of the minimum insurance policy such that buying something the government considers insurance isn't very expensive. This means policies with high deductibles and co-pays, or policies that don't cover very much. But asking someone with a relatively low income to purchase a policy with a $1,500 deductible and significant co-pays is asking them to purchase something they can't really afford to use. So we're making them spend $7,000 or $8,000 a year on something they don't necessarily want and can't really take advantage of. That's a recipe for a huge backlash.

The second option is to drop the individual mandate altogether. Obama, who didn't have a mandate in his campaign plan, might be amenable to this approach. But here, too, there are problems. The young, healthy risks will hang back from the system while the older, sicker risks will flood in to take advantage of subsidies and new regulations that stop insurers from discriminating against them. The risk pool will reflect that, and health-care insurance will become even more unaffordable for the people who need it. And because it's less affordable because of the presence of the sick, it will become even less attractive to the healthy.

The happy news is that the difference between a plan with decent benefits that's affordable for people and a plan that's not affordable for people and doesn't offer decent benefits is not that large. Optimally, you'd want to spend about $1.3 trillion over 10 years. You could probably do it for $900 billion to $1 trillion. But you can't do it for, say, $700 billion, which is a number I'm hearing fairly frequently.

The difference between doing this right and doing this wrong is, in other words, about $30 billion a year, or $300 billion over 10 years. To put that in perspective, many of the legislators who are balking at the cost of health-care reform voted for the Kyl-Lincoln bill to reform the estate tax at a cost of $75 billion a year, or $750 billion over 10 years. You can make health-care reform work at a price tag that legislators are, in theory, willing to bear, at least when the tag is attached to tax cuts.

Photo credit: By Mary Schwalm — Associated Press

By Ezra Klein  |  September 4, 2009; 3:04 PM ET
Categories:  Health Reform  
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Comments

I always saw reform without an individual mandate the second or third best option for liberals. Its an operation chaos type thing. You could practically bring the whole system down and make sure that everyone pushes for real reform in the future.

Posted by: JonWa | September 4, 2009 3:28 PM | Report abuse

Once the structure of reform is in place, is it really that hard to change the subsidies from 300% to 400% of poverty or the minimum insurance level from 65% to 75%?

Make the deal now. Perfect it later.

Posted by: mayorm | September 4, 2009 3:40 PM | Report abuse

It's such fun to talk about how to spend other people's money, innit?

Posted by: msoja | September 4, 2009 3:42 PM | Report abuse

Why is there a picture of Larouchies in this post? Or any article not about Larouchies, for that matter?

Posted by: wallaceforman | September 4, 2009 3:45 PM | Report abuse

"The second option is to drop the individual mandate altogether. Obama, who didn't have a mandate in his campaign plan, might be amenable to this approach. But here, too, there are problems. The young, healthy risks will hang back from the system while the older, sicker risks will flood in to take advantage of subsidies and new regulations that stop insurers from discriminating against them. The risk pool will reflect that, and health-care insurance will become even more unaffordable for the people who need it. And because it's less affordable because of the presence of the sick, it will become even less attractive to the healthy."

For the record, I'll go back to the point I made during the Obama-HRC mandate wars. While the above is technically true-- its only true in the long run. In the short run, I believe a community-type rating without a mandate would be actuarially stable for a number of years. The rate of young/healthy who would forego health insurance because of the ability to get in later is the key question. I'd expect the actual rate to be low, meaning that insurance companies could survive with insurance reforms sans a individual mandate for at least five years. Of course, AHIP et al. would love to use the above theoretical concern to push for a full mandate (read: more business) in exchange for accepting the reform package. Politically, this may be a reality, but actuarially its not. The proof in the pudding for me, is that the insurance reforms are likely to remain, as will an unenforceable mandate (i.e. weak penalties) coupled with stingy subsidies. Meaning, people will still theoretically "game" the system, and insurance companies will still survive without excluding for pre-existing conditions.

Posted by: wisewon | September 4, 2009 4:01 PM | Report abuse

Erza, I generally enjoy your posts, but this one is quite mistaken.

You say:
"The first option is to reduce the value of the minimum insurance policy such that buying something the government considers insurance isn't very expensive. This means policies with high deductibles and co-pays, or policies that don't cover very much. But asking someone with a relatively low income to purchase a policy with a $1,500 deductible and significant co-pays is asking them to purchase something they can't really afford to use. So we're making them spend $7,000 or $8,000 a year on something they don't necessarily want and can't really take advantage of. That's a recipe for a huge backlash"

Actually, even for a low-income worker making only $20,000/yr, a policy with a $1500 deductible but a $0 co-payment for "preventive care" is quite a good policy, in that it is 'insurance' in the classic sense -- protection against catastrophic (read $5,000, $10,000 or more) expenses.

So....if that worker with the $1500 deductible is injured, yes, he will be $1500 in debt, but...a $1500 debt, while hard at $20,000 is *not* crushing. $3000 would be getting to be too much. $1500 is not crushing.

So what you need here is simply more careful math. And...not to argue from your conclusion backwards.

Now, having said that, your concern is a valid one to consider, and it's a matter of *precise* mathematics, not an idea alone.

Posted by: HalHorvath | September 4, 2009 4:22 PM | Report abuse

I always saw reform without an individual mandate the second or third best option for liberals. Its an operation chaos type thing. You could practically bring the whole system down and make sure that everyone pushes for real reform in the future.

Posted by: JonWa | September 4, 2009 3:28 PM | Report abuse


how happy would you be to destroy the system that 85% of Americans favor? you don't see a problem with that?

and the right has crazies too but this takes the cake.

no republican will sign on for an end to pre-ex without an individual mandate.

Posted by: visionbrkr | September 4, 2009 4:31 PM | Report abuse

Why is an individual mandate necessary to impose regulations on huge insurance companies that are making billions of profits? They wouldn't come close to going out of business if we did the regulations without the mandate.

Posted by: redwards95 | September 4, 2009 4:40 PM | Report abuse

Basically I agree, but the people who claim to be fiscally responsible just don't want to pay for low-income people, so they want to peg the subsidies leading to this unfortunate result. There definitely should not be an individual mandate without very robust subsidies and regulation.

And Blanche Lincoln co-wrote the estate tax repeal because the biggest supporters of it were the Wal-Mart heirs (along with the Mars heirs). More money for your richest constituents just doesn't equate to more health care for many of your (poorer) constituents who don't seem to want it anyway if it comes from the guvmint. And besides it was one thing to vote for Bush extravaganzas when we had or were coming off of a surplus and voting for them after Bush doubled the deficit.

Posted by: Mimikatz | September 4, 2009 4:44 PM | Report abuse

"The young, healthy risks will hang back from the system while the older, sicker risks will flood in to take advantage of subsidies and new regulations that stop insurers from discriminating against them."

That depends, in part, upon whether the young healthy risks are made to fully subsidize their older, sicker compatriots. Even in a system with community rating you can have multiple risk pools, each with its own price tier. In effect people would be paying premiums based on the cost of insuring against accident or illness befalling people of like risk.

However, even as such a program would greatly mitigate the adverse selection problem it would create another: namely that some sick and accident-prone people of limited means would then find insurance unaffordable. Better, I think, to subsidize these people to the extent necessary but have them bear as much of the costs as their income will allow. I don't think it's in society's interest to fully socialize these costs. To some extent we want people to internalize the costs of bad choices(e.g., unhealthy habits, risky pursuits). Also their higher contributions will partially fund the expanded coverage and serve as an incentive to change their risk profiles for the better.

Posted by: tbass1 | September 4, 2009 4:50 PM | Report abuse

I always saw reform without an individual mandate the second or third best option for liberals. Its an operation chaos type thing. You could practically bring the whole system down and make sure that everyone pushes for real reform in the future.

Posted by: JonWa | September 4, 2009 3:28 PM | Report abuse


i'm scared to ask what one of the first two are (assuming one is single payer).

---------------------------------

redwards95,

so basically what we should do is totally get rid of personal responsibility right? So I won't be covered by insurance until which time I get sick. How long do you think that system will last? you really need to better understand risk management. Let's take car insurance for example. how about we only have people buy car insurance after they get into an accident and want it to be covered. you know how much that would cost. The insurance would cost as much as it is to fix your car. So in that scenario I hope you don't have cancer and if you do I hope you've got millions saved up to pay for it. If you get hit by a bus instead good for you, your heirs get to keep any surplus.

-----------------------------------------

and i'd be all for subsides up to even higher levels than even the most liberal senators suggest although I'd want to make sure people were still accountable somehow. Once everyone's accountable the costs will come down and with a threat of a trigger insurers will be forced to keep costs down for fear of their own survival. Hello 90's all over again. The only time costs were in line. Obama can then have his victory here.

Posted by: visionbrkr | September 4, 2009 4:54 PM | Report abuse

A financial transaction tax would both begin to stabilize wall street and bring in additional funds.

Posted by: patrick27 | September 4, 2009 5:19 PM | Report abuse

An individual mandate with subsidies and no public option would be a huge giveaway of government cash to insurance companies, a giveaway on a TARP scale. This would be a crime. If there is no public, co-op, nonprofit option, the mandate must go.

We just can't transfer that much government wealth to the insurance companies--they already own half our Senate...they could become even more of a juggernaut then. I can't believe that fiscally 'responsible' conservatives want to give all our tax money to those already very profitable companies. Not acceptable.

Posted by: evangeline135 | September 4, 2009 5:22 PM | Report abuse

unlike the technocrats here, i don't want to talk about the nuances of a reform program, i want to talk about ezra's key point: the willingness of congress to spend or not spend depending upon the generic category.

not only was the congress willing to pass an enormous tax cut in 2001 without any evidence that bush's claim that the lockbox would be protected had any truth to it, congress was willing to fund the iraq war as an emergency appropriation for every year that bush was in office.

and each of those years cost more than $30B.

indeed, when john kerry tried to stop that ("i was for it before i was against it"), not only did the gop vote down fiscal responsibility on the war in iraq but they lampooned kerry for attempting fiscal responsibility.

how it is that no single reporter asks any republican or democrat who opposed kerry's attempt to pay for the war in iraq why that spending was ok and health-care reform spending isn't is beyond me (and yes, that's rhetorical: i know why. iowyar).

Posted by: howard16 | September 4, 2009 5:28 PM | Report abuse

An individual mandate with subsidies and no public option would be a huge giveaway of government cash to insurance companies, a giveaway on a TARP scale. This would be a crime. If there is no public, co-op, nonprofit option, the mandate must go.

We just can't transfer that much government wealth to the insurance companies--they already own half our Senate...they could become even more of a juggernaut then. I can't believe that fiscally 'responsible' conservatives want to give all our tax money to those already very profitable companies. Not acceptable.

Posted by: evangeline135 | September 4, 2009 5:22 PM | Report abuse


that would be true IF there wasn't a required loss ratio of 85% but there is. you should really read the bills.

Posted by: visionbrkr | September 4, 2009 5:38 PM | Report abuse

An individual mandate with subsidies and no public option would be a huge giveaway of government cash to insurance companies, a giveaway on a TARP scale. This would be a crime. If there is no public, co-op, nonprofit option, the mandate must go.

We just can't transfer that much government wealth to the insurance companies--they already own half our Senate...they could become even more of a juggernaut then. I can't believe that fiscally 'responsible' conservatives want to give all our tax money to those already very profitable companies. Not acceptable.

Posted by: evangeline135 | September 4, 2009 5:22 PM | Report abuse


that would be true IF there wasn't a required loss ratio of 85% but there is. you should really read the bills.

Posted by: visionbrkr | September 4, 2009 5:39 PM | Report abuse

visionbrkr-

"that would be true IF there wasn't a required loss ratio of 85% but there is. you should really read the bills."

It makes no difference. A 15% profit (even if they did that, which I doubt), would still be a 15% of ALL THAT GOVERNMENT MONEY. It would be a huge amount. People need to understand. It would be needless waste.

Posted by: evangeline135 | September 4, 2009 5:56 PM | Report abuse

evangeline135:

"We just can't transfer that much government wealth to the insurance companies..."

It was private wealth before it was government's.

"I can't believe that fiscally 'responsible' conservatives want to give all our tax money to those already very profitable companies."

Actually they'd prefer to stop the transer upstream (i.e., before it was given to the government).

Posted by: tbass1 | September 4, 2009 6:04 PM | Report abuse

evangeline135--Just fyi: medical-loss ratio doesn't refer to profits; it refers to how much out of the pool of insurance money goes to medicine vs. other things.

Posted by: brad12345 | September 4, 2009 7:42 PM | Report abuse

visionbrkr-

"that would be true IF there wasn't a required loss ratio of 85% but there is. you should really read the bills."

It makes no difference. A 15% profit (even if they did that, which I doubt), would still be a 15% of ALL THAT GOVERNMENT MONEY. It would be a huge amount. People need to understand. It would be needless waste.

Posted by: evangeline135 | September 4, 2009 5:56 PM | Report abuse


evangeline,

please. its not profit.

Insurers profits in 2006 were 15.3 billion. medicare fraud and abuse 60 million.

on top of that those that claim medicare runs at 3% admin cost are ridiculous. They don't charge those costs to medicare plus they don't pay 5% premium taxes that insurers do.

You're arguing apples and oranges and my apples are absolutely more cost effective than your oranges.

Posted by: visionbrkr | September 4, 2009 8:00 PM | Report abuse

"A 15% profit (even if they did that, which I doubt), would still be a 15% of ALL THAT GOVERNMENT MONEY. It would be a huge amount. People need to understand. It would be needless waste."

What are you talking about? Insurers only make 3-6% profit today, without any minimum loss ratio requirements. If you think insurer profits are the big problem with our health care system you are sadly mistaken.

Posted by: ab13 | September 4, 2009 8:26 PM | Report abuse

I cannot support a plan without the public option, but regarding the MLR debate:

-Insurers find all manner of ways to expense things to get their MLR to where they want it.
-They artificially depressed their MLRs in recent years with the expectation they would eventually be required to increase them.
-It's true insurers are not main problem with our health care system. They are a convenient scapegoat, and since they pay the bills, pressuring them does ripple through the system somewhat.

Posted by: bmull | September 4, 2009 8:43 PM | Report abuse

visionbrkr et al:
Oh yeah, insurance companies are not making ANYTHING! They are just in it for their health! Heck, why do they even stay in business? They must be a buncha saints!

Profit margin is not the right measure for insurance companies anyway...ROE is the measure to look at:
United Health 17.0%
Aetna 13.5%
Cigna 13.0%
Wellpoint 11.5%
DIscussions of "profit margin" for them are worthless and distort the real picture.

It is corporate welfare to give these guys a DIME of government money.

Posted by: evangeline135 | September 4, 2009 10:00 PM | Report abuse

Using taxes to purchase health insurance for poor young healthy people is a bad use of precious resources.

It would be better to exempt the poor from the mandate and provide small tax credits to people who need, want and could afford to purchase insurance with a little help.

We could have insurance reforms and a lower cost bill.

Posted by: cautious | September 5, 2009 2:02 AM | Report abuse

"Actually, even for a low-income worker making only $20,000/yr, a policy with a $1500 deductible but a $0 co-payment for "preventive care" is quite a good policy, in that it is 'insurance' in the classic sense -- protection against catastrophic (read $5,000, $10,000 or more) expenses."

Wow. As someone who makes so little, I have $5 at the end of each month to spend on extras (and this is BEFORE I am forced to buy insurance), I should feel good about spending money I don't have now, when I can't even use it to go to the doctor?? So speaks someone who has never been poor. Or rather, so speaks someone who doesn't give a s*** about the poor, just about whether you will be personally affected by some other person's catastrophic illness at the emergency room because they don't have any insurance.

At least Snowe has the courtesy to care about people like me and try to work something out. You would just throw us to the lions in the quest for "working it out down the line." Yeah, right. When the Republicans are back in office or the Dems are once again bargaining away the working poor's interests, they will surely lower that poverty line threshold. Tell me another one.

Posted by: aka3000 | September 5, 2009 10:10 AM | Report abuse

'a $0 co-payment for "preventive care"'--

and of course, Congress will no doubt be letting the insurance company decide what is preventive care, and it sure won't include any treatment for chronic, pre-existing illnesses! I have no insurance now because I am blacklisted by the insurers at present. big deal, I'll be able finally to GET insurance, but I won't be able to afford to use it.

meanwhile, who are you to decide what is and isn't a crushing debt for me? in fact, because of lack of health insurance I ALREADY have major credit card debt and another $1500 would probably put me over the edge into bankruptcy. since one of my credit cards changed my previously fixed interest rate to a variable APR--to get around the oh so useless Congressional credit card regulation that allowed the credit card companies to screw the consumer in advance of the rules taking effect--as soon as the Fed starts raising the prime rate, I will be looking at defaulting on credit cards and bankruptcy again.

but, hey, I should be thrilled to get a policy with $1500 deductible and $0 copay for "preventive" care that I can't afford to pay for and that I won't be able to afford to use for illnesses that need treating. AND Congress is planning to gut the public option which was the only hope I had to get fair insurance coverage. personally, I don't want to give any of my money to the private insurance companies that have been telling me to go to hell for the last 7 years. but since Congress is controlled by rich people who take money from the insurance industry, I am on my own.

Posted by: aka3000 | September 5, 2009 10:32 AM | Report abuse

"Oh yeah, insurance companies are not making ANYTHING! They are just in it for their health! Heck, why do they even stay in business? They must be a buncha saints!"

evangeline, they are in it for the money, no one denies that. Only thing is, they don't make that much money. Competition, regulations, rapidly rising costs, there are many things that keep their margins low. You're creating this false dichotomy between either them making money hand over fist or them not wanting to be in business. Plenty of businesses earn low margins like insurers, it is just the nature of the business.

"Profit margin is not the right measure for insurance companies anyway...ROE is the measure to look at:"

That is not true at all, and I'd love to see you explain it without parroting something you read on a blog somewhere. A certain Good Will Hunting quote comes to mind.

It never ceases to be hilarious to hear people who know nothing about an industry spouting off in blog comments as if they are experts on the subject. So please evangeline, enlighten me with your detailed knowledge on the economics of the health insurance industry. I've got my popcorn ready.

Posted by: ab13 | September 5, 2009 10:41 AM | Report abuse

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