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Is this why Republicans can't support health-care reform?

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Imagine a world in which there are only 10 people. All of them want to buy health care. But some of them are sicker, or older, than others. Two of the 10 people cost $10 to cover. Two of them cost $2. And everyone else costs $5.

Like in our own world, the insurers are pretty good at discriminating against the sick. They deny coverage to the two bad risks. Average premiums are thus only $4.25 a person. That's not too bad.

But it is a bit cruel. After all, the people who need insurance most are locked out of the system. Recognizing the inequity, the 10 residents of our imaginary land elect Schmarack Schmobama president, in part because he's run on a platform of universal health care. He comes into office and passes a law saying insurers have to offer care to everybody at a similar price, and there will be subsidies to help those who can't afford the cost. What happens to premiums?

Well, as Michael Gerson says in his column today, they go up. With the two $10 risks included in the total, average premiums are now $4.40. The subsidies help people who can't shoulder the expense, but that's not quite the point. As Gerson writes, health-care reform has made "the average insurance plan more expensive." This is the first reason, he says, that "non-Maine Republicans object to the Senate Finance bill."

But the average insurance premium is now more expensive because insurers can't discriminate against the sick, and they can't discriminate as much against the old. Most of us -- even those of us in the middle class -- eventually become sick, and eventually become old. Our insurance plan might be more expensive now, and so we consider ourselves losers, but we won't be locked out later, which would have been losing on a whole other scale. Whether we come out ahead in a single year may well be different than whether we come out ahead over time. After all, insurance itself is a hedge against catastrophic bad luck. On some level, so too is this bill.

Moreover, this is emphatically not why non-Maine Republicans object to the bill, or at least it wasn't at one point. Republicans have bent over backwards to proclaim their openness to insurance market reforms. Sen. Mike Enzi, for instance, told AARP that "I support fundamental changes that would prevent insurance companies from denying access to anyone needing health insurance coverage." If everyone can access coverage, then the risk pool will become more expensive because the bad risks will no longer be locked out. Enzi, in other words, supports the fundamental change that raises average premiums.

Conversely, the pieces of the bill that have driven the most partisan bickering have been the elements that would drop the cost of average premiums. You may or may not like the public plan, but the Congressional Budget Office and many other analysts have said it will lead to lower premiums for consumers. The individual mandate has sparked a fair amount of Republican opposition, but its purpose is to pull healthy customers into the pool so average premiums remain low. The level of subsidies has created some controversy, but it will offset the premiums costs for most consumers.

Republicans have adopted the insurance industry's talking point that health-care reform will "make the average insurance plan more expensive." The problem is, most of them support, or have previously supported, the elements of the plan that drive that increase. And most of them oppose both the insurance industry's ideas for mitigating the problem (a much stronger individual mandate) and the elements of the Democratic bills that would drive down premium costs.

To make this a little bit more concrete, the photo atop this post is of Jean Perry, a woman who lost her job and could no longer afford health-care insurance. She was reduced to entering a lottery held by the Arlington Free Clinic. Average premiums go up because health-care reform won't let insurers lock people like Perry out of the system. Is that really the reason Republicans want to give for why they can't support this bill?

Photo credit: Mark Gail -- The Washington Post

By Ezra Klein  |  October 21, 2009; 12:38 PM ET
Categories:  Health Reform  
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Comments

$5.40, Ezra.

Posted by: JRoth_ | October 21, 2009 12:53 PM | Report abuse

Ezra,

The average of the all the 10 people is $5.40 -- not $4.40. That's, of course, a 27 percent premium increase ($5.40/$4.25 - 1) for insurance companies not being allowed to discriminate -- not that they should be allowed to discriminate.

Posted by: BradGabel2002 | October 21, 2009 12:53 PM | Report abuse

"You may or may not like the public plan, but the Congressional Budget Office and many other analysts have said it will lead to lower premiums for consumers."

First, the the CBO assessed a ~$100 billion savings over the $30-40 TRILLION in expenditures over the next 10 years. That's a rounding error, not a cost-savings.

More importantly, what were the CBO's assessments on opt-out rates among physicians? Does CBO assume that Medicare + 5% rates for the full decade? (Yes.) Is that realistic? (Probably not.) Did they factor in the $250 billion Obama has to give physicians to get their support for a public plan at those reimbursement rates? (Of course not.)

Oh. The CBO can't make assumptions on the likely politics. They take assumptions they are given, no matter how unlikely of them actually sticking. I'm glad that's the case for a number of reasons. But the CBO does not say that a public plan will lower costs. It say that when they use the assumptions provided to them around reimbursement for a public plan, no matter how politically feasible, that leads to lower spending.

Do you see the irony in writing that the Democrats should get credit for owning up to the realities of SGR, at the same time they are creating a new set of assumptions similarly unrealistic in their reform plan?

Posted by: wisewon | October 21, 2009 12:58 PM | Report abuse

I know that this scenario is supposed to be simplified, but I was left asking the question about the 2 people who were left uninsured before reform. Wouldn't premiums be higher because these people would end up going to the ER and driving up costs for everyone? If so, then the difference between reform vs. status quo in terms of premiums should be closer.

Posted by: adavidkent | October 21, 2009 1:11 PM | Report abuse

You can pay a low premium and not have insurance when you need it most, or you can pay a higher premium now, a lower premium later, and a better chance of being covered.

Politically, it's a bit like the mortgage deduction. Nobody's against it because everyone thinks they may eventually benefit from it. Yet the odds of growing old are certainly better than the odds of owning a home. At least I hope they are.

Except politically it's not like that at all. If people looked at mortgage deductions the way they look at health insurance reform, renters would be rioting in the streets about subsidizing other people's homes.

Posted by: inkadu | October 21, 2009 1:21 PM | Report abuse

Thank you for being intellectually honest about this, Ezra. As you say, the self-interested case is that it's probably worth it for premiums to go up if it is a hedge against losing your insurance if you get sick and/or lose your job (though it's also worth noting that under HIPAA, you can't be discriminated against for a pre-existing condition by your employer-based plan.) But all that said, why did everyone dump on AHIP for noting exactly what you say here--that under health care reform, people with employer-based coverage will see their premiums rise?

Posted by: tmana | October 21, 2009 1:35 PM | Report abuse

Ruh-roh Ezra, now Gerson is going to accuse you of being on Obama's unpaid policy staff again.

Posted by: Interceptor402 | October 21, 2009 1:36 PM | Report abuse

Ruh-roh Ezra, now Gerson is going to accuse you of being on Obama's unpaid policy staff again.
Hello, he is. Not that I care but lets be real here.

Posted by: obrier2 | October 21, 2009 2:28 PM | Report abuse

Ezra,

I think you're giving Mike Enzi too much credit. In the HELP committee, the Wyoming Senator offered unsuccessfully an amendment to wide the mark's 2:1 community rating to a 5:1 community rating. While that would have been nice for people your age and my age, health insurance on the Exchange would still be unaffordable to many, many older adults.

I also think allowing insurance companies to charge more for smokers is another way of sticking it to older adults. There's virtually no difference in average claims costs between smokers and non-smokers our age, but there is a big difference in average claims costs between smokers and non-smokers for a 55-year-old. Insurers will just compete on when to give the blood test to determine smoking status, and make health insurance more unaffordable for older adults. One of the major purposes of the bill is to have insurers compete on price and quality rather than risk selection, and allowing insurers to charge smokers more undermines this purpose.

Posted by: BradGabel2002 | October 21, 2009 3:01 PM | Report abuse

@BradGabel:
"There's virtually no difference in average claims costs between smokers and non-smokers our age"

That is false

Posted by: ab13 | October 21, 2009 3:04 PM | Report abuse

Under our current system, the $10 folks are not necessarily uninsured. In fact, they're quite likely already on Medicare. The un-insured include a whole lot of people in the $2 range (young adults, for example). So, I think the whole argument that it's the cost side that will drive up premiums is bogus. It makes me crazy when I hear people talking about how much more expensive it will be to cover everybody when many of the most expensive to insure (the elderly) are already covered.
That being said, I do think premiums will go up, because without some kind of regulation of premiums, the individual mandate will allow insurers to raise prices, especially if there's no public option and so, no competition in a lot of places.

Posted by: tmasterson | October 21, 2009 3:05 PM | Report abuse

Actually, I think Gerson is being more honest re: why conservatives oppose HCR in his closing:

"On the evidence of nations such as England, a national health system places a conservative party at a permanent ideological disadvantage. Every proposal for tax reductions is attacked as undermining the eternally hungry public health system. Every failure of that system becomes an excuse for greater spending and government involvement. The tide of government grows, and the ebb weakens, until no one can fight the flood.

This is the main explanation for Republican resistance to Democratic health reform -- and the reason that Sen. Snowe is likely to remain a lonely heretic."

This is basically a version of why Bill Kristol told Republicans it was so important to kill Clinton's HCR back in the 90s. The UK comparison is somewhat flawed because nobody is proposing setting up an NHS-like system here in the US. But conservatives are mostly worried because they know that if HCR is passed with the right features - public option, individual/employer mandate, adequate subsidies - it will be popular, it will lower costs and inflation over time, and it will cover most Americans, giving them a much greater sense of security. And after all of the huffing and puffing they've done this year, people will look back in retrospect and wonder why the Republicans lost their minds over something that turned out to be popular and good.

LBJ was right when he said that the South was lost to the Democrats for a generation because of the civil rights legislation of the 50s and 60s. The GOP will lose everything but the South (and you can't win with just the South) if a good HCR bill is passed under by a Dem controlled Congress and WH.

Posted by: shamey73 | October 21, 2009 3:24 PM | Report abuse

Ezra...while we are on the math thing, the cost to have the two excluded from the system is not $4.25. For that number to be right would be to assume that their costs vanish and are not borne by society at large. Providers do not give them free care...the cost is shifted, at least partially, to the insured.

ab13.....bradgabel is right. The cost differential between young smokers/nonsmokers is negligible (maybe a few more lingering upper respiratory infections but nothing terribly expensive).The cumulative effects of smoking are severe, so the cost differential of older smokers/nonsmokers is significant (it is at this point you get the cancers, etc starting to show up).

Posted by: scott1959 | October 21, 2009 3:32 PM | Report abuse

@scott1959:
"ab13.....bradgabel is right. The cost differential between young smokers/nonsmokers is negligible"

Are you speaking from experience working with actual data, or speculation? Because I am relying on the former.

Posted by: ab13 | October 21, 2009 3:52 PM | Report abuse

ab13 -- my point was that the differences in average claims costs between smokers and non-smokers at Ezra's and my age (29) is not substantially different to justify the costs of a blood test, and ask policyholders to pay for it in the form of higher premiums.

And I myself am a life insurance actuary -- not that underwriting for a long-term contract isn't substantially different from underwriting in a one-year contract. Well, I just thought I'd like to add that.

Posted by: BradGabel2002 | October 21, 2009 4:03 PM | Report abuse

I just finished reading the Gerson piece Ezra references, and Gerson sort of gives away the store in the last paragraph of what Republican opposition is really about. I'd suggest everyone read what he says, because its the first time I've read someone on the right saying what I think is really behind all this sudden green-eye shade doomsaying. I mean, this is not a party to take seriously on deficits, as we all should painfully know by now.

What they really fear is that once health care reform is enacted, it becomes popular, and even costs more than projected, which I'd guess are both true. And so what!

Posted by: zeppelin003 | October 21, 2009 4:15 PM | Report abuse

The cost differences at 29 are enough to justify premium differences. The higher costs are not just a function of health problems from smoking on its own, smoking is correlated with other behavioral/lifestyle differences that lead to higher costs, but are not rating variables insurers can/do use.

Also keep in mind that after reform the length of time you keep a individual policy will probably be much longer than it is today. More long-term customers means more reason to rate for smoking appropriately at a younger age, otherwise you'd have premiums increasing drastically as insureds got older and hit the ages where smoker rates kick in (maybe this would be a good thing as it gives an incentive to quit before you get to that age). This is not as much of an issue today where people only keep a policy in the individual market for a few years on average.

Actuary here too (gives his fellow SOA member a virtual fist bump)

Posted by: ab13 | October 21, 2009 4:22 PM | Report abuse

"On the evidence of nations such as England, a national health system places a conservative party at a permanent ideological disadvantage."

As with most things, Gerson is not only wrong, but wrong in a way that proclaims his ignorance. The Tories have been in government for a substantially longer chunk of the last 60 years than Labour. Churchill inherited the NHS and kept it going; for all of Thatcher's personal distaste for it, she chose not to challenge its fundamental principles.

The point's a simple one: in most countries, the basic existence of universal healthcare is off the ideological table, and politics as usual continues.

Now, he might be arguing that the British Tories aren't a *conservative* party by his definition, or that the right to affordable healthcare ought to be a subject of ideological dispute, but in that context, it's him, the Republicans and the healthcare non-system in the US that are the anomalies.

Perhaps, instead, he could show the courage of his ideological convictions and say that the authentic conservative position is that some people *do* deserve to die in gutters when they get sick. The problem he faces is that effective reform sticks the dagger into Health Calvinism, a perverted crypto-ideology sustained by selfishness and corporate greed, and once it's gone, people won't ever pine for that way of thinking -- but will remember the people who defended it most vehemently.

Posted by: pseudonymousinnc | October 21, 2009 6:46 PM | Report abuse

ab13 -- virtual fist-bump!

Thanks for the help. I assume you're a health insurance actuary. Here's my next question: with the new reform, are we going to require blood tests of 12-year-olds whose parents purchase health insurance on the Exchange each year, and require Americans to pay for the underwriting costs through higher premiums? That seems like a recipe for political backlash.

It seems to me it's so much more efficient just to tax tobacco than to give blood tests. Also, with a tobacco tax, someone who smokes two packs of cigarettes a day is penalized more than someone who smokes one cigarette a week. With medical underwriting, you can't do that -- you have to either have smoker or non-smoker since there is no way you can have elite and elite-plus classes with the medical underwriting restrictions on the new law. I just think taxing tobacco is so much better than allowing insurers to charge smokers more, and I've never smoked before -- well, twice.

Posted by: BradGabel2002 | October 21, 2009 7:06 PM | Report abuse

I couldn't believe how stupid Gerson's column was when I read it. Thanks for pointing out this out to the public.
I can't believe gerson really wrote that. Don't they check anything for sanity in the WaPo editorial department?

If people like Gerson are the best that the Republican party has to offer, it is really a lost cause.

Posted by: eadler2 | October 21, 2009 8:37 PM | Report abuse

--"He comes into office and passes a law saying insurers have to offer care to everybody at a similar price, and there will be subsidies to help those who can't afford the cost. [...] average premiums are now $4.40"--

You *forgot* to factor the cost of the subsidies, ya freak.

Posted by: msoja | October 21, 2009 8:58 PM | Report abuse

@BradGabel

I have not seen anything about requiring blood tests for children in the exchange. A lot of the underwriting that happens today is a necessary evil given the lack of a mandate and the amount of anti-selection in the individual market. The costs of underwriting currently are and will continue to be passed on to the insureds of course, but those costs should be much lower than they are today given the restrictions being placed on future underwriting.

Without rating for tobacco you're going to have non-smokers subsidizing smokers. Trying to figure the right cost of a tobacco tax and then routing that money to the health care system would a very inefficient way to do it. Even if one is in favor of community rating I don't see why one would think you shouldn't pay more for risky behaviors you choose to engage in.

Posted by: ab13 | October 21, 2009 10:44 PM | Report abuse

i also love the "tug of the heart-strings" that this blog post brings up? Maybe if this woman's lucky she won't have a need for a biologic because if she does she's completely out of luck. Ezra, you need a post on this article and its contents:

http://www.time.com/time/politics/article/0,8599,1931595,00.html

Maybe Obama should have realized who he was getting "in bed with" before he made his deal.

Posted by: visionbrkr | October 22, 2009 8:14 AM | Report abuse

I love the fact that visionbreaker lets the mask slip from time to time, to show us that he's just another little player in the crapulent American corporate profiteering racket that feeds off people's ill health.

Posted by: pseudonymousinnc | October 22, 2009 8:33 AM | Report abuse

well good morning pseudo,

taking time off from whatever it is you do (LIBERAL BLOGGING???)

and hey i'd be more than happy to work on a consultancy basis to help people understand the mess that would be single payer in the US. Oh and then I'd be able to try to help people find a doctor (after most of them leave practice), help explain to them why they can't get their drugs because the plans don't cover them. help them understand why Medicare doesn't pay for physicals but tout "wellness and prevention".

I'd be fine but if the world's ills were cured by that what would you be able to complain (err) blog about???

I wouldn't want to put you out of a job like that.

Posted by: visionbrkr | October 22, 2009 9:04 AM | Report abuse

As Bernie Madoff will tell you, the people who get the benifits now from the scheme, the currently old and the sick are in like flynn. The current young and healthy will likely have drastically reduced benefits by the time they are old and sick. Not so great for them.

Posted by: ChristopherGeorge | October 22, 2009 10:02 AM | Report abuse

It makes the point even better if you assume that before reform, the people who cost only $2 to insure decided not to buy insurance at all, because they figured they were healthy. Then, although covering the expensive people brings the premium up, having an individual mandate that forces the healthy people to buy in brings the premium down. You'd want to look at what proportion of uninsured people are sick vs. healthy to get an idea of which direction, on average, this would push premiums...

Posted by: ckenney1 | October 22, 2009 10:33 AM | Report abuse

ab13, personally, I don't have very much of a problem with people choosing healthier lifestyles subsidizing the premiums of those who choose less healthy lifestyles. [I myself run for an hour a day -- six days a week.] We don't allow that now in employer-based health insurance.

At some point, you just have to ask, "Where does the underwriting end?" Should a 27-year-old who plays extreme sports have to pay more for health insurance in the individual insurance market than someone who doesn't? Should someone who works two jobs to pay off their student loans, and doesn't have time to exercise have to pay more than someone else with all the same risk characteristics, etc.? I fear allowing for insurance companies to charge smokers more leads down a slippery slope -- particularly when you tell me that smoking status is a proxy for other risky behavior (i.e., drinking).

I don't think for a tobacco tax you have to calculate how much more the average claims costs of smokers are than non-smokers -- particularly when you tell me that not of the extra charge for smokers can be attributed solely to smoking. I think you just impose a simple tobacco tax based on how much revenue you want to raise, and index that to the health care CPI. That should be fine.

Posted by: BradGabel2002 | October 22, 2009 11:36 AM | Report abuse

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