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My personal health reform nightmare

We all have our hopes and fears about health reform. Mine revolve around the proposed individual mandate, which would cover 24 million currently uninsured people by a) requiring them to buy a policy from a private company on a government-organized exchange or face a penalty and b) subsidizing that purchase for those of modest means.

This mechanism, which would cost $466 billion over the next ten years, according to the Congressional Budget Office, is the linchpin of the proposal Congress is frantically arguing about considering, just as it was central to the plan Massachusetts instituted a few years ago. The hope is that it does, indeed, guarantee that a certifiably adequate menu of benefits comes within reach of everyone, regardless of age, income, job status or -- crucially -- preexisting conditions. The fear is that Congress miscalculates the incentives and we get a "selection spiral." As Ronald G. Harris and Thomas D. Snook of Milliman employee benefits consultants describe it:

The dynamics of a selection spiral work like this: A health plan gets worse risks (higher-cost individuals) than it anticipated in its original rate setting, and so has to increase premium rates to provide adequate revenue to cover these higher costs. However, raising the rates changes the entire cost/benefit equation, and so the rate increase will cause some individuals to drop their coverage -- and those who do drop are more likely to be the lower-cost individuals in the pool. As a result, the health plan winds up with a pool of risks even worse than the one it started with, with premiums that again need to be increased to cover the new, higher costs. This sort of spiral can quickly get out of control and lead to the collapse of the insurance pooling mechanism.

It all comes down to this: the reconciliation bill before Congress sets the penalty for failing to buy individual insurance in 2014 at $95 or 1 percent of annual income, whichever is greater, rising to $695 or 2.5 percent by 2017. (Those earning less than 300 percent of the federal poverty line face flat dollar figures, those above, percentages of income.)

Is this going to be enough of a "stick" to induce people to buy an insurance policy -- even a subsidized one -- rather than try just paying the fine? Remember, the price of the policy will still be higher than the penalty, in most cases. And since there's no longer going to be an exclusion for preexisting conditions, you'll still be able to sign up for insurance later on if you develop a serious illness. The problem is likelier to be more acute the younger and healthier you are.

Supporters of the reform plans say not to worry. To some extent the plan mitigates the issue of "young invincibles" because it permits you to remain on your parents' policy all the way up to age 26. And the experience of Massachusetts shows that the public will respond as the authors of the plan before Congress expect. In that state, an individual mandate has been widely obeyed, and the cost of insurance has not exploded. Yes, insurance costs more than the penalty -- but, hey, you get the insurance, and it's worth something to you.

Critics are not so sure. The insurance industry will tell you that Massachusetts is not a representative case, because even before the individual mandate went into effect the state had some of the most tightly regulated, and, therefore, expensive insurance in the country. For example, the state already had "guaranteed issue" -- no exclusion for preexisting conditions -- and "community rating" -- limited premium differentials based on age -- so the individual mandate actually mitigated costs to insurers because it at least made people pay a penalty before trying to game the system.

The majority of states currently have neither guaranteed issue nor community rating, so the new federal program would significantly change the rules of the game and drive up the prices of insurance for which individuals would be shopping. Whether they would go up so high as to deter participation even with a subsidy, of course, is an open question.

Actually, there's a lot we still don't know about how individuals and families will respond to the mandate. The Massachusetts example is, indeed, hopeful -- but it's a relatively small state. What is going to happen when the notoriously inexact Internal Revenue Service starts trying to administer this mandate nationwide through the tax reporting and collection system, as the bill provides? A little-discussed wrinkle here is that under current law most of the IRS's enforcement activity involves audits and other actions against relatively well-off people (and their lawyers or accountants). But what happens when it gets involved with a far wider spectrum of citizens, including many of modest means?

Massachusetts is a blue state. People there are relatively sympathetic to the notion of government intervention in their lives. It's the sort of place where you would expect people to comply with a benevolent official nudge. I'm not sure that's true of, say, Texas or Arkansas, or any of the other red states where folks may not respond as well to a directive from Washington requiring them to buy a particular product -- even if it's for their own good.

I certainly hope the bill's backers are right. Obviously, I fear they are wrong. If the bill passes, we'll all find out soon enough.

By Charles Lane  | March 19, 2010; 1:32 PM ET
Categories:  Lane  | Tags:  Charles Lane  
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Comments

The nightmare that I have is that we'll be back to the '80s in terms of a big government run HMO with its "referral" policy to contain costs. Unfotunately, it may not be able to escape this big HMO and poor care will be expensive.

Posted by: corvuscorax | March 19, 2010 3:57 PM | Report abuse

You can see the stupid in Lane's face in his picture. He literally looks as stupid as he writes. You really have to wonder how people get jobs at the Washington Post.

Posted by: kurthunt | March 19, 2010 4:08 PM | Report abuse

kurthunt:

we know you are a liberal without any good arguments on substance (nor process apparently). have your little party while you can. it will all be for nuaght when the supreme court strikes the legislation down on both substantive and procedural grounds. dems will wish that obama was nothing but a wet dream.

Posted by: dummypants | March 19, 2010 4:19 PM | Report abuse

wow kurthunt, that is the most compelling argument i've seen since the right wing starting using Barack's middle name in comments. Oh - his middle name is Hussein? He must be evil. Oh, you think Lane's picture is stupid? You must be right.

Let's have comments that are at least somewhat factually based.

Posted by: ivb1 | March 19, 2010 4:24 PM | Report abuse

IMHO the Democrats want a "selection spiral" that will destroy the private insurers. That way, in a few years, we will have no other choice but go to a government run single-payer system.

Posted by: pmendez | March 19, 2010 4:57 PM | Report abuse

No matter what the system, people will learn to game it. That's the genius of Americans. But no system in the world is going to reduce the cost of medical treatment significantly. If hospital nurses get $75K, what can insurance companies do about it? If an MRI machine runs $500K and the hospital has to run the thing enough to make it economically viable, what can insurance companies do about it? Insurance companies don't set prices on medical products and services; they just pay the bill. And that's the way it is. You want lower cost? Stop running off to the doctor for every little ache and pain.

Posted by: MrBethesda | March 19, 2010 5:57 PM | Report abuse

Just how stupid does Lane think people are? If those who do not have insurance have the opportunity to buy subsidized health insurance, they will. We all get sick. We all need health coverage. This is a phantom issue. The experience in Massachusetts is a preview of what the national experience will be.

Charles Lane has more fears about health care reform than a nervous cat.

Posted by: posterchild90 | March 19, 2010 6:19 PM | Report abuse

This is only one concern. Another is that, by avoiding the whole tort reform issue, the problem of defensive medicine remains unaddressed and costs continue to rise. The government will step in to control costs, and unaccountable (and usually uneducated) bureaucrats with no discretion, or at least no incentive to use it, will be making decisions about people's healthcare. The rich won't suffer from this, but the rest of us will.

Posted by: longbow1 | March 19, 2010 7:09 PM | Report abuse

This is a very imperfect plan. In fact, it is the Republican plan. They just don't want to support anything at all anymore. My own hope is that this is the first step to government controlled universal healthcare. It is the only way to control costs, the only way to cover everybody, the only way that works. And the status quo is untenable.

Posted by: gposner | March 19, 2010 7:19 PM | Report abuse

THIS IS THE BEST PIECE I'VE READ ALL DAY FROM ANY NEWSPAPER. GOOD FOR YOU LANE FOR TELLING THE TRUTH.

Posted by: aaniko | March 19, 2010 8:01 PM | Report abuse

Excellent argument for a single-payer universal system with local administration only. All the unknown of who is in your pool and who is out goes away. Well done, in showing the logic of a universal system.

Posted by: steveboyington | March 19, 2010 8:19 PM | Report abuse

Government can't make you do anything. The state exists for man. Man does not exist for the state. What's the first thing you think of in the morning? It's doubtful that it's government even if you work for government. Where there's a need there's a fortune and there's lots of needs.

Posted by: tossnokia | March 19, 2010 9:46 PM | Report abuse

Lane should do us all a favor and disappear down to Texas where he and Rick Perry can take the dirtbag state of Texas out of the Union and the rest of the U.S. would be much better off without them.

Posted by: OHIOCITIZEN | March 19, 2010 10:26 PM | Report abuse

How does Fred Hiatt keep coming up with sub-average columnists like this?

This paper is truly going to hell.

Posted by: daveque | March 19, 2010 10:32 PM | Report abuse

Although not discussed much, not even on the WarshPost boards, the fact is that IRS devotes about 70% of its resources to auditing the big boys and wealthy individuals. The other 30% is devoted to harrassing people with EITC!

It will take some "new resources" to go after the late payers, non-payers, and partial-payers ~ and do what with them?

IRS is part of the Executive Establishment. They do DUE PROCESS OF LAW, and do not follow normal judicial procedures.

Has anyone figured out what IRS will threaten folks with when it comes to SMALL CLAIMS?

How many of these cases will go to federal court? Anyone figure out what happens to a federal judge used to handling nothing less than $250,000 and now his court has to stop for a half hour to adjudicate, with a jury trial (?) an indigent litgant who owes $98!

Do IRS agents get to shoot the absconders?

So many questions; so few answers; Democrats fail to understand that the IRS' law enforcement actions will be lodged against a predominantly minority community already hard pressed to deal with EITC audits (even if you go to college and get EITC, your school has people there who will audit you too ~ just to make sure you're not cheating somehow).

Do we have sufficient prison space for these people? Will there be special wings for people who were only late 29 days rather than the more serious 60 days?

Posted by: muawiyah | March 19, 2010 10:41 PM | Report abuse

Lane, quit lying about the "penalty". The mandatory cost will happen if someone does not choose a provider or can not find insurance that is affordable. This "penalty" allows them to be part of the government provided insurance. It's the lies like you're spouting that have the issue this confused.

Posted by: rrmaway | March 19, 2010 10:56 PM | Report abuse

Mr. Lane wrote, "the reconciliation bill before Congress sets the penalty for failing to buy individual insurance in 2014 at $95 or 1 percent of annual income, whichever is greater, rising to $695 or 2.5 percent by 2017," in the course of arguing that if everyone doesn't sign up for this deal it may set in motion what he calls a "selection spiral" of only sick people buying insurance and rates, as a result, going through the roof.

This is typical of Mr. Lane's recent comments on this issue - well thought out and getting to crucial questions that have not been answered by whoever's in charge of this bill - and it's never been clear who's in charge of it.

It's especially alarming if you remember that President Obama differed from Hillary Clinton in exactly this respect: He argued that there should be no penalty for declining to participate in the national health program he envisioned - a position which would justify Mr. Lane's worst fears.

Posted by: douglaslbarber | March 19, 2010 11:15 PM | Report abuse

My personal health care nightmare can be summed up with, as george bush would say, one word.

Status Quo.

Posted by: rcubedkc | March 19, 2010 11:21 PM | Report abuse

Precondition people will be subsidized by other insured, so rates will go up for a time. If we can trust that free market forces will behave logically (read Steve Kroft on housing and gas), or more like..erratically, as with big jumps in premiums of late, ultimately fewer uninsured will be subsidized in patient bills. Concern is still health costs I think. What if we required a flat rate fee charged to insure providers against malpractice. That might cut out the defensive medicine practices, some estimate as causing 20% higher patient bills. At least start a climate for change there, get them back acting like providers (docs and hospitals) and stop the expensive and crazy suspicions of them such that they play this role of pseudo "scientists" at mega dollars a day.

Posted by: bwcolq | March 19, 2010 11:21 PM | Report abuse

This isn't a "Quik Take," it's a column.

It's an abuse of the of the "Quik Take" concept

Lane, shut the heck up and save it for your column.

Posted by: secretaryofspite | March 20, 2010 3:53 AM | Report abuse

The analysis is sensible as far as it goes, but surprisingly leaves out a most likely development, i.e. the entry of high efficiency, lower cost insurers into exchanges - the Southwest Airlines equivalents. There is an extraordinary opportunity for well-run, less greedy new insurers. There is also the very great likelihood that, state-by-state perhaps, we will see non-profit, subsidized plans (local public options) driving down rates. Eventually a nationalized public option is probable - it should have been in this bill.

Posted by: dgkerns1 | March 20, 2010 9:35 AM | Report abuse

Actually Massachusetts can't afford Romneycare either. Insurance premiumns are still increasing at a higher rate than the rest of the country and that's with massive federal subsidies. Massachusetts own Democratic State Treasurer has said Obmacare will bankrupt the country in 4 years.

Posted by: RobT1 | March 20, 2010 11:45 AM | Report abuse

This bill will undoubtedly save lives, ease physical and mental suffering and financial load for millions of Americans and reduce the debt by billions. The doctors are for it (AMA) as well as seniors (AARP). For those of you who think this bill will bring new spending, we are already spending big chunks of money on the costs of uninsured emergency room visits and inefficiency of the system (estimated to be as high as 30 % of all health care cost).

The republicans will be remembered for wasting billions of dollars and costing the lives of thousands of our brave soldiers for a needless war and for opposing social security, medicare and Clinton's budget which brought this country into an unprecedented era of prosperity. Given all of this, I cannot understand those who are opposed to this bill. The irrational, knee jerk NO NO NO makes me think they are not thinking and reflecting but acting out of ignorance and fear. Congress, for the sake of this country, please pass this bill!

Posted by: verycreative | March 20, 2010 1:14 PM | Report abuse

This is a non-issue if you do the math. Lane clearly hasn't, but I have ...

Demand elasticity, risk classification and loss coverage: when can community rating work?"

http://www.guythomas.org.uk/pdf/LC2A.pdf

Posted by: guythomas | March 23, 2010 10:59 AM | Report abuse

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