Health care reform delays purely a political calculation

Many who follow the health care reform debate wonder why the proposed legislation creates such a long delay between passage of a reform bill and the actual implementation of the various provisions, many of which won’t kick in until many years from now.

While Congress would like us to believe that it is a matter of giving the system time to ‘adjust’ to changes, there is something far more political at work.

Many of the changes are going to be unpopular, and our political leaders know it. Thus, the longer it takes to execute some of the changes that are going to make Americans unhappy, the less impact the ‘reforms’ are going to have on election cycles taking place before the inevitable whining begins.

Take, for example, the mandated health insurance requirement included in every bill working its way through the Congress, and unlikely to go into effect until 2013 – if not later. That date manages to get us through the next presidential election along with two more cycles of senatorial elections (1/3 of the Senate is up for re-election every two years.) As for Members of Congress who think in two year cycles, 2013 is a lifetime away.

This is no accident. If the experiences of the states can be viewed as a harbinger of what is to come, the federal legislation requiring virtually all Americans purchase health insurance is likely to be a real political loser.

In today’s Wall Street Journal, Peter Suderman reports on the failure of state insurance programs that obligate private insurers to provide coverage to anyone who wants it – regardless of age, health or sex.

Suderman uses the example of New York where, in 1993, the state prohibited insurers from denying coverage to people with pre-existing conditions while, at the same time, requiring insurers to charge people enrolled in their plans the identical premium, no matter what their health status, sex or age.

While it sounds good, it hasn’t worked out very well.

According to a Manhattan Institute study released last month by Stephen T. Parente, a professor of finance at the University of Minnesota and Tarren Bragdon, CEO of the Maine Heritage Policy Center –

In 1994, there were just under 752,000 individuals enrolled in individual insurance plans, or about 4.7% of the nonelderly population. This put New York roughly in line with the rest of the U.S. Today, that percentage has dropped to just 0.2% of the state’s nonelderly. In contrast, between 1994 and 2007, the total number of people insured in the individual market across the U.S. rose to 5.5% from 4.5%.
Via Wall Street Journal

What’s gone wrong?

In order to cover the costs of having to charge everyone the same premium fees, including those with serious pre-existing conditions, the price of everyone’s health care premiums have skyrocketed in New York State.

Indeed, according to Parente and Bragdon, getting rid of the community rating system (same price for everyone) and the obligation to insure everyone no matter what their health status, age or sex (“guaranteed issue”), would result in New Yorkers who would still qualify for individual coverage saving 42% of what they are currently paying for health care insurance.

Not exactly chump change.

The results have been pretty much the same in other states that have chosen to go with the New York approach. Washington, like New York, has a “pure” community rating system where everyone pays the same, while states like Kentucky, Maine, Massachusetts, New Hampshire, New Jersey and Vermont all have similar “guaranteed issue” statutes but adjusted community rating systems where some are charged more than others pursuant to what the state permits (similar to the federal proposals.)

In each of these states, the costs of health insurance have risen dramatically higher than in those states with no such requirement.

With this data available, it is not difficult to see that mandated insurance is not going to please very many Americans.

While the Senate Finance Committee bill permits insurers to charge older people 4 times the premium cost of what will be charged to younger enrollees, this is unlikely to relieve enough pressure on premium charges to satisfy the young and healthy,who are going to be quite angry that they have to pay substantially more to support the older, sicker population in the private insurance pool. Meanwhile, the older and sicker Americans, not yet eligible for Medicare, are going to be ticked off when they discover that the mandated coverage with community rating they were promised will have them paying four times as much as the young and healthy.

Making matters worse, the polls tell us that Americans, as a whole, are pretty steamed over the fact that they will have to pay substantial penalties (or, theoretically go to jail) if they elect not to purchase health coverage.

While clearly a political non-starter, mandated coverage was the price the politicians had to pay to get the insurance companies to play ball. Small wonder our elected officials would want to delay this as long as humanly possible.

There is an easier and better way – one that has been lost in the worn out argument over government involvement in health care.

Reduce the age of Medicare qualification to 55 and watch America breathe a sigh of relief.

Even if there is mandated coverage for everyone else, with the older, sicker part of the population out of the mix, the insurance companies can still get more people into their clutches without having to tack on big premium increases to pay for the older population.

For those who rail against the socialization of American health care, most of whom fall into the older demographic, I wonder how they will feel about this after they see the increased premium charges they are likely to be paying for lowered benefits? After all, there’s nothing like a hefty increase in the monthly overhead to get someone over their ideological opposition.

Obama had it right during the campaign - as currently constructed, nobody is going to like mandated health insurance except the insurance companies.

Lower the age for Medicare to 55 to get the older people out of the private insurance mix, take another look at San Francisco’s “Healthy San Francisco” program, and others like it that have made significant inroads into providing medical care to the uninsured, stick with the health care exchange for everyone else (preferably with a public insurance option) and watch those presidential and congressional approval polls rise like a phoenix.