Liberty and Medicine

Sunday, July 01, 2007

Forced insurance scheme runs into problems.

In one of his previous political incarnations Mitt Romney pushed through a universal health coverage plan in Massachusetts. It is now in operation.

About 10% of the state residents didn’t have insurance prior to the imposition of compulsory insurance. Two-thirds of them still don’t have care. Those who are poor received state insurance at the expense of the taxpayer. They didn’t mind signing up but they weren’t the majority of uninsured.

One of the problems with stats about America’s “uninsured” is that while the total percentage is thrown about it is never broken down. Who are they and why are they uninsured?

One of the policies that politicians pushed through in the past linked health insurance, for most people, to employment. The unions liked that idea, it was a way of forcing through pay increases in the guise of something else. So they pushed hard for employer provided health benefits. Sounds good doesn’t it?

Yet that is one of the reasons people are not insured. The insurance is linked to their employment and people change jobs. When people change jobs their old insurance is cancelled and they have to get new insurance. Sometimes there is a time lag between that job and the next. And during that time they are uninsured. Many of the uninsured in the US were transitioning between jobs. Around 9 million of the uninsured in the US are people between jobs and a third will be reinsured within four months and the remainder reinsured within one year.

But there is another problem that kicks in because of these connection between insurance and employment. People sometimes develop illnesses while on one job. If they change positions and are uninsured that illness becomes a pre-existing condition that is not covered by insurance. The union push to tie insurance to jobs also ties people to jobs. If they change jobs, perhaps taking a better opportunity, they may find they have no health insurance and can’t get it for the very thing for which they need it most.

Another group that often tends to be uninsured are people who can easily afford insurance. The reality is that wealthy individuals don’t need insurance. In fact insurance might well be a bad idea for them particularly if they have been wealthy for much of their life. People who can pay for heart bypass on their own don’t need insurance. For instance Mitt Romney, who pushed through compulsory insurance in Massachusetts, can afford all the health care he wants. He doesn’t need insurance.

A third group of uninsured have been the young who assume they don’t need health insurance. And for the most part that assumption is entirely valid. People who are young and healthy tend not to need insurance. They know that the likelihood of a serious illness over the next 20 to 30 years is minimal. And they’d rather have the cash than the care. The need the one more than they need the other.

And the compulsory system in Massachusetts is finding that of the uninsured “not all are rushing to get coverage. Many of them are healthy young people in their 20’s and 30’s, state officials say.” The state is spending $3 million just advertising the mandatory insurance scheme. As one 25-year-old who is employed told the New York Times, she will choose to remain unemployed and pay the fines the states will levy on her because that is “cheapest and easiest.”

The US as a whole has the same problem. Young, healthy individuals don’t want health insurance. Almost 40% of the uninsured in the country are under 25 years of age and almost two-thirds are under 35.

Again much of the burden for insurance falls on small companies. Employees who work more than 35 hours a week must be offered insurance by the employer. Deb Maquire runs a small pub in Falmouth, She offers insurance to her employees but only a third of them have taken it. It costs them $42 per week bu Maquire has to pay $45 per week for the same employee. Under the compulsory system the other two-thirds will be forced to join and Maquire says her business simply can’t afford to triple the amount they pay out.

One way around this is that smaller companies are cutting people work time. More and more people will be pushed from the private insurance market into the state subsidized system. And the tax burden will have to increase in order to pay for that. But higher taxes mean less jobs and more unemployment meaning more people qualifying for state insurance. Even an analysis prepared by the state legislature indicates that they expect the plan to be in the red to the tune of $160 million within two years.

What is interesting is the amount of force that the state has to use against the uninsured. The Times reports:
In 2008, the penalty for those not insured will be a loss of state tax exemption, worth about $219; later the penalty will be up to half of a monthly insurance premium for each month a person is uninsured. Also, while any insurance is acceptable at first, by January 2009, everyone must have drug coverage.
No doubt people would be more willing to take health insurance is a third party paid for it. The uninsured who did sign up in Massachusetts tend to be people who are qualified for state provided insurance. But that the state has to penalize and punish, rather severely, people who don’t sign up for health insurance does show that a good number of the “uninsured” don't want it.

And there is one additional problem. People who are uninsured tend to consume less health care than they need. No one questions that. But often it is forgotten, or ignored intentionally, that those with third party payment plans often over-consume health care.

If the insurance scheme means that a consumer pays a flat rate per month and a third party insurer pays out for that care the consumer sees any use of the health service as “free”. There is no link between their consumption and and their payments. That is the very link that advocates of universal health care are trying to severe quite intentionally. But the net result is that consumers will then tend to over medicalize as compared to their previous habit of under medicalizing.

All third party payament plans have this problem of perverse incentives. Consumers tend to demand more care than they need and to be less informed about care options available.

As coverage expands consumption of care increases more than was expected. The result of more people chasing a limited amount of care is to push up costs more rapidly than before. This is one of the problems the welfare state systems are facing. Health care costs are skyrocketing and they are finding themselves unable to cope. That forces the rationing that Michael Moore deceptively ignores in parts of his docufraud and simply lies about in other parts.

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