Tuesday, July 17, 2007

Unhealthy (and bankrupt) Wisconsin

Christian Schneider makes a great point at the WPRI Blog about the danger of the senate Democrats' health plan (I will not refer to it by its brand name) becoming a magnet for the sick and uninsured . Insurance companies call this adverse selection and, when it happens, you go broke.

The problem is that the plan will cover even newcomers to the state as long as they are, essentially, "gainfully employed" (including self-employment like, for example, blogging for money), pregnant or a child living with his or her parent. Christian thinks that it is easy enough to get a joe job (in the Canadian sense) or say that you are self-employed, but the problem is worse than that.

There is this thread of constitutional analysis, most notoriously expressed by the U.S. Supreme Court in a case called Shapiro v. Thompson and more recently in Saenz v. Roe, that suggests that a state may not deny benefits (at least not benefits pertaining to the "necessities of life") to newcomers.

Thus even the few roadblocks that the current version of the plan puts in the way of Wisconsin becoming America's ER may not stand and fixing the bill to keep folks from coming here for the health care will be tough.

Even if you think that this would not happen (and I don't know why it would not), the argument that this is a fee (as opposed to a tax) or that it just replaces costs that businesses already incur is false. Even for employers who offer insurance, the plan will hurt companies with relatively well paid employees (think of a professional firm) even if it helps those whose employees are less well compensated. (And it may not do even that as cash compensation is bid up - something the plan's proponents have to hope will happen.) As for employers for whom the market does not currently warrant the provision of health insurance, forget it. For Wisconsin to adopt a plan like this will have a significant impact on the state's economy and it won't all be good.

The problem is, that by continuing the historic accident of tying the payment of health care to payroll, it distorts the market and market distortions generally dampen production. Particularly, as Christian points out, when you try to go it alone in a big country with porous state borders, you are going to get killed.

This all suggests a topic for a future post. Democrats try to chide Republicans by ignoring scientific consensus on global warming. I don't buy into that, but don't Democrats (at least the leftier versions) routinely disregard the consensus among economists on things like minimum wage laws, price controls, protectionism, high marginal tax rates, etc.?

C'mon, guys. The science is in.

12 comments:

Christian Schneider said...

Yeah, what he said.

Anonymous said...

All we have to do is look back at what happened when welfare recipients moved in from many states and some had citizenship in more than one state.

Brian said...

The left in America has never been a pro-science movement. Listen to them chide economists constantly, berate mathematical models as a tool for explaining human behavior, etc etc and it's hard to believe that they have any appreciate for real science. What they have, instead, is an appreciation for the alchemism of our age, namely socialism, which purports to do wonders with human society that are totally contradictory to logic and reason.

Anonymous said...

Uh, Anonymous 4:03, your anti-immigrant memo is not applicable here.

You, too, are a citizen in more than one state. You even are a citizen in 50 states.

The term is not citizenship. It's residency.

Seth Zlotocha said...

The out-of-state poor could move to Wisconsin today and qualify for BadgerCare, and they don't even need to get a job to do so. As long as their income upon entering the program isn't above 185 percent of the FPL ($38K for a family of four), and it doesn't go above 200 percent while they're in ($41K for a family of four), they can get all the health care they need on the state dime (the FPL percentages would be even higher if BadgerCare Plus passed). So where's the exodus?

Maybe they're not coming because they can probably already qualify for Medicaid in their home state.

Rick Esenberg said...

Seth

That's a good point, but your post carries its refutation. People don't move for health care because there is nothing that they can get here that they can't get where they are. The Dem plan changes that (isn't that why you think its spiffy?) and therein lies the problem - on the demand side as Christian points out and, as I suggest, on the supply side.

As I am sure you acknowledge, there are still people who are uninsured (this is the problem, no?) and now there is a place you can go that will change that. It is highly likely that people who will do that are people for whom the absence of health insurance is a more pressing problem. This is certainly going to be an older and less healthy population.

I don't particularly believe the Dems numbers but this type of adverse selection will give then a ride.

The upshot is that whatever you think is the best solution to health care issues, it pretty much has to be a national solution.

Anonymous said...

well DUHHH!!
Any plan that brings in sure-fire, lifelong Democrat voters and government dependents is gonna get proposed.

Xoff said...

Man, we just got rid of all the welfare recipients flocking here to have more kids, when the trial lawyers began flooding in from all around the country because Wisconsin's legal system and courts are so liberal.

And now the sick people are all moving here, too?

Call Jim Sensenbrenner. Time to build a fence.

Seth Zlotocha said...

Christian's post focused on the issue of poor people coming here to scam the system as a means for getting health care. They'd get a job at Dairy Queen and get excellent health coverage through Healthy WI.

In actuality, they wouldn't get coverage under Healthy WI unless they weren't eligible for another government program already in existence. Unless their Dairy Queen gig is paying them enough to get over 185% of the FPL, or they have a spouse who's pulling in good cash, that person would be eligible for BadgerCare and therefore wouldn't be a Healthy Wisconsin participant. Hence, the incentive for them to come to WI is no different under Healthy WI than it is now under BadgerCare.

The issue raised by Christian isn't over sick people in the middle and upper classes who are priced out of the individual insurance market because of the risk that's associated with their age and any sort of chronic conditions they might have. That's a big problem, but, in terms of numbers, we're not talking about a huge percentage of the population, and often it's people who are pretty settled in their home states -- they're not going to up and leave Tennessee at 55 because Wisconsin has universal health coverage. And, if they do, they really wouldn't be scamming the system since they'd be getting a middle/upper class job -- like the one they had in Tennessee -- that would pay a good amount into the system through the payroll assessment.

Healthy WI is aimed at more than just universal coverage -- it's really about fundamentally changing the health care system through centralization. The most important effect of this is controlling costs, followed closely by ensuring that no one who has coverage is under-insured and that no one who has coverage would get priced out of the market b/c of risk.

Doyle's BadgerCare Plus is a purely universal coverage plan (although it only gets us to 98%, whereas Healthy WI would get us to a little over 99%) that does little to control costs or ensure a minimum set of benefits. In that sense, BadgerCare Plus isn't any less of a draw for out-of-state uninsureds than Healthy WI, and BadgerCare Plus isn't all that much different than what we currently have sitting at 92% coverage.

Rick Esenberg said...

It's not that they wouldn't pay anything into the system, it's that they woould be disproportionate users of insurance. You can't have it both ways, Seth. Either the absence of universal coverage is a serious problem or it isn't. If it is, then those who lack coverage and need it are going to be drawn to the one state that offers it.

Seth Zlotocha said...

The lack of universal coverage is a problem, but it's not the only problem. And plain old coverage is less of an issue in states in the Midwest and Northeast, which have tended to extend their public programs enough to catch wide swaths of the population.

Under-insurance and cost are arguably more significant issues in Wisconsin, which already has 92-93% coverage. That's why BadgerCare Plus would be a worthwhile short-term move, but it's not a long-term solution.

And, yes, some people would pay less but use more health care under the Healthy WI plan, others would pay more but use less, and still others would pay at about the same level that they use. That happens today. Institutionalizing that on a universal scale is the notion of community rating. As part of a young and generally healthy family, I'm well aware that my family would be paying more than our fair share for quite awhile; but I also know that should the health of someone in my family take a turn for the worse, we'd still be covered and that coverage would be affordable.

And the fundamental point of your post and Christian's post is that there's going to be a flood of unisureds into the state under Healthy WI. But the fact is the incentive to come here would be virtually as great under BadgerCare and certainly as great under BadgerCare Plus, particularly for those who'd land a menial job just to qualify for care. Those who have better jobs but just have expensive chronic health conditions are far more likely to just find a new job that offers employer-sponsored coverage in their home state than they are to up and move to Wisconsin (where they'd need to find a new job, anyway).

Seth Zlotocha said...

I'll add quickly that your notion that uninsured people will naturally gravitate to where they can get insurance would necessarily mean that states who offer more generous Medicaid plans would be seeing an influx of people from other states who don't. Yet, thousands of people who could qualify for coverage in other states choose not to leave their current state that doesn't offer them coverage. Why is that?

Maybe it's because there's far more that goes into the issue of moving across state lines than just health coverage. That doesn't mean health coverage isn't an issue, it just means it isn't the only issue. And while a few people may trickle into (or out of) a state for any number of reasons, framing that number as significant is a stretch at best.