Tuesday, March 23, 2010

Shark in WI Interest

My latest Culture Con column is out in the WI Interest. I should also point out that there is a nice article on my boss. Read that after you've read mine.


Anonymous said...

Might need an update: "Obamacare would have done the same thing by centralized administrative fiat rather than by creating a market that would retain incentives for efficiencies and innovation" (emphasis mine).

And a market being created, with inherent incentives for efficiencies and innovation, for seniors to cover their own medical costs beyond the arbitrary limits placed on spending by Ryan's roadmap, simply by virtue of those arbitrary spending limits existing. Will the seniors get to their medical appointments while riding the unicorns or will they just be there for show?

Rick Esenberg said...

Yes, the phrasing should now be different but not the conclusion. The exchanges are heavily regulated with both de jure and de facto regulation of what you can buy and mechanisms for centralized determination of what type of care can be provided. By requiring insurance companies to offer what is simply not insurance (coverage of preexisting conditions) and creating inadequate incentives to insure (to discourage free riders), it has the potential to destroy that market.

Anonymous said...

Why is coverage of pre-existing conditions not insurance? Not all pre-existing medical conditions are finite.

That is, something like diabetes can cause a host of other medical conditions, particularly if untreated. If someone is denied coverage b/c they have something like diabetes, that necessarily prevents them from gaining coverage to prevent or treat related ailments that can develop over time. And this isn't a small issue; chronic care is the most expensive type of health care, and in many ways the crux of our health care spending issues in this country.

Plus, coverage of pre-existing conditions is commonplace in the large employer market. Is what's being offered there not really insurance? Why should the same not be provided to small businesses and individuals, particularly given the negative (and expensive) outcomes -- especially w/ chronic conditions -- if those protections don't exist?

Rick Esenberg said...

If you don't permit the insurance company to charge an actuarily sound premium, it is rather like asking someone to bet today on the outcome of the Marquette- Washington game.

You can get around that problem if you are insuring a large group of people who are assembled by some criteria other than their age or health or other characteristic related to the likelihood of claims. That's the idea behind the individual mandate.

There are - or at least there should be - serious constitutional questions about a Congressionally enacted individual mandate. But putting those aside, the penalty seems too light to cause people to insure.

There were other ways to do this but it would have forced Obama to acknowledges as a cost of his program the burden he was placing on private individuals.

Anonymous said...

For starters, it sounds like you're changing your point from saying preventing insurers from denying coverage based on pre-existing conditions is requiring them to provide something that isn't insurance. Now, your point is that it isn't fair to the insurance companies to prevent such exclusions, at least in the absence of an effective individual mandate.

You're correct that the two -- preventing the pre-existing exclusion and the individual mandate -- and inextricably tied. Without the mandate, the exlusion isn't effective b/c the healthy, presumably, wouldn't seek insurance until they need it, and they couldn't be denied b/c of the exclusion prevention. Conversely, w/o the exclusion, a mandate isn't reasonable since people w/ pre-existing conditions could be charged unaffordable premiums just to attain coverage.

But you sell short the effectiveness of the mandate that's built into the law. Currently, the individual penalty is $750 per year (once fully implemented) while the reconciliation bill would reduce it to $695 per year (once fully implemented), both rates indexed for annual cost of living increases. At cursory glance, those figures may not sound like enough to incentive the purchase of an insurance policy that can run $5000+ per year, but you're missing some key points in that cursory glance.

1. The individual penalties don't work in a vacuum, at least for most of the 32 million. The law includes tax penalties for large employers who don't provide coverage to their employees, tax breaks for small business who offer and contribute to their employees health coverage, and subsidies for low income individuals to assist w/ the cost of insurance. So, when factoring in those other incentives that would reduce the cost of insurance for most individuals, it is no longer just a matter of comparing the individual penalty w/ average individual premiums.

2. We have a test case for the impact of a relatively low individual penalty on encouraging people to seek insurance. In Massachusetts, in spite of a penalty well below the cost of insurance -- and roughly on par w/ the new federal penalty -- the uninsured rate has more than cut in half since implementation in 2007, and the rate of those who have had the penalty assessed has continued to drop as more people opt for the ostensibly more expensive coverage.

3. If the individual penalty as it exists in the current federal law isn't having its intended effect, it can be changed.

Rick Esenberg said...


The question isn't whether anyone will insure. It's who will insure and who won't. If only sick or older folks do, you have a problem.

Anonymous said...

The CBO says 32 million will, the vast majority of the currently uninsured, not just the unhealthy ones. The same is true in MA, where the uninsured rate is down to around 2%, roughly 60% of whom had incomes too low (at or below 150% of the poverty level) to be assessed any penalty. The healthy aren't all huddled in that remaining 1% or so. After all, the incentives I cited above will apply more to the unhealthy, but they will still apply to the healthy. And, as I said, if the mandate isn't having the intended effect, it can be adjusted.

Anonymous said...

Looks like I sold short the individual penalty under the reconciliation bill. The penalty, when fully phased in, is actually $695 per year or 2.5% of household income, whatever is greater. So, for any household w/ an income greater than $27,800, the percentage would apply and make the penalty more of an incentive than the fixed assessment.