Thursday, March 25, 2010

Mitt Romney and the Individual Mandate

Here's a blast from the past. In 2006 Mitt Romney took to the opinion pages of the WSJ to shout from the fiscal conservative's proverbial mountaintop that he had found a way to deliver universal coverage insurance to all in Massachusetts. Ironically, not only does Romney not support the current reform efforts, but he also had a hard time convincing conservatives that the plan he created (affectionately dubbed Romneycare, sound familiar?) was, in fact, conservative. Op-ed after the jump.

Every uninsured citizen in Massachusetts will soon have affordable health insurance and the costs of health care will be reduced. And we will need no new taxes, no employer mandate and no government takeover to make this happen...Some 20% of the state's uninsured population qualified for Medicaid but had never signed up. So we built and installed an Internet portal for our hospitals and clinics: When uninsured individuals show up for treatment, we enter their data online. If they qualify for Medicaid, they're enrolled. 
Another 40% of the uninsured were earning enough to buy insurance but had chosen not to do so. Why? Because it is expensive, and because they know that if they become seriously ill, they will get free or subsidized treatment at the hospital. By law, emergency care cannot be withheld. Why pay for something you can get free?
Of course, while it may be free for them, everyone else ends up paying the bill, either in higher insurance premiums or taxes. The solution we came up with was to make private health insurance much more affordable. Insurance reforms now permit policies with higher deductibles, higher copayments, coinsurance, provider networks and fewer mandated benefits like in vitro fertilization--and our insurers have committed to offer products nearly 50% less expensive. With private insurance finally affordable, I proposed that everyone must either purchase a product of their choice or demonstrate that they can pay for their own health care. It's a personal responsibility principle.
Some of my libertarian friends balk at what looks like an individual mandate. But remember, someone has to pay for the health care that must, by law, be provided: Either the individual pays or the taxpayers pay. A free ride on government is not libertarian
Another group of uninsured citizens in Massachusetts consisted of working people who make too much to qualify for Medicaid, but not enough to afford health-care insurance. Here the answer is to provide a subsidy so they can purchase a private policy. The premium is based on ability to pay: One pays a higher amount, along a sliding scale, as one's income is higher. The big question we faced, however, was where the money for the subsidy would come from. We didn't want higher taxes; but we did have about $1 billion already in the system through a long-established uninsured-care fund that partially reimburses hospitals for free care. The fund is raised through an annual assessment on insurance providers and hospitals, plus contributions from the state and federal governments. 
To determine if the $1 billion would be enough, Jonathan Gruber of MIT built an econometric model of the population, and with input from insurers, my in-house team crunched the numbers. Again, the result surprised us: We needed far less than the $1 billion for the subsidies. One reason is that this population is healthier than we had imagined. Instead of single parents, most were young single males, educated and in good health. And again, because health insurance will now be affordable and subsidized, we insist that everyone purchase health insurance from one of our private insurance companies.
And so, all Massachusetts citizens will have health insurance. It's a goal Democrats and Republicans share, and it has been achieved by a bipartisan effort, through market reforms.
 (emphasis added)

As Romney outlined, the individual mandate must be a lynchpin of any system that intends to pull in both the healthy and the sick. To allow the healthy to cherry pick the best time to become insured, is to guarantee that they will only do so when they are sick. Both Ezra Klein and Paul Krugman have talked extensively about the 'death spiral' that would occur.

Krugman writes, "If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on."

And if not the individual mandate then what? Is there anything that can both prevent the death spiral and guarantee that a overwhelming majority of people will be insured? If so, it has yet to be found.


(Hat Tip: E.J. Dionne)


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5 comments:

  1. I am relatively young and healthy, too old to be on my parent's plan, and earning too much to qualify for subsidies. The mandate would likely force me to pay a wildly disproportionate share of the costs relative to what I use because of community rating, gender rating, and bloated minimum coverage requirements. Actuarial tables go out the window to "spread risk", so I would end up subsidizing the obese, octomoms, the lazy, those who get free insurance, the elderly (who I already subsidize with Medicare taxes), and those who choose unhealthy lifestyles. Do we force safe 40 year old drivers into paying auto premiums at the level of a 17 year old male driver with 3 tickets? NO!
    Not gonna happen. I'm opting out instead of paying artificially inflated premiums. It would save me thousands! Also under this bill, preexisting conditions must be covered so if something ever happens, I'll just buy insurance when I need it.
    If enough people like me get shafted, adverse selection might get out of control and penalties for opting out might be increased. If that happens, I might be forced in, but I will feel compelled to and I will greatly over-utilize the healthcare system as I refuse to be a low cost profitable cash cow for insurance companies, paying in and getting very little in return.

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  2. Adam: Thanks for reading. I'm confused as to how you plan on opting out. If you can afford to pay for a policy that will be sold through the health care exchange (which you you should be able to if, as you say, you earn too much to qualify for a subsidy) then you'll either have to obtain a policy or be taxed a small amount. What's the point in paying, quite literally, something for nothing? Also, there will be a catastrophic plan offered through the exchange that shouldn't cost that much at all - and you won't get much out of it either unless you have a major accident.

    Also, you - and everybody else for that matter - is already subsidizing the cost of others. It's called cost-shifting. And it is what happens when providers have to close the enormous gap in revenue caused by caring for the uninsured. The best thing to change this scenario is what congress just did - make the system more efficient by bringing the healthy in, allowing the entire market to be assessed properly, preventive care to reach those who need it, and avoid the adverse selection that would lead to a 'death spiral' where a smaller and smaller insured but sicker group subsidizes everyone else. That isn't a formula for success and decreased health costs.

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  3. Hi John,

    Thanks for responding. I probably should have said that I might pay the fine (opting out) instead of buying in. I've been reading a lot of articles lately saying that the penalty to opt out is actually far too low. I mean $695 a year for opting out vs $3,363/year for premiums. (I used http://healthreform.kff.org/SubsidyCalculator.aspx)

    I don't think the subsidies go far enough. For a single person, I think they phase out around $30,000. I make more than that. Living in a high cost city like Chicago where the sales tax rate is 10.25% and paying over $400 a month in student loans, plus all the other misc montly fees/living expenses quickly puts a dent in the budget. I see your point regarding catastrophic plan, but I think that will not be available once you reach a certain age. 30?

    I don't have a problem subsidizing the elderly or those who get sick through no fault of their own. But I do have a problem with subsidizing obese people who make no effort to change their diet/habits, those who never exercise, those who smoke/drink excessively, etc. We are a fat and lazy nation and need incentives to get healthy. That may sound harsh, but when I see someone who is really overweight at the gym, I have more respect for that person than anyone who is cut up or bulked up.

    I see the bill as expanding a high-cost broken system even more. These drug companies are killing us on the price of drugs, doctors are forced to do way too much administrative work, medical malpractice insurance/lawsuits and defensive medicine are epidemic, and people are running to the emergency room when they have a mild cold. Probably a lot more that can be done also.

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  4. Adam: You make a couple of good points. (1) The penalty may not be high enough. But we have to remember why it is there in the first place: mainly to induce people to highly consider getting insurance. It's not there to be a big stick, more so a nudge. In the future they may want to look at making the penalty a percentage of the average premium. For instance, using Kaiser's calculator a single 34-year old male in a high cost city earning $40,000 would have a premium around $3,600. If the penalty was a third of that I imagine such individuals would purchase the premium.

    Another benefit of the Affordable Care Act is the 10 percent limit on what an individual's premium cost can be. That will be a huge benefit.

    (2) Drug companies have been getting over in a few different ways. Unfortunately, this doesn't change completely with the new legislation. However, I do disagree with your perspective on subsidizing those who are unhealthy. It is easy to look at someone who may not have the best dietary habits and blame them for the woes. But do we know their schedule that may create more barriers to them eating well? Do we know their genetic history that predetermines their metabolic rate, likelihood of heart disease, diabetes, and other illnesses? Most likely not. One's personal health while very personal is not solely determined by their actions. Some of us thanks to relatively illness free genetic history are farther ahead than others.

    Lastly, tort reform isn't the way out. I've written about that before - http://www.policydiary.com/2010/02/were-not-capping-our-way-out.html. While more can be done, it has been overblown.

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  5. This is so interested! Where can I find more like this?

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