I despise the Senate bill. And not just a little - I actually hate it. In fact, I have trouble talking about it without raising my voice and doing my best impression of a spittle-flecked teabagger.
That being said, I also understand that progressives and liberals of good faith can support it. I know that Paul Krugman, Ezra Klein, Howard Dean and the many on this site that support the Senate bill are not hidden right wingers trying to trick us into supporting some fake reform plan.
Genuine good faith on this issue can take us in different directions. And I hope that both those of you, like me, that oppose the Senate plan and those of you that support it will join me below the fold so I can explain my side of it.
At the root of my opposition is the individual mandate. Now, I can almost feel mandate supporters losing interest at this point, but before you do, let me tell a story.
Back in the early and mid 1990s, I graduated from college and took a job as an economics consultant at one of the, at the time, Big 6 accounting firms. I hated the job, even more than working at McDonald's when I was in high school, and quit after about 11 months. Now, I admit that I didn't save any money during those 11 months - recent college grad, party! But after I quit I had no money saved up and no real plan for the future.
As many of you know, that is a recipe for moving back in with your parents, which is exactly what I did. I moved back home and started doing temp work for $7/hr (no benefits of course). Because I earned so little money I didn't sign up for COBRA (a relatively new program at the time), and decided that the premiums would be too much and I was unlikely to need them. Well, over the next 4 months I managed to save about $1,200, and was able to move into an apartment in the state where I would pursue my law degree.
After moving out of state, I got another temp job - this time for $8.50/hr - again without benefits. I worked this position for about a year while I applied to law school, did not have health insurance or seek medical care and was able to save about $3,500. This amount was enough to enable me to pay most of my living expenses for my first year of law school - it goes without saying that this was a while ago.
It is worth noting that I've been insured ever since I started law school.
The Economic Benefits of Going Without Health Insurance
I relay my experience not to make myself sound noble, but to raise an important economic point: Going without health insurance can facilitate economically useful activities that are socially desirable.
In my example, those included:
* Independence and household formation (me moving out of my parents' house and moving out of state);
* Labor market mobility (I was able to rapidly save enough to move to a different state than my parents)
* Capital accumulation (I would not have been able to save even half as much money as I did if I had purchased COBRA or other health insurance);
* Education and upward social mobility (I was able to start my graduate education with money in the bank and earlier than if I had been paying for insurance)
In other words, if I had stayed in my $7/hr job for another year until I saved enough to move and pay for health insurance, society as a whole would have lost something. If I had stayed at my $8.50 job for another year while I saved enough to both pay for health insurance and save money for grad school living expenses society loses something real. At minimum, the Federal government would have lost 2 years of taxes at the salary I had coming out of law school (at least back then it was several multiples of 8.50/hr).
There are real, significant, and important benefits that accrue to both the individual and society from allowing an individual to freely opt out of the health insurance system. I think a lot of people, particularly young people, make decisions similar to the ones I set out above. Whether for purposes of saving money, paying down (nondischargeable) student loan debt, starting a business, or any of a thousand socially useful reasons, there is a real economic benefit to society to these people going without health insurance and it should not be ignored.
Adverse Selection and The Economic Harm of Going Without Health Insurance
Of course, I can almost hear the howls of "you got lucky" and "adverse selection." It is true that I could have gotten into a car accident (although I didn't own a car), gotten cancer, or some other malady, and had that happened I would have run up large bills and ultimately gone on Medicaid, declared bankruptcy, or died from lack of treatment. All true, but the benefits of opting out were also real.
The major economic problem addressed by the individual mandate is what's known as adverse selection, or an individual's desire to forego insurance until they're worried they might need it. Wikipedia's explanation is reasonably good so feel free to click through. But the basic issue is that I know more about my risk profile than the insurance company (i.e. I know if I'm someone who has large amounts of unprotected sex, smokes cigarettes, drinks vodka to excess, skydives, rides a motorcycle, or engages in other risky behaviors, but the insurance company doesn't). It is a classic asymetrical informationproblem.
In a worst case scenario extensive adverse selection can send an insurance market into a death spiral as the low risk customers iteratively opt out, and only the highest cost customers remain. Eventually, the entire insurance program would collapse under its own weight as the insurance cost and risk cost would tend toward parity.
In U.S. health insurance markets the way insurers have dealt with adverse selection is through medical underwriting (trying to learn about my risk profile), exclusions (not covering a subscriber for some number of years or for certain ailments), and rescission (a fall back in case they fuck up on the first two). Avoiding high risk individuals costs insurance companies (and their subscribers of course) a tremendous amount of money.
The basic purpose of an individual mandate is eliminate this "problem." In essence if everyone is required to be covered then no individual or group can take advantage of their informational advantage. As I discussed in Q & A form in this diary:
Q. That individual mandate really bugs me, why do we need that again?
A. Well, it minimizes adverse selection of the young and healthy out of the system and lowers average costs.
Q. Oh, so the way it works is that the young and healthy pay more in premiums than they get in care and the balance is distributed over the rest of the risk pool - less insurance company overhead and profits of course - right?
A. Exactly. That's the way that insurance coverage works.
Q. Interesting. So, a young and healthy person that has opted out of insurance to pay down debt, or try to save some money, is now required to subsidize the rest of the risk pool, right?
A. Well, yes.
Q. Just to confirm, because they're putting more into the system than they are taking out, these young and healthy individuals that opted out are actually worse off because of the mandate, agreed?
A. Well, yes, except they will now have insurance.
One of the nice things about the Senate bill is that it ends preexisting conditions as a basis for denying insurance coverage. But without the ability to engage in medical underwriting, the risk of an adverse selection death spiral (according to the insurance companies) becomes all too real - or does it?
Is Adverse Selection Really a Problem in The Health Insurance Market?
I don't know. And, in fact, the insurance companies don't know either. I do know that the insurance companies and their flunkies are desperate for an individual mandate and a stiff penalty for opting out. This suggests that they genuinely will make more money if more people sign up, i.e. the marginal enrollee will be of lower risk than the average enrollee in the same rate category. Fine, insurance companies are a sophisticated group so they're probably right, but is the difference significant enough that it will create an insurance death spiral?
This is an important distinction because if the goal is to preserve the insurance marketplace, then we only need to worry if the adverse selection is severe enough that it will trigger a death spiral. Otherwise, it simply is not something that the government should be screwing around with - it's an issue of protecting and enhancing insurance company profits rather than the market itself (TARP anyone?).
We'll go back to wikipedia on this one:
Whilst adverse selection in theory seems an obvious and inevitable consequence of economic incentives, empirical evidence is mixed. Several studies investigating correlations between risk and insurance purchase have failed to show the predicted positive correlation for life insurance[3], auto insurance[4][5], and health insurance[6]. On the other hand, "positive" test results for adverse selection have been reported in long-term care insurance[7] and annuity markets[8]. These "positive" results tend to be based on demonstrating more subtle relationships between risk and purchasing behavior (e.g. between mortality and whether the customer chooses a life annuity which is fixed or inflation-linked), rather than simple correlations of risk and quantity purchased.
One reason why adverse selection may be muted in practice may be that insurers' underwriting is largely effective. Another possible reason is negative correlation between risk aversion (e.g. insurance purchasers) and risk level (e.g. level of observed claims) in the population: if risk aversion is higher amongst lower risk customers, adverse selection can be reduced or even reversed, leading to 'propitious' or 'advantageous' selection[9][10]. For example, there is evidence that smokers are more willing to do risky jobs than non-smokers[11], and this greater willingness to accept risk might reduce insurance purchase by smokers. From a public policy viewpoint, some adverse selection can also be advantageous because it may lead to a higher fraction of total losses for the whole population being covered by insurance than if there was no adverse selection[12].
In other words, smokers, skydivers, and motorcycle riders may be less likely to buy health insurance because they are less concerned about taking risks. The key point is that we just don't know how eliminating the pre-existing condition exclusion without an individual mandate would work in practice - theoretically, at least, it might lower rates.
Are There Other Ways to Control Adverse Selection Other Than an Individual Mandate?
Of course. If it were to turn out that adverse selection was a problem - not clear that it would be - there are numerous ways to control it. They key to preventing adverse selection to implement some barrier that makes it difficult to show up for insurance immediately after the cancer diagnosis.
The health insurance companies use medical underwriting. The Senate bill attempts to force everyone into the system. Both of which are a way to prevent adverse selection. The problem with medical underwriting/pre-existing conditions, etc scoops up innocents who aren't trying to game the system and by the time it catches anyone (innocent or "guilty"), they're sick and sympathetic. The problem with the jumping everyone in approach is that it inhibits the freedom to opt out of the system, is enforced through a strongly regressive tax, and is ideologically anathema to large segments of the population who believe in single payer or a pure market based system.
There is, however, nothing written in stone that says "everyone in" (mandate) or "who can we keep out" (underwriting) are the only mechanisms for controlling adverse selection. While not the basic purpose of this diary, a few barriers that might help prevent adverse selection include:
* A fee to buy back into the health insurance system after a period of absence;
* A requirement that after leaving the system for some number of months, you must first buy into a high-risk pool for X number of months/year;
* A requirement that you pay for the first X dollars out of pocket for the first X months after coming back into the pool.
In these examples the barrier to reentry is financial and it is voluntary - no tax penalties and no mandate. An individual can opt out if it makes financial sense and only face a financial consequence from the action when voluntarily trying to reenter the system. In other words, it preserves a sense of agency on the part of the individual and allows them to make a decision to forego health insurance if necessary to allow them to pursue economically beneficial activities.
The Politics, Optics, and Experience of the Individual Mandate
I included the discussion adverse selection because I want to make the observations that follow in the following context: I get it. I understand the purpose of the individual mandate, I know why it's in there, and get why some consider it important, even critical. Yet, I still oppose it - strongly.
My major concern is that the young and/or individuals and families on the razor's edge financially will experience the individual mandate as a massive out of pocket payment for insurance that is not usuable or a massive (and strongly regressive) tax increase.
Now, as a political matter, imposing a considerable tax increase on two strongly Democratic constituencies (the struggling middle class and young), is just fucking crazy. From the moment the health care bill passes, these people will associate their experience with the health insurance companies with the Democrats - and they will do it forever.
And this bill does little to change the essential health insurance experience:
* A monthly premium payment is still required;
* Copays still required;
* Potentially massive out of pocket expenses still required if you want to use the insurance;
* Medicaid and medical bankruptcy if you get sick.
For many, because of the premiums and the out of pocket costs, the insurance will be unusable (just like today). Except that today, these individuals and families are allowed to say "Fuck you, Cigna, BCBS, Aetna, etc. I'm mad as hell and I'm not going to take it anymore!" Under the Senate bill, they will lose this release valve without facing a large tax increase.
The young and struggling middle class will experience the individual mandate less as a form of social insurance (e.g. social security) and more as the government or the insurers reaching into their pockets and giving them little that benefits them in return.
Conclusion
There have been a smattering of "Massachusetts isn't so bad" and "this is polling well with the young" and "This helps me a lot" diaries over the last few days. Well, let me say that this plan helps me a lot - I'm not talking my book in my opposition. The Senate bill is almost tailor made to save me money on my health insurance - and I still hate it.
Stripping individuals and families of their agency in opting out - because of some financial stress, a desire to pursue other socially beneficial activities, or just for the hell of it - will be experienced by these folks as a massive tax increase or being pick pocketed for insurance that is largely unusable. And these people are the base of the Democratic party.
In sum, the bullet points in opposition are:
* The individual mandate inhibits economically beneficial opting out of health insurance;
* It reinforces the role of private health insurance and gives them a captive customer base enforced by the authority of the Federal government to solve a problem that may or may not be a significant issue;
* It strips individuals of their agency and their ability to register their disgust with the health insurance system by talking with their feet;
* It will act as a massive tax increase on two core Democratic constituencies, the young and struggling middle class and will be politically disastrous for Democrats for a decade or more.
But, hey, I'd love to be wrong, really. I just don't think I am, and that's why I oppose the Senate bill.