By Kelly McCutchen
President Obama’s health care overhaul was passed with the promise to end the ability of insurance companies to exclude individuals with “pre-existing conditions” and to reduce the number of Americans without insurance. That the U.S. Supreme Court could overturn the law this month is no reason to panic, however: Both problems can be addressed without the need for another 2,700-page law.
Many of the uninsured are unable to pay for the full cost of the care they receive, leaving the rest to be covered by taxpayers or cost shifted to others. This is a particular challenge in rural and inner-city areas.
The uninsured do pay a portion of their bills, but studies have found that a full-time uninsured individual receives about $1,500 in unreimbursed care, on average. Not all uninsured are indigent, and uninsured individuals with taxable income are unable to benefit from the generous tax exemptions for health insurance: They are, in effect, paying “extra” taxes. Health care expert Dr. John Goodman estimates that the “extra” taxes paid by the middle- and upper-income uninsured could cover the costs of their “free,” unreimbursed care. The challenge is to make sure these funds are directed away from the federal bureaucracy to the safety net providers in each community.
Even better, Goodman suggests these same funds could be used to subsidize the purchase of insurance for low-income uninsured individuals and families. After all, if someone is insured they won’t need free care. For more information on Goodman’s plan, see “Applying the ‘Do No Harm’ Principle to Health Policy.”
How about “uninsurable” individuals, who have a pre-existing medical condition and are unable to get coverage even if they can afford it? A simple solution for this problem is already working in the majority of states: high-risk pools.
Insurance is designed to cover unexpected events. No one plans to file a claim on their homeowner’s insurance policy, for example, until the fire happens or the tree actually falls on the house. For a health insurance company to sell insurance to the cancer patient is like buying a homeowner’s policy while your house is burning. Nevertheless, the situation is a tragedy for the individual, which is why elected officials have tried to solve this problem for many years.
Fortunately, there are several examples at the state level of what works and what doesn’t. Over the last couple of decades, many states created regulations prohibiting insurance companies from turning anyone down (guaranteed issue) or charging higher premiums to individuals with pre-existing conditions (community rating).
The results were predictable. The higher costs were passed along in the form of higher premiums, so the young and healthy asked themselves, “Why should I pay an exorbitant amount of money for a service that I rarely use?” and made the rational decision to drop coverage. Why was it rational? They knew that if they got sick they could always buy “insurance” at the same price as everyone else, greatly reducing the risk of going without insurance.
As more people drop their coverage, the cost for everyone continues to rise, beginning what the industry calls a “death spiral.” Most states eventually – and understandably – repealed these regulations.
At some point, someone opined, “Everything was going just fine until people started dropping their insurance. We shouldn’t allow them to drop out.” And that is how the “individual mandate” requiring everyone to purchase health insurance was born.
The belief is that if everyone is forced to buy insurance, insurance companies will be forced to cover everyone at a “fair” price and everything will be great. Except that forcing people to buy insurance is very likely unconstitutional.
So what is the alternative? As of the end of 2010, 34 states had voluntarily created a “high-risk pool” to subsidize the estimated 1 percent of the population with a pre-existing condition without distorting rational pricing of health insurance for everyone else. The high-risk pool premiums are typically 25-50 percent higher than what an average person the same age and gender would pay. This is important because it creates a disincentive to game the system and forgo insurance until sickness strikes. The remaining cost is subsidized through general taxes or some other mechanism.
As a part of the transition to the individual mandate, the federal government has created a high-risk pool in every state. At the end of 2011, 1,476 Georgians and less than 49,000 nationwide had signed up for the federal high-risk pools. For Georgia to pick up the cost would probably be less than 1 percent of what the state currently spends on Medicaid.
Georgia health care providers, taxpayers and citizens bear much of the cost of uncompensated care provided to individuals without insurance. As critical as this issue is, it is no justification for destroying the health insurance market for everyone else. Commonsense solutions can and should be implemented quickly if the Supreme Court provides the opportunity.