Free Markets, Free People

NOW they tell us…

John Cassidy, writing in one of the blogs at that hotbed of reactionary conservatism, the New Yorker, notes the following about the BFD.  First, he writes that the individual mandate is likely to prompt rather different behavior than the law assumes:

Consider the so-called “individual mandate.” As a strict matter of law, all non-elderly Americans who earn more than the poverty line will be obliged to obtain some form of health coverage. If they don’t, in 2016 and beyond, they could face a fine of about $700 or 2.5 per cent of their income—whichever is the most. Two issues immediately arise.

Even if the fines are vigorously enforced, many people may choose to pay them and stay uninsured. Consider a healthy single man of thirty-five who earns $35,000 a year. Under the new system, he would have a choice of enrolling in a subsidized plan at an annual cost of $2,700 or paying a fine of $875. It may well make sense for him to pay the fine, take his chances, and report to the local emergency room if he gets really sick. (E.R.s will still be legally obliged to treat all comers.) If this sort of thing happens often, as well it could, the new insurance exchanges will be deprived of exactly the sort of healthy young people they need in order to bring down prices. (Healthy people improve the risk pool.)

He then moves on to note that employers may respond in a rather unexpected fashion as well:

Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)

In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do?

I assume that final question is rhetorical.

Too bad no one could explain this prior to the bill’s passage.

If only there was some intellectual discipline that tried to predict how people respond to incentives in a world of scarce resources!

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26 Responses to NOW they tell us…

  • I believe the whole point of this bill is to make the system fail. There is also no enforcement provisions in the bill.
    When this fails and causes all sorts of health care problems the government again steps in with single payer government insurance. People will demand it.  Socialism by failure!

    • That might be the intent, but I think it will backfire. People are more likley to demand that we scrap all of this and go back to the way things were.

    • RickI believe the whole point of this bill is to make the system fail. There is also no enforcement provisions in the bill.

      I agree.  It’s almost as if Imeme and the dems are setting up the insurance industry to fail so they can have an excuse to take over.  “Well, we didn’t do single payer because people trusted the insurance companies.  And now look what’s happened!  They’ve dropped even more people from insurance plans and even more people don’t have health care! (insert sob story about person who is sick or died, allegedly from a lack of health insurance) So, we’ve got no choice!  The American people demand action!”

      • I don’t know that our country will survive this.  Should they attempt it I don’t see how this ends without bloodshed.

        • Perhaps, but I certainly hope not.  For one thing, the ballot box and jury boxes are still open to us.  If we don’t elect a Congress in ’10 and ’12 and a president in ’12 who will get rid of this abomination, then shame on us.

          Anyway, Americans tend to be a fairly law-abiding lot.  And even for those who aren’t… Well… who will they shoot at?  Their local police or sheriffs, most of whom are held in high regard around the country*?  Federal agents?  Hapless bureaucrats in the local federal building?  I’m a bit sorry to say that it’s not quite like 1775 when the bad guys were thoughtful enough to wear red coats so you knew who to blast away at when you’d had enough.


          (*)  One of our city’s veteran police officers was killed in the line of duty last year.  It would be fair to say that the community was united in outrage against his killer and support for his widow and children.  I expect that the police would enjoy the same broad support in almost any American city or town.

    • Well, yeah!  Let’s see: they must now (soon, anyway) take all comers and can’t cap payouts – to use just two factors. Thus, they will have to raise premiums.  Evan Paul Krugman would have to acknowledge that.  It’s a win either way for the hivemind – either:
      (1) the insurance companies limp along somehow, with ever-increasing rates, becoming even more of an object for the Gov’t to demonize and use as a distraction than ever, or
      (2) The companies have to shut down, at which point the Gov’t will step in and say “See! The Market has failed!  We’ll have to “rescue”  everybody!”
      I  predict it will be a few years of (1), followed by (2).
      Given the oft-stated intent of the writers that single-payer is the goal, and the assurances since passage (and before, actually) that this is just a first step, any other conclusion is insupportable.

  • PITTSBURGH — Metals processor Allegheny Technologies Inc. said Monday that it plans to take a $5 million non-cash charge in the first quarter related to the health care overhaul legislation.
    NEW YORK — Insurer Prudential Financial Inc. said Monday that it will take a $100 million charge in the first quarter in relation to the recent health care overhaul legislation.
    NEW YORK — 3M Co., which makes a myriad of products including Post-Its and Scotch Tape, said Friday it expects to take a one-time noncash charge of $85 million to $90 million due to changes in tax deductions relating to the newly enacted health care law.

  • What is perhaps a little more subtle is that someone pays the fine or gets bare bones coverage.  Something like a $15,000 deductible for very cheap.  Their premiums reflect this and they pay around the level of the fine (depending on their income).  So unlike the case where someone just pays the fine, they’re covered for a car accident enough to not destroy them financially.
    But after paying dirt cheap for a pay almost nothing care, they then get diagnosed with cancer, diabetes, heart disease, apnea, etc.  They then at that point start buying better healthcare insurance with no penalty because of the pre-existing condition measures.
    Not only did they pay almost nothing into healthcare because they paid the fine or took the bottom barrel plan, but they are not using the better benefits of the higher end plans and only paying into those better plans when its cost effective for them to do so.
    Basically the better plans, which most of us are on will take in less money and pay out way more.  They will become very expensive.  Because insurance is about sharing risk of the unlucky with the lucky with peace of mind for everyone being the payoff everyone gets.  But when only the unlucky take part, there’s no point to insurance.
    So anything but the hyper stripped insurance plans will become very expensive.
    And if you think no one thought of this inside the proponents, my guess is you’re mistaken.  This bill is about causing the health system as we know it today to collapse (cloward-piven).  Part of that is counting on human nature to abuse the pre-existing condition literature to jump between the fine or stripped down health care ins and good health care ins.  Then we’ll be told the old private system was too ‘sick’ to be saved by HC reform 1.0.  We will be told we need HC reform 2.0 which will by the government taking it all over completely.
    I mean they’re screwing over the elderly right now as we’re about to get the biggest block of elderly voters ever.  Right now, the elderly reaction is to oppose HCR 1.0.  Once they’re hurting because of HC Reform 1.0, they will want the hurting to stop. And if someone offers to take on all their expenses with unabashed socialism in HCR 2.0, they will support it.  Especially this ex-hippie baby boomer segment that is currently in power in government and society but soon to retire.

    • The problem being that it isn’t/wasn’t to terribly difficult to crash our “system” in the first place.  The majority of the Health Insurance plans are/were unsustainable from the get-go.  Without the employer hiding the majority of the cost of existing plans and, I assume they’re out there, government subsidies, the American public likely would’ve kicked these plans to the curb a long time ago.
      When faced with the option of paying between $50-$600 a year in regular preventative medical care out of pocket and carrying a catastrophic insurance plan for, say $500-$5000 a year (based on risk and number of people covered, like car or home insurance) or paying $4,000-$12,000 a year (based on how often the other people in your group USE the coverage).  Which choice do you think most Americans would make?

  • There may be a bit of irony here.  I wonder how many of the younger people in the USA (who supported wealth distribution as a policy because they weren’t wealthy enough to be forced to do the sharing) will chafe at the idea that they’ve got to buy health insurance so that the system has enough money to provide health care for someone else?
    On the bright side, if they do chafe over the idea, they’ll only be on the hook for a deductible!

    • As near as I can determine, those young people will only have to pay for health insurance if they’d rather not have to pay the fine, and they’ve apparently only got to pay the fine if they really feel like it.

      A strange law, no?  It’s cheaper to commit the crime and pay the fine than it is to obey the law, and you don’t even have to pay the fine unless your law-abiding sensibilities can only be pushed so far.

      • Don’t think that the enforcement portion of this can’t be implemented after the fact when the amount of unpaid “fines” gets high enough.

  • Is there some requirement in the bill that preexisting conditions cant be charged through the roof by insurance? Ok, well let you get “insurance” for that cancer, but itl cost ya…

  • “Too bad no one could explain this prior to the bill’s passage.”
    There was a reason.
    “But we have to pass the bill so  that you can find out what is in it, away from the fog of the controversy.”  Nancy Pelosi

  • “If only there was some intellectual discipline that tried to predict how people respond to incentives in a world of scarce resources!”
    It is a good think there is no such discipline.  Otherwise we would end up with Keynes and Krugman,

  • You’re right. As a result, this will all end with a health insurance payroll tax, but I think you know that.

    Our previous system was untenable, with projections of HC costs at 36% of the GDP by 2035, and this will be untenable as well, which is why it opposed by not only the right, but a minority on the left.

    Some good things are in this bill, but universal coverage by mandate was never a good idea. However, you can’t get rid of the uninsurable problem without expanding the pool, and as you point out, this may not expand the pool by as much as hoped, or may be much more costly than anticipated.

    But the kicker is that you are never, ever going to see the pre-existing condition provisions repealed, so check-mate.

    I doubt that this was intentionally by all parties that voted for the bill, but surely some of them knew the inevitable path this was going down.

  • I see a future with a two tiered health insurance system.

    Tier 1:  The Government Plan, supported by tax dollars and provided to all who cannot afford their own insurance and those who will join because Health Care is not an important or dominant factor in their lives – the young and stupid.

    Tier 2:  The Health Club Plan.  Everyone who can afford it will buy into a supplemental Health Club Plan.  These plans will provide personal medical services, at a cost, as a supplement to the Govenment Plan of which all will be members.

    The difference between the two?  The timing of your access to health care.  The Government Plan will become stressed, as the UK and Canadian program are, with long wait times for access.  Some of the European (France & Germany as I understand it correctly) have systems like this.  Those that have the money can get immediate access to their health “Clubs” while everybody else has to wait in line at the “Government Store“.

    Then sit back and watch the Proles howl!  They got their Universal Health Care Insurance, as Obama and the left promised.  What more do they want?

  • SShhiel, I think you are exactly correct. I do however differ in how I think people will feel about the plan.

    One of the problems in this whole debate is the use of cherry picking data, by both sides, but especially opponents of universal healthcare. There are dozens of countries with universal coverage, and no two are exactly alike, and no two have the same customer experiences. It’s easy to point out problems in one system as a problem endemic to all universal healthcare systems, but that is just not the case.

    In any case, I would prefer to have a hybrid system, like our school system. You get the basics if you use the public option, but you can pay extra and get extra.

    With nearly 60% of healthcare dollars passing through government already, we should almost be able to offer basic universal covergage with those dollars alone, and then people can go out and get any bells and whistles they desire, privately.

    I can see a “front of the line” insurance policy already. You pay a private company for this, and doctors who accept this insurance will get a bonus for seeing them within a specific short period of time.

  • “With nearly 60% of healthcare dollars passing through government already, we should almost be able to offer basic universal covergage with those dollars alone, and then people can go out and get any bells and whistles they desire, privately.”
    Since you are the proponent of single payer here, you explain why Medicare and Medicaid can’t manage to break even then, even with hospitals subsidizing those patients via private ones. Instead of spending some time to figure out why our costs are so high, the progressives just figure it will all work out if the governments in charge. Well, Medicare and Medicaid are already in trouble – explain how adding more people will work? I just don’t get that.

  • Harun, Medicaid is a welfare program, not an insurance program, so I undersand why or how you would expect that to “break even”.

    You bring up an excellent point on Medicare however, and I think it is the single most important and relevant discussion point in the entire healthcare debate.

    Why does Medicare cost so much, and why should we expect costs to go down if we cover more people?

    The answer is simply actuarials.

    The government takes on the absolute highest risk, highest cost, group in the country, and does not get to equalize that cost with lower risk, lower cost insureds, instead, private industry takes on these people, and then cherry picks out of that lower risk group, pushing even high risk people in the lower risk back to the government, either in the form of EMTALA emergency care, or simply uncompensated care.

    Medicare works great as far as the services it delivers, but with an aging population, and smaller succeeding generations, the cost is breaking us. The best politically viable solution (considering abolishing Medicare is compleely off the table), is to add lower risk groups. Medicare from 65 to death, most expensive, Medicare from 55 to death, less expensive (per insured), Medicare for birth to death, least epxensive (per insured).

    Medicare makes genuine universal healthcare inevitable. Those guys that complained about what Medicare would lead to in the 60’s were right. Whether that’s a bad thing or not is debateable, but I really don’t think the eventual outcome is avoidable.

  • “SShiell (sp), I think you are exactly correct. I do however differ in how I think people will feel about the plan.”

    Capt S:  I realize I am projecting here but I believe that human nature will overcome all else and people will begin pointing out the difference in “care” if the two tiered system comes about as I envision.  And, Democracy being what it is interpeted to be these days, I see there will be some blowback on this two tiered system.

  • I don’t disagree that people will notice a difference between what you get when do not pay a premium, but two things, one people will have the choice of whether to pay that premium, and if they can’t afford it, they will at least have coverage.

    There’s a difference between owning a car and using public transportation. People who use public transportion may wish they had a car, but won’t ask that public transportation be abolished because of it.

    We talk a lot about universal coverage in other countries and how sometimes the wealthy in those countries travel for healthcare services, sometimes to the US, sometimes to Costa Rica, or other places. These are the benefits of wealth, and I am all for wealth getting you more than you could get if you were not wealthy, otherwise, what’s the point?

    My analogy is that this has never been about buying everyone a Cadillac, it’s about creating public transportation, but I am for making sure that you can always buy a Cadillac if you can afford it.

    Also, it won’t necessarily be two tiered, more like one tier with available options you may purchase.

    The key is keeping the medical delivery system private. Should that debate ever come up, I will be firmly on your side.