Tuesday, March 27, 2012

The economics of choice

Today the U.S. Supreme Court will hear the second day of oral arguments regarding the constitutionality of the individual mandate provision of President Obama's health care reform legislation. The question being posed is whether the government can require a citizen to purchase health care coverage under penalty of a financial penalty.

Now even those who don't like the legislation don't want folks with pre-existing conditions to be discriminated against by the for-profit health care insurers.

But here's the rub (and I have yet to hear Mr. Romney or Mr. Santorum explain just how they plan to get around this little bump in the road). If you forbid the insurers from denying coverage based on pre-existing conditions without everyone purchasing coverage you will end up with what's called negative selection. In other words, there will be an influx of new enrollees suffering from pre-existing conditions. Without an proportional increase in the number of healthy folks, the cost of coverage for everyone will increase because there are fewer healthy bodies in the pool.

The only way to prevent negative selection is to create a mechanism by which more people who aren't suffering from pre-existing conditions enter the pool of insureds. And the only way to do this is to mandate that everyone purchase coverage either through their employer or privately.

This is the problem Congress created by continuing to rely on employer-based health insurance issued by for-profit companies. A for-profit insurer will always be intent on reducing the amount per premium dollar being spent on actual health care. The lower that percentage, the higher the return for management and for investors. But, while Mr. Santorum and Mr. Romney will harp on the thought of a government bureaucrat making your health care decisions for you, you won't hear a peep from them about profit-maximizing corporate managers doing that very thing.

But is the individual mandate constitutional? Well, let's think about that. Our state government requires that anyone driving a car carry a minimum level of liability insurance. The state requires that we wear a seatbelt if we're riding in a car. The state requires that our children ride in car seats until a certain age. And let's not forget that the federal government forced states to raise the drinking age and lower the speed limit (back in the 70's) under penalty of losing highway construction funds.

I have no idea how the Supremes are going to rule but, should the Court strike down the individual mandate, the entire health care plan goes down in flames. And, if that happens, the only beneficiaries are the insurance companies.

Yes, it's going to cost some people more money to purchase health care coverage. But we all end up footing the bill when an uninsured person receives medical treatment - either through higher taxes to fund public hospitals or through increased fees at private hospitals to cover the charity care.


Analyst said...

A better plan would be to have each state offer a state plan which includes everyone. Ironically this is what Mittens Romney did (or what we think he did since he spent $100,000 of taxpayer money to shred all of his documents when he left office).

Paul B. Kennedy said...

Thank you for your comment.

The main problem with the law is that it leaves insurance in the hands of employers and the health insurance companies. Coverage needs to be separated from employment.

The ultimate solution would be a move toward a single-payer system.