The Homa Files

Ken’s Take: By the law of averages, most HomaFiles readers are younger than Homa.  So, if these guys are right, maybe the proposed health care “reforms” make sense.

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Excerpted from WSJ: ‘Reform’ Is Income Redistribution, Sept.  27, 2009

Congress is contemplating changes … that would create a massively unfair form of income redistribution and create incentives for many not to buy health insurance at all.

Let’s start with basics: Insurance protects against the risk of something bad happening.

When your house is on fire you no longer need protection against risk. You need a fireman and cash to rebuild your home. But suppose the government requires insurers to sell you fire “insurance” while your house is on fire and says you can pay the same premium as people whose houses are not on fire. The result would be that few homeowners would buy insurance until their houses were on fire.

The same could happen under health insurance reform.

Here’s how: President Obama proposes to require insurers to sell policies to everyone no matter what their health status. By itself this requirement, called “guaranteed issue,” would just mean that insurers would charge predictably sick people the extremely high insurance premiums that reflect their future expected costs. But if Congress adds another requirement, called “community rating,” insurers’ ability to charge higher premiums for higher risks will be sharply limited.

Thus a healthy 25-year-old and a 55-year-old with cancer would pay nearly the same premium for a health policy.  But the 25-year-old … would pay significantly more than needed to cover his expected costs.

Like the homeowner who waits until his house is on fire to buy insurance, younger, poorer, healthier workers will rationally choose to avoid paying high premiums now to subsidize insurance for someone else. After all, they can always get a policy if they get sick.

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To avoid this outcome, most congressional Democrats and some Republicans would combine guaranteed issue and community rating with the requirement that all workers buy health insurance—that is, an “individual mandate.”

But the combination of a guaranteed issue, community rating and an individual mandate means that younger, healthier, lower-income earners would be forced to subsidize older, sicker, higher-income earners.

And because these subsidies are buried within health-insurance premiums, the massive income redistribution is hidden from public view and not debated.

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There are wiser and more equitable ways to ensure that every American has access to affordable health insurance, including high risk pools and taxpayer-funded vouchers subsidized for those who are both poor and sick.

Medicaid, charity care, and uncompensated care provided by hospitals cover some of these costs today. These solutions are imperfect, but so are the reforms being proposed in Congress.

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Full article:
http://online.wsj.com/article/SB10001424052970204488304574434933462691154.html

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This entry was posted on September 28, 2009 at 7:59 am and is filed under Health Care / Medical Insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.