Health Care is Complicated and Expensive

By Charles (“Chuck”) Storrow

OK, I know, I am stating the obvious. But, the notion that health care is complicated and expensive needs to be reiterated in light of the discussions in Washington over repealing and replacing the Affordable Care Act, a/k/a “Obamacare.” There is simply no magic wand that can be waved to make health care simple and inexpensive. The issue is complicated because a change in one area to help one group of people causes an impact in another area that is negative to another group. While the situation cries out for a bipartisan approach, in today’s political climate the chances of a bipartisan agreement are, unfortunately, slim.

Much of the discussion in Washington relates to rolling back the ACA’s expansion of the Medicaid program. However, Congress is also considering changes to the ACA’s rules concerning commercial health insurance. When it comes to the issue of how the private health insurance market should be structured the ostensible choice is between two value judgments. On the one hand there is the notion that the cost of health insurance for a healthy person should reflect the relatively low risk of insuring them. On the other hand there is the idea that everybody should be in the same risk pool regardless of how healthy they are, with the result that healthy people are essentially subsidizing less healthy people. However, regardless of which value judgment is chosen in the end, we all pay.

Take the question of insuring against pre-existing health conditions and the ACA’s so called “individual mandate,” i.e., the requirement that everybody have health coverage. If there is no individual mandate but an insurer nonetheless has to insure people with a pre-existing health condition many people would not buy insurance until they get sick or are injured. Premiums would be even more exorbitant than they are now, since most of the people who would be insured would be those with health problems.

The ACA’s individual mandate is intended to balance the cost of insuring people with existing health issues by spreading that cost to healthy people via the requirement that everybody have health insurance. However, the penalties for not having insurance are relatively modest. Not enough healthy people have obtained insurance to offset the cost of covering pre-existing conditions. Premiums have gone up and in many states the individual markets are close to collapsing.

To remedy the problem policymakers have to choose—should healthy people be forced to buy insurance in order to make it feasible to require insurers to insure people with pre-existing health conditions? To accomplish that goal the penalties for not having insurance would have to be significant, which is politically unpalatable.

On the other hand, if everybody is not required to have health insurance it would simply not be feasible to require insurers to cover people with pre-existing conditions–it would only be a matter of time before the insurers go bankrupt. But, if insurers are not required to cover pre-existing conditions a person who, for instance, develops cancer while they are uninsured would not be able to then go out and buy coverage for their cancer treatments.

Unless they could pay out of pocket, which, given the cost of cancer treatments would be out of reach for most people, such a person would probably seek and obtain free or reduced cost care via a hospital emergency room. Receiving care via an emergency room is inefficient and more expensive than receiving care in other settings and, in the case of cancer, probably not that effective.

Moreover and in all events, the hospital would recoup the cost of providing free care by charging private commercial insurers for the services provided to the insurers’ customers more than they otherwise would charge them (if the hospital could not do that it would eventually go bust). In a way that is the same result as having an individual mandate—the cost of covering the cancer treatment is spread to those who have insurance. However, without an effective individual mandate there would be fewer people with insurance to absorb the cost.

The U.S. Senate is currently considering a bill that lets insurance companies sell plans that don’t include the ACA’s essential health benefits, as long as an insurer also offers a plan with those benefits. On the surface this reflects the notion that healthy people should not be forced to subsidize the cost of coverage for less healthy people. However, analysts and insurers warn that this could create two markets, one for sick people who need more benefits and one for healthy people who need fewer. That would drive the cost of insurance much higher for people who want more benefits, including people with pre-existing conditions. The Senate bill attempts to deal with this problem by providing subsidies for lower-income people to buy a comprehensive plan. But, since those subsidies would be funded by taxpayers in the end we would, once again, all pay.

On a system-wide basis there may be advantages to one approach versus another relative to the question of pre-existing conditions . But, there is no silver bullet–any given approach involves competing tensions and innumerable tradeoffs and unless care is altogether denied to people with pre-existing conditions we are all going to pay.