Map of life expectancy at birth from Global Education Project.

Tuesday, October 04, 2016

Why premiums are rising on the ACA exchanges -- and the deeper meaning

Health economist Uwe Reinhardt professorsplains it for you.

There are a couple of moving parts to keep in mind here. The first is that for any given health care service or product, the price is higher in the U.S. than in the rest of the world. It just costs more to deliver the same amount of health care here as it does elsewhere. There are a couple of reasons for this, which I'll mostly leave for another day, but this is a hard problem to fix because obviously those high prices are going into the pockets of people who are politically influential.

The next point, which Reinhardt shows you in graphic form (do lick link) is that 50% of people account for 97% of all health care spending, and the top 10% account for 65%. That's okay -- that's the whole reason why we have health insurance at all, because very few people in the top 10% have even a fraction of the income they would need to pay their own way. Health care is completely unlike other basic goods. We all need about the same amount of food, and the cost of basic shelter and clothing are about the same for everybody.

Now obviously if you're well off you can buy fancier food and clothing and bigger houses, but that's pretty much beside the point. Few of us want to consume more health care than we need -- with the exception of a very small number of people with psychological disorders, it's no fun at all, in fact it's often painful and otherwise unpleasant. And vanity cosmetic surgery is not paid for by insurance so that's also beside the point. Those people who are consuming a lot of health care need it.

So the way civilized countries solve this problem is that they give everybody basic health care coverage and finance it from some sort of a universal levy that has people paying a share they can afford -- simplest is a system funded from a progressive income tax, but some countries use kludgier systems just because.

Before Obamacare, people generally either had coverage through employment; or through government -- Medicare, Medicaid, military service and veterans' benefits. People were eligible for this coverage regardless of their need for health care, which meant broad risk pools including people who consumed relatively little health care, making the whole thing affordable. But people who didn't have coverage through these means couldn't buy insurance if they happened to be sick and actually need it, because it would be very expensive, precisely because otherwise uninsured people who were healthy would not choose to buy insurance and therefore they would be joining a very expensive risk pool.

So the Affordable Care Act forced participating insurers to issue policies to all comers, and to offer them all the same premium. The individual mandate was necessary to force young and healthy people into the pool, but for political reasons, the penalty was set much too low. Therefore insurers discovered that policies sold through the exchanges were costing them more than they expected, therefore they are jacking up the rates (or getting out of the market), which is just going to cause even more relatively healthy people to forego insurance and pay the penalty and so on. This is called the death spiral.


A) Jack up the penalty for not buying insurance. Stat.
B) Pay for universal health care through the tax system. Yes, that means higher taxes but you won't be paying insurance premiums, so you'll actually save money. (And if you get health care through your employer, you're paying for it whether you know it or now.)

But we have a weird, ideological aversion to anything called taxes. We want what they buy, but we don't want to pay for it. Because Freedom.

1 comment:

Don Quixote said...

"Freedom's just another word for nothing left to lose..."

Seems like we're getting closer every day in this country to "freedom."