^{Posted on September 9, 2004}

Would Heritage Foundation support an equitable individual mandate?

Los Angeles Times
September 4, 2004
Editorial
‘Ownership’ Isn’t the Cure

Welcome to President Bush’s ideal of “added choice” in healthcare. Buzzwords like “flexibility” and “ownership” might sound empowering when read off a teleprompter, as they were frequently during this week’s Republican convention. When discussed behind the scenes by health insurers, however, they are read as code words for giving insurers more leeway to “cherry-pick” - offering bargain-rate coverage to those who need it the least (such as healthy children) while pricing care beyond the reach of many who need it the most.

Bush’s “ownership society” ideal for healthcare is embodied in the health savings account. These let a family of four put aside up to $5,150 in tax-free savings that can be used to purchase health insurance on the open market. That will be small comfort to low- and middle-income families because the premiums for such family policies ran more than $9,000 in the group market last year, and would be even pricier if purchased by an individual family.

Another danger is that many healthy and wealthy people will flee group plans
in favor of health savings accounts, leaving the older, more comprehensive
health insurers stuck with a growing proportion of poor and sick members.
Insurers that aren’t driven out of business would be forced to raise costs.

Not all “ownership society” healthcare ideas are bad. One of the most radical - requiring all U.S. residents, some with government help, to buy health insurance, much as drivers are required to buy auto insurance now - has gained converts not only from the predictable places like the conservative Heritage Foundation but from centrist think tanks like the New America Foundation. The proposal deserves to be at least discussed by both presidential candidates.

Most of the healthcare ownership ideas the president has proposed so far, however, are fundamentally unfair. It’s an issue both parties will have to
address more seriously before the country’s near-terminal healthcare system
goes flat-line.

http://www.latimes.com/news/printedition/opinion/la-ed-health4sep04,1,992590.story

Comment: The editors of the Los Angeles Times obviously recognize that
retaining personal ownership of the risk of financial loss due to adverse
medical events is flawed policy. Exposing the medically unfortunate to greater financial risk defeats the purpose of insurance.

On the other hand, the editors believe that the Heritage Foundation’s proposal to require everyone to purchase health insurance (individual mandate) is not a bad idea. Is it?

Many Americans would rather keep their employer sponsored health care coverage rather than accept the perceived risk, though unsubstantiated, of a
universal program that has a greater government role. Because of perceptions
of greater political feasibility, many continue to advocate for employment linked coverage. Actually conservative and liberal policy analysts agree that there are problems with such coverage. Particularly, lack of portability threatening continuity of care and continuation of coverage are of concern. Also, employer sponsored plans are inequitably funded through regressive tax policies. Administrative waste and lack of effective mechanisms to contain costs are also issues. So is individual coverage a better option?

Mandating individual coverage will not be effective if the premium costs encroach on the ability for individuals to meet other expenses. And if individual premiums are tax deductible, funding would be unfair because of this regressive policy. But if the tax system were used to fund individual coverage, then a properly designed tax could make the funding equitable, and automatically include everyone since there would be no option to not pay.

Individual plans are usually subject to underwriting standards and individuals can be required to pay excessive premiums or be denied coverage altogether. Insurers could be required to accept anyone regardless of risk and set the premium to reflect all costs in the community (community rating). Individual plans cost about 30% more than group plans with the same level of coverage since there are proportionately higher marketing, underwriting and other administrative costs in selling insurance one policy at a time rather than selling a single policy to a large group of individuals. Insurers could be required by regulation to greatly reduce costs that are not related to providing actual health care benefits.

Various public and private payers continually manipulate the system by shifting costs of their own beneficiaries to other payers. Regulations could be established which would require all insurers to pay the same rates for their beneficiaries (risk adjusted), thereby ending cost shifting.

In fact, once you have established a rigid regulatory environment that addresses the problems of cost shifting, adverse selection, inequitable funding, lack of portability, excessive financial barriers to care, and, above all, the lack of universal coverage, then that regulatory environment would have created a de facto single payer system using the private health plans.

There is still one more problem. Although the regulator can demand administrative standardization, thereby reducing the administrative burden on the providers, the insurers will continue to make every effort to expand and sell their primary product: administrative services. On the other hand, a publicly administered insurance program remains sensitive to taxpayers’ needs and makes efforts to streamline government administration. Observations of our Medicare and of the Canadian single payer system confirm this.

Do you believe that Heritage would support a rigid regulatory environment for private plans that would create a de facto single payer system? If so, then maybe that really isn’t such a bad idea in that it would be a good starting point to begin negotiations.

(Please keep in mind that PNHP does not “negotiate” sound health policy science. Our mission at PNHP is to rigidly advocate for health policy that is strictly in the best interests of patients.)