I agree with President Obama that our healthcare system is in need of urgent, immediate reform. I disagree with his claims in an op-ed in the New York Times that the healthcare reform bills that are making their way through the Congress implement the healthcare reform we need.
To understand the reasons that we need urgent, immediate reform, it’s crucial to understand at least in broad strokes our healthcare system itself. Under our healthcare system no one is refused urgent medical care regardless of ability to pay, citizenship, whether they have insurance, or have a pre-existing medical condition. Nonetheless, every day some people are refused care. That’s either a breach of the law or of medical ethics. So, for example, there is the case of the University of Chicago Medical Center which has, apparently for strategic reasons, refused to treat low-income patients. There is nothing in the bills making their way through the Congress to enforce existing laws or codes of ethics.
Under our healthcare system the healthcare of roughly 85% of the people is paid by insurance. The healthcare insurance of the elderly and the poor are paid for largely by the federal and state governments, respectively, under the Medicare and Medicaid programs. The healthcare insurance of the rest of the insured is paid for by their employers and is part of their total compensation or is paid for by the individuals themselves.
The premiums of healthcare insurance borne by employers is never taxed. The employer is not taxed because these premiums are a legitimate cost of doing business and the employees are not taxed because they are not wages. This bizarre system of employer-based insurance was given impetus as a method of getting around the wage and price controls imposed during World War II more than 70 years ago.
The healthcare premiums of individuals carrying their own insurance are mostly taxed as income. This is manifestly unjust and is a subsidy to large companies, able to subsidize the cost of their employees’ insurance, at the expense of smaller companies or individuals. There is nothing in the bills making their way through the Congress that will change this.
The greater part of those who have employer-paid insurance work for companies large enough to self-insure, with greater than about 200 employees. Insurance companies bear no risk for these insureds and, consequently, have no incentives to engage in adverse select to reduce their costs. Most of these self-insurance plans are administered by insurance companies who are paid a fee based on the number of insureds or, possibly, the number of claims. In the case of the latter the insurance companies actually have incentives that are the opposite of those that would cause adverse selection.
The 46 million who are without insurance fall into several categories: those who actually have insurance (the miscounted), those who are eligible for Medicare or Medicaid but not enrolled who are routinely enrolled by healthcare providers when they need care (self-interest of the providers incentivizes that), ineligible non-citizens, some number of people who have enough income to pay for healthcare insurance but elect not to (the Census Bureau—from which that 46 million figure emanates—estimates that 8% of families making $70,000 per year or more do not have healthcare insurance), and the uninsurable, something between 12 million and 16 million people. These are the people President Obama writes of here:
A 2007 national survey actually shows that insurance companies discriminated against more than 12 million Americans in the previous three years because they had a pre-existing illness or condition. The companies either refused to cover the person, refused to cover a specific illness or condition or charged a higher premium.
I agree with President Obama that something needs to be done about this relatively small group. This is the group that will be helped most by the reform bills making their way through the Congress. In my view this reform is necessary but not sufficient.
It is not sufficient because it does little either to reduce the costs of healthcare or the rate of increase in the costs of healthcare. Consider the graph at the top of this post. Unless we change the trends Medicare and Medicaid costs will rise to unacceptable levels. If Medicare and Medicaid spending rise to this level it will be disastrous to the rest of the economy and it will lose political support for all but Medicare and Medicaid recipients.
I think that means we’re going to see sharp cuts in Medicare and Medicaid benefits and, consequently, precisely the outcome that Medicare was intended to prevent will come to pass: the elderly will be pauperized by their healthcare expenses. Either that or the poor and elderly will find it increasingly difficult to find anyone who will treat them at all. Or some combination.
Subsidizing more people’s healthcare, as the plans making their way through the Congress do, does little or nothing to slow the increasing costs. In a system like ours in which the supply of healthcare does not increase as the rate of the demand increases that also means that there simply aren’t enough providers to provide the increased level of quality healthcare that the larger number of people demanding healthcare will require. The bills making their way through The Congress do nothing to solve this problem.
Those are the healthcare reforms we need, we need them now, and nothing less is acceptable.