A Friend Asks about Health Reform

A conservative friend of mine sent me the following email this morning:

Tell me what’s wrong with this idea:

• Mandate that any employer offering health insurance must also offer the job without the insurance (ie at a higher take home rate) [this would very likely motivate people to go for the dollars and buy their own insurance, insurance that is likely to be true catastrophe insurance not an expensive maintenance contract]
• Mandate that everyone should carry a minimum level of catastrophe level insurance [like auto]
• Set up safety net to cover low income folks with the subsidy calculated based on market rate of minimum catastrophe insurance rates and the subsidy progressive, ie lower subsidy as one’s income approaches the trigger (eg, $75k) and higher as income goes lower

In my mind, people would finally be cost sensitive to insurance, deductibles and medical care; insurance policies would develop away from employers and control of care would remain with doctors/patients.

I think that these are all good suggestions that would drive costs down. There are a few things missing, however.

First, there is no provision for pre-existing conditions which is one of the biggest problems in the current system. A second and related point is that you would not only have to compel people to buy insurance, but also compel insurers to provide it to everyone at a reasonable price.

Imagine that someone with a nasty pre-existing condition--say, diagnosis of pancreatic cancer--and goes to Blue Cross/Blue Shield of Texas and asks to buy catastrophic care insurance. BC/BS will correctly see this person as a ticking time medical cost time bomb. At a minimum this is a person who is looking at an expensive course of treatments with a highly specialized oncologist and also likely one or more complicated and expensive surgeries (perhaps even organ transplant). I could easily imagine that the expected short-term tab for this person's health care would run into hundreds of thousands of dollars and the administrative costs for BC/BS are also likely to be substantially higher than for their typical customer.

If BC/BS is going to sell this person a policy, it is going to be very, very, very expensive because they are not only insuring against unexpected events (this guy could also be in a serious auto accident or develop brain cancer) but also making projections about all but certain costs. In a single-payer system (and, to a lesser extent, with something like the "public option"), this individuals risk just gets priced into the overall risk of the insured pool, i.e., his insurance is subsidized.

A third point is that I think nudging toward catastrophic-care-only insurance is bad policy because it results in both worse health care outcomes and higher costs. For example, maintenance-level care for a diabetic is pretty cheap but catastrophic care (treatment for diabetic coma, renal failure, amputations, etc) is very expensive. We're all better off if diabetics have access to inexpensive, convenient maintenance treatment and policy should nudge in that direction.