Friday, July 14, 2017

Latest Republican-crafted health care bill: from bad to worse (or: Republicans are shameless)

Either the Republicans are dissembling, or they’re simply well-versed in collective self-deception, denial, and wishful thinking. Can it be that they truly do not understand the mechanisms intrinsic to private insurance markets? Or is it that they simply don’t care? One of the more obvious ways insurance markets might fail has to do with “adverse selection” (another way is said to relate to ‘moral hazard,’ but I’m inclined to believe that is not a prominent problem for health insurance markets). Robert E. Goodin explains how this works:

“If participation in the insurance scheme were voluntary, and if individuals had better information concerning their own true risks than did underwriters, then better-than-average risks would opt out of the scheme (preferring to self-insure) and only bad risks would be left in. Premiums would have to rise to cover the above-average level of claims for those now left in the pool. As they did, more and more people would find it to their advantage to opt out. Eventually, only the very worst risks would remain in the pool, and the whole scheme would collapse.”

As Goodin concludes, to “remedy the problem of adverse selection, insurance must be made compulsory.”* 

Now consider the latest Republican health care bill:

“The revised GOP bill includes [Texas Sen. Ted] Cruz’s proposal that insurers be permitted to offer cheaper, skimpier plans that fall short of what the Affordable Care Act defined as basic coverage, as long as they continue to offer at least one plan that meets the Obamacare requirements. The upshot, of course, is that younger, healthier people would flock to the cheaper plans, leaving the costlier, more comprehensive policies to the sick.

That, in turn, would create two separate risk pools: healthy people and those requiring medical care. Without healthier people’s premiums to offset claims submitted by the ill, insurers would have no choice but to raise rates for the sick.

And voila, we’re back where we started prior to Obamacare, with coverage in the individual insurance market once again unaffordable for people with pre-existing conditions and treatment once again inaccessible to all but the wealthiest Americans. The sick once again would flood emergency rooms, and hospital bills for everyone would rise to accommodate those increased costs. All in the name of lowering insurance costs for healthy people, who need coverage least.

‘The new Republican plan has gone from horrible to absolutely awful,’ said Gerald Kominski, director of the UCLA Center for Health Policy Research. ‘The first version guts Medicaid, and now this version does the same for exchange marketplaces,’ he told me. ‘Republicans should be ashamed.’” For the entire article by David Lazarus for the Los Angeles Times, see here. 

* From Goodin’s book, Reasons for Welfare: The Political Theory of the Welfare State (Princeton University Press, 1988). As Goodin explains, “[m]uch welfare state activity can thus be justified as social insurance designed to remedy the failures of private insurance markets. Much of it cannot, however. [….] The reason is that insurance is not fundamentally redistributive at all.” Lest the reader draw the wrong inference from these quotes from Goodin, we should note that he believes the “true justification of the welfare state is not … to be found in the rigidly economistic logic of correcting market failures, narrowly conceived. Instead, it is to be found in the role of the welfare state in safeguarding the preconditions of the market.” [emphasis added] We need not cite these preconditions here, so suffice to say that the welfare state “provides certain sorts of thing for certain sorts of people outside the market. And in providing for dependent agents outside the market, it does so on terms that render them substantially independent in their market transactions.”

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