Dumb “Reform”

Today’s big news story is the release of a report by PriceWaterhouseCoopers on the impact the Senate Finance Committee’s health care “reform” bill will have on health insurance premiums. PWC concluded that the cost of health insurance for the average family will rise by $4,000 by 2019, as compared with doing nothing:
The PWC analysis covered four features of the Baucus bill; the report acknowledges that other provisions of the bill could reduce costs slightly, but those reductions are very small compared to the effects discussed in the report.
Democrats responded angrily to the PWC report. AARP, which risibly denies that it is in the bag for the Dems, called it “fundamentally dishonest.” A Baucus spokesman called the report “a hatchet job.” The Democrats’ denunciations are hollow, however. It is possible that they could have read the report before condemning it–it is only 26 pages long–but the PWC report relies mainly on statistical work done by the Hay Group, which is not part of the report and to my knowledge has not been made public. In any event, even if the Democrats had access to the Hay Group’s work, they couldn’t possibly have had time to analyze it.
Nor, of course, can I vouch for Hay’s conclusions. But PWC is one of the world’s most respected consulting firms. Its conclusions carry a great deal more weight than the fuzzy math and pie-in-the-sky assumptions that typically drive politicians’ claims.
And the logic of the PWC report is clearly correct. I want to focus on just one feature of the Baucus plan that the PWC report addresses: the “weak mandate” to buy insurance, coupled with a strong requirement on the insurance industry that it insure everyone, regardless of pre-existing conditions or state of health. This combination will devastate the individual insurance market:

The modeling results summarized in the table below show the impact of the guarantee issue requirement coupled with a low, weak or no individual coverage requirement. In states that allow underwriting of individuals (45 states plus the District of Columbia), premiums could increase by approximately 41% to 59% on average by 2016, depending on the strength of the individual coverage requirement. These increases would take several years to be fully realized, but would begin to rise as unhealthy or sick individuals began to purchase coverage, while younger, healthier individuals decided it was less expensive for them to forgo coverage without consequence or consideration of the impact of the overall pool.

PWC is stating the issue politely, to say the least. What is meant by a “weak mandate” is that, in the current version of the Baucus bill, there is no requirement to buy health insurance at all until after 2013, and by 2017 the penalty for failing to buy health insurance still amounts to only about 15% of the cost of the insurance. Now, think about it: if you know that you don’t have to buy health insurance when you are young and healthy, but if you should get sick, or just get older, you can apply for health insurance at any time and it will be illegal for the insurance company to turn you down, what would you do? Obviously, you would defer buying insurance unless and until you get sick. This means that the pool of those who are insured will be lower quality, and the cost therefore higher for everyone who buys insurance. It is as though you could wait until you die, and then your heirs can buy life insurance on you.
This isn’t reform, it is stupidity.
It actually would be very easy to make health insurance cheaper. All we have to do is allow insurance companies to compete nationally instead of state-by-state and eliminate all mandates that limit consumer choice. It has been estimated that these simple reforms–which are not part of any of the Democrats’ “reform” bills, for obvious reasons–would reduce health care costs by one-quarter to one-third. Instead of such common-sense reforms, the Dems are proposing Rube Goldberg measures that will make health care more expensive. Instead of eliminating mandates, their measures, including the Baucus bill, increase them–in effect making cheaper health insurance illegal.
Once more: this isn’t reform, it is stupidity.

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