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Adverse-Selection Death Spiral
Paul Krugman a couple of weeks ago ("One health care reform, indivisible") on why, if you prohibit insurance companies from denying coverage on pre-existing conditions, you need to institute other reforms as well:
Why not just impose community rating — no discrimination based on medical history?
Well, the answer, backed up by lots of real-world experience, is that this leads to an adverse-selection death spiral: healthy people choose to go uninsured until they get sick, leading to a poor risk pool, leading to high premiums, leading [to] even more healthy people dropping out.
So you have to back community rating up with an individual mandate: people must be required to purchase insurance even if they don't currently think they need it.
But what if they can't afford insurance? Well, you have to have subsidies that cover part of premiums for lower-income Americans.
In short, you end up with the health care bill that's about to get enacted. There's hardly anything arbitrary about the structure: once the decision was made to rely on private insurers rather than a single-payer system — and look, single-payer wasn't going to happen — it had to be more or less what we're getting. It wasn't about ideology, or greediness, it was about making the thing work.
If Krugman is right, where can Obama and the congressional Dems retreat to if they want a health reform that will actually work, and actually be a reform? (One argument, I suppose, is that even if you pass a reform that makes things worse, you've opened the door to making it better over time, whereas if you don't pass anything you've killed health reform and hurt the economy.)
Krugman, btw, made his post before it was clear that Coakley could lose in Massachusetts.
Why not just impose community rating — no discrimination based on medical history?
Well, the answer, backed up by lots of real-world experience, is that this leads to an adverse-selection death spiral: healthy people choose to go uninsured until they get sick, leading to a poor risk pool, leading to high premiums, leading [to] even more healthy people dropping out.
So you have to back community rating up with an individual mandate: people must be required to purchase insurance even if they don't currently think they need it.
But what if they can't afford insurance? Well, you have to have subsidies that cover part of premiums for lower-income Americans.
In short, you end up with the health care bill that's about to get enacted. There's hardly anything arbitrary about the structure: once the decision was made to rely on private insurers rather than a single-payer system — and look, single-payer wasn't going to happen — it had to be more or less what we're getting. It wasn't about ideology, or greediness, it was about making the thing work.
If Krugman is right, where can Obama and the congressional Dems retreat to if they want a health reform that will actually work, and actually be a reform? (One argument, I suppose, is that even if you pass a reform that makes things worse, you've opened the door to making it better over time, whereas if you don't pass anything you've killed health reform and hurt the economy.)
Krugman, btw, made his post before it was clear that Coakley could lose in Massachusetts.
totally
The one argument against "government meddling" that just DOES NOT APPLY in this case is that it'll stifle innovation. I can maybe see how, if the government took over the medical sector and was the sole employer of doctors and medical technicians et al, innovation would be stifled. But nobody is proposing that. The most sensible, efficient option--a single-payer system--represents a government takeover of the health insurance industry. The only innovation the health insurance industry seems capable of is creating novel methods of denying people coverage. That's certainly an innovation that increases their wealth, and the wealth of their shareholders, but it does so by creating a WORSE product. I wonder if there are any other instances of a worse product leading to increased wealth?
Re: totally
Re: totally