Yesterday John Goodman wrote an informative post called, What Republicans and Democrats Don’t Understand About the Insurance Company “Bailout”. As a person who buys health insurance in the individual market I always thought the market worked pretty well despite the rhetoric. John Goodman confirmed that I was not alone in this assessment.
Wharton school health economist Mark Pauly and his colleagues have studied the individual market in great detail and discovered that despite so much negative rhetoric in the public policy arena this is a market that worked and worked reasonably well. Despite President Obama’s repeated reference to insurance plans that cancel your coverage after you get sick, this practice has been illegal for almost 20 years and in most states it was illegal long before that. And despite repeated references to people denied coverage because of a pre-existing condition, estimates are that only 1 percent of the population has this problem persistently. (Remember: only 107,000 people enrolled in the federal government’s pre-existing condition risk pool ”” out of a population of more than 300 million people!) At most, Pauly puts the pre-existing condition problem at 4% of the population.
The gist of John’s article is that he thinks we can fix the individual insurance market with something he calls “health status insurance.” It sounds worth trying but I remain very skeptical. As a 60 year old gym rat my insurance premium is going to be three times that of a healthy millennial and my grandfathered insurance premium. Community rating is a double edged sword. When you do the math my insurance premiums is equivalent to buying a three year old used car every year and crashing it on New Year’s Eve. Insurance premiums this high only makes sense if they give me a subsidy, too. If they do not give me a subsidy the money or my wife will beckon me to find another way to level the playing field. There is just too much money in play. We have gone from a market that worked reasonably well to one with competing subsidies. If Detroit dumps its retirees or high cost employees into the Michigan exchange and the exchange is threatened, does anyone think the government will let the exchange collapse? Once we start down the subsidy path, it is politically impossible to stop expanding the subsidies. Distorting a functioning market for political reasons has its consequences. Despite the efforts by John and others, I doubt we will ever pay a fair price for health insurance or return to a market that works reasonably well.
All of this reminded me of this old nursery rhyme.
Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.