Thursday, October 08, 2009

Evidence based health care policy? an oxymoron?

If you consider the problem to be "some folks are unable to obtain health insurance"because of bad health, then you might want to pass a law to increase access to health insurance that 1) makes an insurance company take all comers ( guaranteed issue ) and 2) prohibits insurance companies from charging more for higher health risk policy holders (community rating ). How well that works out in states that have done those things is explained in this WSJ article.

The highlighted case in that of New York state which mandated these two magic bullets in 1993. Over a several year period the number of insured, non-elderly people with private ( not group) insurance decreased from 4.7% to 0.2% while states without these two insurance regulatory provisions increased a bit from 4.5 % to 5.5%. This seems to have happened because insurance companies raised the premiums to counteract potential losses brought about by these two provisions in their underwriting patterns and as premiums rose , fewer folks bought policies.

This would appear to conform with the economics 101 notion that as prices of a good or service increases (other things being equal) the quantity demand decreases.

To battle this pesky downward sloping demand curve policy makers might respond with a third provision-simply force every one to buy insurance ( individual mandate) and if they can't afford it give them a government subsidy to pay for the premium. By doing that it is hoped that by adding many more healthy folks to the insurance pool (hopefully many of the healthy young who still consider themselves to be bulletproof) the insurance companies would make up any loss brought about by the first 2 provisions.

We can now look at this quasi experiment as it played out in Massachusetts after it enacted all three provisions namely 1)guaranteed issue,2)community rating and 3)individual mandate which are important elements in the proposed health care reforms bill pending in Congress. The WSJ puts it this way in regard to the question did the mandate fix the problem:

The experience of Massachusetts, which implemented an individual mandate in 2007, suggests otherwise. Health-insurance premiums in the Bay State have risen significantly faster than the national average, according to the Commonwealth Fund, a nonprofit health foundation. At an average of $13,788, the state's family plans are now the nation's most expensive. Meanwhile, insurance companies are planning additional double-digit hikes, "prompting many employers to reduce benefits and shift additional costs to workers" according to the Boston Globe.

And health-care costs have continued to grow rapidly. According to a Rand Corporation study this year, the growth now exceeds state GDP by 8%. The Boston Globe recently reported that state health-insurance commissioners are now worried that medical spending could push both employers and patients into bankruptcy, and may even threaten the system's continued existence.

So higher premiums anyway and probably higher premiums in the future plus longer waits to see physicians and the concern that they program go broke.

Maine put into place a plan similar to some of the current proposed public options in 1993 under the interesting name "Dirigochoice" and as reported by the WSJ so far there has been little or no change in the percent of uninsured citizens (about 10%) and an increase in premiums.A recent report suggests the program is on life support and the tubes may be pulled.

When the canary in the coal mine,which was sent down to see the air was safe, keeled over, the proper response was not " well maybe it will be all right for the miners".That seems to be the thinking of many legislators, at least to the extent they actually believe their own rhetoric as they push to go national with something very similar to the Massachusetts Plan.

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