Universal Coverage… Or Universal Rip-off?
In today’s (January 20, 2007) Boston Globe there is an article entitled Sticker shock for state care plan talking about the new Massachusetts state-mandated health plan…
State-mandated, to be clear, means that all citizens are going to be required to have state-approved health coverage. If you cannot show that you have state-approved coverage then you will be penalized on your state taxes (there was even talk of having your drivers license revoked).
This plan is supposed to eliminate the state’s population of uninsured people by forcing them to sign up for insurance. Unfortunately, nothing in the plan does anything to make the insurance offered affordable. The underlying agenda is to use the state’s enforcement capability to provide an additional revenue stream to politically well-connected insurance companies.
There is this strange notion that the majority of the uninsured just cannot be bothered buying insurance. In actual fact, the vast majority of folks without insurance simply cannot afford it.
According to the Globe article, the average individual’s monthly cost under the state-mandated plan will be $380 per month. That is about the same monthly cost as I pay for the health insurance I get through my local Chamber of Commerce… And I get the strong impression that the state-mandated coverage will actually cover less than my current coverage.
Of course, what will and will not be covered is rather hard to figure out. The details of the coverage being proposed by the insurers are “secret.” Even State Legislators have been unable to get any details on what is and is not included in the coverage.
It seems from the Globe article that the state panel responsible for setting up the plan was hoping to establish coverage that would cost about 50% of the current norm for commercial coverage (i.e. the mandated insurance would cost about $200 per month for an individual). And the insurance companies were OK with that until they found out they were actually expected to provide at least a minimum level of coverage.
As one of the members of the State panel, MIT Economics Professor Jonathan Gruber, stated, “If we’re going to mandate this, people need to see that they’re getting some value.”
This gets back to a fundamental issue with healthcare policy. Free market capitalism and private enterprise are not the way to go with healthcare. Free market capitalism leads to enormous efficiencies in some areas. Computers and consumer electronics get better and better and cheaper and cheaper each year. But that is because the right market conditions exist.
There are a number of conditions that need to exist to create efficient markets. You need real competition between vendors or providers (which doesn’t exist in the healthcare market), you need the purchasing decisionmaker to be the same individual as the final consumer (which doesn’t exist in the healthcare market), and you need the purchases to be fully knowledgeable about the products or services being provided (which is not the case in the healthcare market), and you need elasticity of demand (which doesn’t exist in the healthcare market).
Competition
In most states there are only 3 or 4 health insurance companies operating. And for the most part they offer similar coverage for similar prices. One of the reasons that healthcare costs keep rising is that no one is trying to keep them under control. The insurance companies are basically skimming a percentage of the revenue that passes through their hands on the way to doctors, hospitals, medical testing companies, and the pharmaceutical industry. The more money flowing through, the higher their profits.
Individuals do not decide who provides their coverage
The vast majority of individuals get their healthcare through their employer. The individuals do not decide which insurance company to use… Their employer’s HR department decides. And the HR department is deciding based on the cost of the plan to the employer, how easy or difficult it is for the HR department to deal with that insurer, etc. Very few individuals decide to accept or reject a job offer based on what health plan the company offers and even fewer would leave a job for that reason. In the end, companies will happily sacrifice individuals coverage in order to save themselves money… Or they will follow the Walmart sweatshop approach and provide lavish coverage for their management personnel and no coverage at all for their rank and file employees.
Lack of transparency
Even the HR departments are largely flying blind when it comes to what is and is not included in a given plan’s coverage (I know, having asked the HR folks at a number of my previous employers). And, as we have seen in today’s Globe article, the people managing this State effort are similarly baffled by the obfuscation tactics and fine print used by the insurance companies.
Elasticity of Demand
In order for a healthy (so-to-speak) free market to exist, buyers need to be able to not buy a product or service if they think it is too expensive. The classic example used in college economics class is “water in the desert.” If you must have something to survive, you will pay any price to get it. The healthcare market is a bit more complicated but, if you have a medical condition that is life threatening or makes you horribly uncomfortable then you are not going to be able to walk away from buying a cure or treatment. In contrast, if that new wide-screen TV is too pricey, you can wait until next year.
Eat your own dogfood
Probably the only way we can make sure that this Mass State mandated plan is providing people with adequate coverage is by mandating that the State Legislators, State Officials, and their families use the plan too. Otherwise, we will be creating a state-mandated 2nd-class-citizen health plan.
And the only way we will reduce costs is when there is complete transparency about what is covered and how it is paid for. With that sort of transparency we have a better chance of streamlining the system and removing waste.
Good places to find out more about this issue are:
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