Consequences of Health Care Reform

Over the years I have found that most liberal ideas are well meaning and well intentioned.  In a theoretical laboratory these ideas make a lot of sense.  I think that is why so many academics are liberal.  The ideas make such great sense in the classroom or a textbook.  Unfortunately, in the real world these ideas must face reality.   A reality where human beings make decisions based on incentives or disincentives relative to their own self-interest.  A reality where unintended consequences often have much greater effects than the intended consequences.

I see no greater potential for seeing these unintended consequences than with health care reform.   We are starting to see it already.  That is why I support the effort to repeal the Health Care Reform Bill that  passed the House of Representatives yesterday.

Let's look at a couple of examples in the Health Care Reform Bill.

Extending Health Care To Children Up To Age 26
Who can argue with this?  Your child graduates from college and moves back with you while they look for a full time job (hopefully with health care).  You already pay for family coverage at work so adding Junior to your plan costs you nothing.  Never mind that it does cost your employer more.

This provision also now requires employers to cover all children of an employee even if they do not provide their financial support.  This opens up employers to a lot of extra costs especially if they offer better coverage than other employers.  An employee  now has a choice of who covers their child that they did not have before.  This is most applicable in divorce situations.

What do I think are the consequences of this provision?  It has the real potential to lead to an erosion of family coverage in employer plans.  We are likely to see coverage costs tied to the number of people in the family.  It will no longer be one flat family rate.  We will also see plans that provide employer subsidized coverage for the employee but no subsidized coverage for other family members (see below).

Public Exchanges
A public exchange is a great idea for someone today that does not have access to coverage.  However, this is less than 4% of the population.  What does it mean to those that already have good coverage?

It could very well lead to employer plans focusing their benefit dollars exclusively on their employees.  There would be no subsidy for family members as there is in most plans today.

Most employer plans today provide spousal and dependent coverage for the simple reason that there is no established individual market.  Employers know that it is part of the deal that they provide subsidized coverage to an employee's dependents.  This actually is a form of discrimination against single employees as health care coverage for a family might cost $10,000 more per year more than for someone who is single. Bob and Betty might be doing the exact same job and getting the same salary, 401(K) benefits, life insurance and other benefits.  However, if Betty is married with a family she might be getting an extra $10,000 in health benefits compared to Bachelor Bob. A good deal for Betty. 

The availability of public exchanges in 2014 will change the landscape.  Is there any reason to pay Betty $10,000 more than Bob?  The company will take care of Betty and Bob as employees but Betty's family may need to go to the exchange to get their health coverage.  The cost of that coverage would potentially have to be paid totally by Betty.  Is that fair to Betty?  Not compared to what she gets today.  But if the company gives her the cash to go to the exchange what do they do for Bob?  That is a new cost that the company did not have before.  To truly be fair, Betty is going to lose her subsidized family coverage.

Limits on Age-Based Premium Differentials
The new law limits age-based premium differentials to no more than a 3:1 ratio in the individual and small-group markets.  The reality is that the real actuarial cost differential between a 22 year old and 62 year old is something like 6:1.  The law does not allow health care insurance pricing to reflect reality.  What will this mean?  Costs should come down for the 62 year old but they will go up for the 22 year old.  For example, if the current monthly cost for a 22 year old is $150 the 62 year old cost should be around $900.  The insurer needs to collect the same $1,050 under the new law but has to do it with a maximum 3:1 ratio.  This means that the 22 year old will now have to pay around $260 and the 62 year old drops to approximately $780 to comply with the law.

This clearly benefits the 62 year old.  However, it dramatically increases the cost of coverage for the 22 year old.

One of the big reasons for health care reform was to cover the uninsured.  However, 30% of the total uninsured are between the ages of 19-29. This is the largest group of uninsured Americans. In fact, 1 in 3 in this age group are uninsured. On the other hand, the age group with the lowest percentage of uninsured Americans is ages 55-64.  Therefore, this provision makes it more expensive for the largest group of uninsureds to get coverage and lowers the cost on the group that has lowest number of uninsureds. This would seem to be moving us in the wrong direction.

What Is Next?
There is nothing more complex than our health care system.  Something that is interwoven into 17% of our country's GDP has the potential for thousands of unintended consequences.  This is just a small sample of what lies within.  A better choice would seem to repeal this 2,000+ page monstrosity and put together a program that is both more practical and less partisan.  Do I have any suggestions?  Of course, but that will have to wait for another BeeLine.  In the meantime, I am dealing with the reality of making the reform bill work for me just like everyone else.   That is where theory goes out the window and the true consequences of health care reform will begin to be felt.