Friday, May 15, 2009

Health care: Insuring the uninsured

[Updated, August 17, 2009: See this post for some further thoughts and an idea for funding.]

{Updated about 10 minutes after I posted. See Footnote **.}

Amidst all the current talk (see “Reading” below) about how we’re going to reform health care/insurance in the United States, I thought
a commenter at neoneocon had one of the most perceptive lines I’ve read on this issue:

You don’t put in place a system for 300+ million people when you only need a solution for 40+ million.

Experts claim that 45.7 million Americans are uninsured. At the same time, most Americans are satisfied with their own health care and their own coverage. Why on earth is the government going to mess around with plans most people are happy with in order to accommodate a minority who need help? I’m going to suggest a way to cover the uninsured that doesn’t require redoing health insurance for the whole country but first let’s look at that 45.7 million uninsured number.

Based on how Keith Hennessey breaks down the 45.7 million, I eliminate 10.7 million uninsured who are either actually already covered by or are eligible for Medicaid and/or SCHIP. I also eliminate his estimated 4.65 million illegal aliens. That leaves us with 30.3 million people I consider the uninsured we have to accommodate. Of those, 10.1 million make what should be enough money to afford health insurance (over 300% of poverty) leaving us with 20.2 million uninsured who need government help to afford health insurance.*

How about letting those 30.3 million uninsured buy into The Federal Employees Health Benefits Program (FEHP)? This was Bill Bradley’s old plan although he blurred it with a lot of other ideas. I would keep this simple:

- anyone who can’t get health insurance through an employer or a government program could enroll in FEHP
- each person could pick his own plan just as the employees do
- there would be a one-year restriction on coverage for pre-existing conditions (you can’t really have a voluntary health insurance system without this)
- the non-employees would pay a higher premium than the employees to account for administrative costs and for the probability that some of the new enrollees will be sicker than Federal employees

The 2009 monthly premiums for FEHP’s Individual Fee For Service plans run from about $300 to about $550.* (HMO rates vary by State.) So let’s take a worst case scenario and see what that will cost.

1) Assume all 30.3 million uninsured want into FEHP and they all buy individual policies.

2) Assume they all choose the most expensive: $550 per month. That makes each person’s annual premium $6,600.

3) Charge the non-employees a 25% higher premium than the employees. That makes each new enrollee’s annual premium $8,250.

4) We’ve seen that 10.1 million of the new enrollees should be able to afford their own insurance. Assume all 20.2 million of the rest are so poor they cannot contribute anything to their premium and will require for a 100% subsidy of their insurance costs. Worst case, the Federal government will pay $166.65 Billion per year in insurance premiums.

Sounds like a lot of money, doesn’t it? Well, the Obama plan estimates it will cost $125 billion to $150 billion a year to cover the uninsured so the worst case scenario of my plan is right in the ballpark.**

We’d need to watch how this works out very carefully. We don’t want the entrance of non-Federal employees to drive up premiums for the employees. Presumably the additional premium will keep that from happening but the participating insurance companies will have to keep two sets of books to see what the new enrollees are doing to the plans’ costs. Furthermore, whatever mechanism decides which plans get included should remain as is; the non-employees would be “guests”, allowed to share the plan but having no control over how it is structured or managed. Finally, it will be very interesting to see just how many people actually sign up for health insurance once it’s available and affordable. If participation is high, great. If not, we’ll have to talk about whether we are ready to start forcing people to buy health insurance. We’ll have to balance the cost to the country of the uninsured against the idea that for some people not buying health insurance is a perfectly rational decision.

On the positive side, if this does seem to be working we can think about transitioning Medicaid enrollees to the same program. (This was also apparently one of Bradley’s ideas.) If this works really, really well, we could even think about transitioning Medicare to the same plan. Private insurance companies would be providing the insurance, people could pick and choose, and the government’s role would be limited to subsidizing those who cannot afford coverage. Finally, if this works really, really, really well we could open the plan up to everyone. Those who can get insurance through their employers could stay with those plans or join this one. It’s possible that somewhere down the road we might end up with only one health insurance “plan” but all insurance companies would be able to complete within that plan. On the other hand, if allowing non-employees to particiapte in FEHP turns out to be a disastrous mistake we can discontinue the plan far more easily than we could a huge, new government program.

So why not try this to start with? It gets the uninsured covered by private insurance companies in a structure that already exists. The government’s ongoing involvement would be limited to deciding who gets subsidized by how much for the coverage. This may not be a perfect solution to the problem of the uninsured and it may not be the system we want in the end but surely it’s better to try something relatively easy to implement, see how it goes for a few years, and tweak as necessary than it is to try to reinvent the wheel and end up creating something that we’ll find very hard to get rid of however badly it’s working.


* There some imprecision in here. Some of the 10.1 million who make enough to afford health insurance and don’t have it may not be able to get it because of existing health conditions or age. To offset that, though, some of the 4.65 million legal immigrants who don’t have health insurance may be able to afford it.

** If we want to look at the cost to the country as a whole - treating government payments for health insurance and individual payments for health insurance as part of the same big pool - the cost to cover the uninsured looks less horrendous. According to Time magazine, quoting a study by the liberal Center for American Progress:

... individuals [pay as much as] $410 extra in healthcare premiums each year in order to cover the cost of treatment to uninsured patients who cannot afford to pay their bills.

According to Keith Hennessey, 253.4 million Americans have health care. If each of them pays $410 more than they have to in premiums because of the uninsured, the total cost is $103.894 Billion. Assume that 13% (about $13.5 Billion) is for treating illegal aliens who will not be eligible for the FEHP. That still leave a little over $90 Billion we would save as a nation if the uninsured became insured. That means the added cost of subsidizing 20.2 million new enrollees in FEHP would be $76.65 Billion.

{Right after I posted this, I read this Wall Street Journal article which says:

As for the argument that the uninsured shift costs, [CBO director Douglas W.] Elmendorf was quite direct dispelling this myth in his testimony before Mr. Baucus's committee. "Overall," he said, "the effect of uncompensated care on private-sector payment rates appears to be limited."

So it looks like the $166.65 Billion per year number is the safest one to use when coming up with a worst case cost for my plan.}


Reading: - From The Corner at NRO. If you wonder where the four levels of service idea in here came from, you can see its origins in the different levels of service enshrined in FEHP.

Medicare is going to bankrupt us, which is why we need universal health care

The Structure of Comparative Effectiveness Revolutions

Obama's Magical Mystery Tour of Health Care Savings

I could go on and on with McArdle links but you get the idea.

CBO to Health Care Reformers: Naive Policy Makers Need Not Apply

For the Obama Administration Health Care Reform Will Require Tough Cost Containment

A few nice words about the US health system

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