Thursday, December 6, 2012

Fwd: qotd: Greg Scandlen explains the irrationality of the individual mandate

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-------- Original Message --------
Subject: qotd: Greg Scandlen explains the irrationality of the
individual mandate
Date: Thu, 6 Dec 2012 08:12:46 -0800
From: Don McCanne <>
To: Quote-of-the-Day <>

National Center for Policy Analysis (NCPA)
December 5, 2012
The Crown Jewel of ObamaCare Failures
By Greg Scandlen

Now we get to the biggest failure of them all — the individual mandate.
The premise was simple: If people aren't buying what they should (in
this case, health insurance), pass a law telling them they have to, and
they will. Presto, Change-o problem solved!

Now, to be fair, Congressional Democrats weren't quite that simple
minded. They threw in lots of subsidies and required that insurers
enroll anyone who applied, no questions asked. So, they made it
affordable and available, along with being mandated. So, it should work
like a charm, right?

Well, maybe in a vacuum. But in reality this rule is being inserted into
a very complex and mature system of existing subsidies,
responsibilities, and incentives. In this case, one of the primary
factors is the role of employers in providing and paying for coverage.

Many people, including this writer, believe that placing that
responsibility on employers was a major policy screw-up that created all
the wrong dynamics in health care and virtually eliminated market
functions because the payer and the consumer were not the same person.

Nevertheless, it is a system we have lived with for two-thirds of a
century. Almost everything about health care and employment has been
built around that relationship — prospective employees consider a
company's health benefits when deciding to take a new job; employers
devote a lot of staff time and resources on choosing benefit programs;
laws and regulations are written to ease the problems of interruption of
benefits when people change jobs; courts are concerned that employers
may not always fulfill their obligations to their workers. Not all
employers provide benefits, but all feel an obligation and
responsibility to do so, and the ones who don't offer health benefits
often feel conflicted about it.

Unwinding all this, even if desirable, is extremely complex and should
take a very long transition period as we all learn new ways of doing things.

Enter ObamaCare. This law provides stark incentives for employers to get
out of the business immediately. It even assuages any guilt feelings the
employer might have by, first requiring that they continue to help pay
for it, and next, by offering workers richer subsidies than the employer
typically can. An employer will be able to save many thousands of
dollars per worker by dropping coverage and sending employees to the
Obama Exchange where they will get a choice of benefits plans and
substantial subsidies if they make under 400% of the poverty level.
Instead of paying, say, $10,000 per worker for coverage, now the
employer can pay a simple $2,000 penalty and use the savings to give
each worker a raise. Most employers will be able to save even more by
reducing their HR departments, and they will be freed of complaints
about any problems with the health plan they offer.

In February, 2011 McKinsey & Company did a large (1,329) survey of
employers asking about their intentions with the Affordable Care Act and
found that 30% said their company would "probably" or "definitely" drop
coverage as a result. McKinsey is an extremely credible firm, but that
didn't stop supporters of ObamaCare from lambasting the survey because
it was not consistent with other economic analyses. McKinsey had to
issue a statement explaining it was not intended to be an economic
analysis, it was an opinion survey. I would argue that such a survey is
probably far more accurate than an economic analysis that must rely too
much on assumptions. Indeed, it likely understated the situation. As
employers learn more about the requirements of the new law they are more
likely to run away from it.

We can't know until it happens how many employers will drop coverage,
but the 30% estimated by McKinsey may be the minimum. That could mean 50
million or more people who used to get employer coverage no longer will.
For those employees this means:

* No more automatic enrollment going along with the job. People will
have to take the initiative to find out about the Exchange.
* No more pure community rating of the employee share of premiums. The
Exchange will vary premiums every year based on a person's age.
* No more paycheck deductions of the employee share of premiums. People
will have to make some kind of payment arrangement for their share of
the premium.
* No more convenient and friendly HR Department people to answer
questions. People will have to seek out an "Exchange navigator" to get
their questions answered.

These employees are also likely to find at the Exchange:

* A clunky web site run by the state or federal government laying out
the coverage options.
* Overpriced insurance options. (Because insurers can no longer ask
medical questions, they will have no idea what kind of risks they are
enrolling, or the premiums needed to cover those risks. They will err on
the side of caution and charge higher premiums.)
* Confusion about how much they will be charged for their share of the
premium. (They will be subsidized, but the amount of the subsidy will
vary according to their age, income, geographic location, family size,
and choice of plan.)
* Insurance plans that cover a bunch of stuff they don't want or need.
* No reliable source of personalized information. (Ever tried to call
the Medicare helpline?)

Finally, they will realize that they don't need to go through all this.
They can delay making a decision until they really need to get health
care services:

* Exchange coverage is guaranteed to accept them at any time with no
questions asked.
* They can save a whole lot of money by not paying premiums and using
that money for more pressing needs.
* There is no meaningful penalty for failing to enroll. What penalty
there is applies only to people who make enough money to pay income
taxes, and it can be collected only by seizing whatever tax return is
due the taxpayer. This can be easily avoided by upping deductions at the
start of the year.

Most people have very few medical expenses in the course of a year.
According to this chart 50% of the people in the United States consume
only 3.9% of all health care expenses each year, while the top 20%
consume 78.3%. People in the top 20% will certainly want to be covered
but the bottom 50% get no advantage from insurance coverage. They spend
far less on services than they would on insurance premiums.

(Scandlen includes here a slide taken from a presentation on "Medicare
for All" by Paul Y. Song, MD of Physicians for a National Health
Program, graphically demonstrating this distribution of health care

Obviously not everyone will make the choice to go uninsured. People who
are risk-adverse, or who have ongoing medical needs, or who have small
children, will continue to be covered. But every year, every person will
have to decide how best to spend their money. A very large number will
decide they have better things to do with that money than spend it on
insurance coverage they don't want and never use.

The odds are that after all the trauma and expense of enacting and
implementing ObamaCare, we will have fewer people insured than we did
before it was enacted.

Comment: Greg Scandlen is a very well informed and respected member of
the policy community who has been associated with
conservative/libertarian organizations such as the National Center for
Policy Analysis, Cato Institute, Galen Institute and Heartland
Institute. This article for NCPA is presented in its entirety to
demonstrate how much agreement there is with those of us at Physicians
for a National Health Program in defining some of the problems with the
highly flawed Affordable Care Act (Obamacare). This article could have
been written by one of us at PNHP.

He does not offer any solutions in this particular article, though had
he, it would undoubtedly be from his area of expertise and advocacy -
consumer-driven health care, including health savings accounts and
health reimbursement arrangements. That, of course, is quite a contrast
from the single payer solution advanced by PNHP.

When there is so much agreement on what is wrong, why can't we agree on
the solution? Perhaps it's our respective goals. We at PNHP want
everyone to have affordable access to all essential health care
services, as a matter of social justice. The advocates of
consumer-driven health care seem to place the will of the individual
consumer above that of society's collective will for health care
justice. But the divide is not quite that simple.

Supporters of an improved Medicare for all still agree that the patient
(health care consumer) should make the ultimate decisions on his or her
individual health care, after being informed on the options. The role of
the government is to remove the financial barriers to that care.

The consumer-driven advocates would add to the health care consumer
(patient) the responsibility of making spending decisions so that they
would shop for higher quality and greater value. The role of the
government would be to ensure access to basic health care services for
those who lack the financial resources to pay for that care.

The problem with the consumer-driven approach is that is what we have
now, and it isn't working. Except for a marginal tax benefit, it doesn't
matter whether the patient's share of cost comes from a health savings
account or from other personal funds. The system perpetuates uninsurance
and under-insurance which exposes far too many to financial hardship in
the face of medical need.

An improved Medicare for all would eliminate financial hardship for
individual patients while using public policies to reduce the excessive
escalation of our collective health care spending. The latter is a task
that our private insurers cannot master, but is ideally suited to a
single, national, publicly-administered insurance risk pool.

Greg Scandlen understands this. He understands the inadequacies of his
consumer-directed approach. I wish he could explain to us better, in
terms devoid of ideology, just what is wrong with our approach - an
approach that would provide everyone the care that they need in a
progressively-financed system that we can all afford.

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