Posted by: Jeff | January 9, 2010

When Thinking Big Is the Only Option

In responding to the ongoing embodiment of diamond-pure stupidity which is Peggy Noonan, Paul Krugman concisely lays out why health insurance reform isn’t the sort of thing you can do piecemeal.

Start with the proposition that we don’t want our fellow citizens denied coverage because of preexisting conditions — which is a very popular position, so much so that even conservatives generally share it, or at least pretend to.

So why not just impose community rating — no discrimination based on medical history?

Well, the answer, backed up by lots of real-world experience, is that this leads to an adverse-selection death spiral: healthy people choose to go uninsured until they get sick, leading to a poor risk pool, leading to high premiums, leading even more healthy people dropping out.

So you have to back community rating up with an individual mandate: people must be required to purchase insurance even if they don’t currently think they need it.

But what if they can’t afford insurance? Well, you have to have subsidies that cover part of premiums for lower-income Americans.

In short, you end up with the health care bill that’s about to get enacted. There’s hardly anything arbitrary about the structure: once the decision was made to rely on private insurers rather than a single-payer system — and look, single-payer wasn’t going to happen — it had to be more or less what we’re getting. It wasn’t about ideology, or greediness, it was about making the thing work.

Now, there are some aspects of the current health care bill which aren’t absolutely necessitated by this structure – the Medicare Commission, the exchanges and the massive grab-bag of delivery system reforms. But it certainly makes up the bulk of the bill, and the bulk of its costs.

The other thing that the Medicare Commission, the exchanges and the delivery system reforms all have in common is that they’re about controlling costs. The regulation-mandate-subsidy package Krugman describes is about universal coverage. In theory, we could drop those former bits from the bill, and simply mandate coverage for everyone and make the government responsible for carrying out that mandate. But given how health care costs are ballooning, we would rapidly have to come back and pass those cost-control reforms anyway, or face financial disaster.

And cost-control is rarely popular. Multiple interests aren’t crazy about the exchanges, as they see them as threatening to the current system of employer-based coverage. And Lord knows the elderly aren’t crazy about the Medicare Commission, which they see as threatening to slash their benefits. So passing those things as one-shot deals on their own would probably be really difficult. Passing them as a medicine-plus-sugar combo, however, by putting them in the same bill with something much more popular – like universal coverage – makes passage more feasible.

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