The recent trickle of so-called consumer-driven health care “principles and recommendations” are a preview of the likely Republican alternative to comprehensive health care reform. Earlier this month, the Health Policy Consensus Group, headed by the conservative Galen Institute, published “a vision for consumer-driven health care reform” and today, Ramesh Ponnuru of the National Review pens a New York Times editorial in which he explains that the quest for “universal coverage” is “misguided.” Policy makers should focus on giving Americans “more control” of their coverage instead:
The existing tax break for employer-provided insurance could be replaced with a tax credit that applies to insurance purchased either inside or outside the workplace….Insurance would be more affordable, especially for people who cannot get it through an employer…More important, people would own their insurance policies and thus be able to take them from job to job.
Sen. John McCain (R-AZ) proposed a similar plan during the campaign, but he never convinced Americans to abandon their employer-provided insurance for the promise of cheaper coverage in the individual market. Part of the problem rests in the fallacy of the theory and the other is the burden of experience. After all, Americans are routinely denied coverage in the unregulated individual health insurance market and small businesses are “frequently finding health policies too expensive and are dropping coverage, sending even more people shopping for insurance.” Healthy Americans who do find coverage enroll in bare-bone plans that offer little substantive protection.
As the Miami Herald recently reported, insurers deny coverage for patients with “diabetes, hepatitis C, multiple sclerosis, schizophrenia, quadriplegia, Parkinson’s disease and AIDS/HIV.” Moreover, “some insurers will automatically reject applicants who are using certain prescription drugs. Wellpoint denies anyone who within the past year has taken Abilify and Zyprexa for mental disorders as well as Neupogen, which is used to treat the side effects of chemotherapy. Vista lists the anticoagulant Warfarin and the pain medication Oxycontin. Both companies list insulin.”
And why not? Competition without meaningful regulations incentivizes companies to only offer insurance to the healthiest Americans. How else could they beat the insurer across the street? Offering coverage to sicker Americans would attract a sicker pool of enrollees and serve as a competitive disadvantage. In fact, free market health care fits the definition of a failed market. A market fails if:
1. Monopoly — occurs if a single buyer or seller can exert significant influence over prices or output: In health care, “insurer and hospital markets are increasingly dominated by large insurers and provider systems.” “The increased concentration has made it difficult for the nation to reap the benefits usually associated with competitive markets.”
2. Negative Externalities — occur if the market does not take into account the impact of an economic activity on outsiders: In the ‘wild west’ environment of the individual health market place, companies leave the sickest patients without coverage. Health care costs increase for everyone when patients are forced to forgo early and appropriate care or visit the emergency room once a condition becomes unbearable.
3. Asymmetric Information — occurs when one party has more or better information than the other party: Americans looking for coverage in the individual market have no way of comparing different policies or rarely know what the plans actually cover.
Conservative health proposals double-down on this broken marketplace. They: 1) eliminate the employer tax exemption for health benefits, 2) provide everyone with a refundable tax credit to go out and purchase individual coverage, and 3) loosen the already lax insurer regulations. The results are predictable. Not only will Americans with pre-existing conditions go without coverage — or, at best, be offered very expensive plans — but as healthy Americans with bare-bones policies fall ill, they’ll discover that their insurer has little enthusiasm for paying claims.