Everything you’ll wish you had known about healthcare after the Baucus bill passes.
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• One-third are covered by Medicaid or Medicare.
• One-third have private insurance, the vast majority having their policies bought by their employers.
The number of people who actually buy insurance on the private market is minuscule. Only 6 percent of the non-elderly population buys its own insurance. The remainder is in a market shaped by government regulations. This leaves 15 percent of the population without coverage. They are uninsured either because:
a) They don’t get coverage from their employer, or
b) They can’t or won’t buy in the private market.
These numbers have remained essentially unchanged since 1994.
After the Clinton effort, many states tried to extend coverage with two sledgehammer provisions:
a) “Guaranteed issue,” which says that companies must offer insurance to everyone who wants to but it, and
b) “Community rating,” which says that everyone must be charged the same price, regardless of their health condition.
Among these people are likely to be freelancers, employees of very small firms, and young people who feel they don’t need insurance because they are relatively healthy. Also among them, however, are people who are too sick to work or have chronic conditions and high medical expenses. Guaranteed issue and community rating tries to load all the costs of paying for these very sick people onto that small portion of the population that doesn’t get its coverage through employment.
New York has done a beautiful job of showing how this works. In the 1990s, under Governor Mario Cuomo, New York adopted both community rating and guaranteed issue. The result was that premiums soared to $9,000 a year for individuals and $22,000 for families. The portion of New Yorkers who buy their own insurance shrank from 5 percent to 0.2 percent. Unsurprisingly, the percentage of uninsured remained the same.
The Baucus bill is also relying on guaranteed issue and community rating.
Baucus is an improvement over Clintoncare in that it at least tries to round up more than the 6 percent in the private market to shoulder the costs of high-cost customers. Baucus proposes draconic cuts in Medicaid and Medicare — although it also requires the states to expand their Medicaid coverage. It also taxes the “Cadillac” plans, defined as policies valued at more than $8,000 for individuals and $21,000 for families. (Notice you can only buy “Cadillacs” in New York.) Apparently, Congressional Democrats do not yet realize that the people who own these Cadillac policies are their oldest and most reliable constituency, the labor unions. As we discovered when GM was going under, every car that rolls off the assembly line carries $3,000 in employee and retiree health benefits.
Last spring the insurance companies, shepherded by industry lobbyist Karen Ignagni, struck a “grand bargain” with the White House. The companies would accept guaranteed issue and community rating in exchange for a mandate that everyone has to buy insurance. This would ensure them wide enough pools to cover high-cost customers. The Baucus bill originally included a $1,700 penalty for being uninsured but this has been whittled to $750, which ensures that nobody will buy a $4,000 policy to avoid it. So the insurance companies were to be left holding the bag. When they fought back with a study claiming the Baucus bill would drive the cost of policies up to $9,700 for individuals and $26,000 for families (the exact levels achieved in New York), President Barack Obama called them “liars” and threatened to cancel their antitrust exemption under McCarran-Ferguson. Thus, by stumbling around long enough, he has finally hit on an effective solution.
The problem is that both insurance companies and their customers try to game the system. It’s unavoidable. The insurance companies “cherry pick,” attempting to avoid high-cost customers while signing up those who are in good health. They want to exclude “prior conditions” and put small print in their policies allowing them to drop coverage if people get really sick. This is what makes them so unpopular. As the regulatory vice has tightened, however, they have reverted to these practices more and more to try to preserve their slim profits. (The industry’s 3 percent margin is one of the lowest in any industry.)