Tuesday, July 17, 2007

California Health Care Reform—An Individual Mandate is Nowhere Near as Important as Affordable Health Insurance

California is entering the final weeks of a major effort to reform the state’s health insurance system.

Good for them and in particular good for Governor Schwarzenegger who is willing to tackle this most prickly of domestic policy issues!

The Governor and the legislature will need to get a deal done by the end of September if it is going to happen in this session—or maybe for a long time to come.

As we have learned in Massachusetts, health care reform is hard and inevitably has uneven results. But the alternative, doing nothing, gets us nowhere.

In health care reform, no pain—no gain.

The big issue in California is whether to have an individual mandate or not.

Governor Schwarzenegger believes an individual mandate is necessary to get everyone covered and spread the risk across the largest pool—therefore providing the most efficient cost.

Democratic leaders, who control the legislature, oppose a mandate in part because of opposition from labor groups trying to avoid the direct cost of expensive health insurance on workers. They would rather concentrate the burden on the employer community proposing a 7.5% minimum payroll contribution.

Hospitals and doctors are also objecting to a provider tax.

It seems that worker groups, health plans, hospitals, and doctors all have in common the notion that California should have universal coverage but only the employer should have to pay for it.

That’s the subject of another post.

While most of the California debate’s focus is today on whether there should be an individual mandate, or an employer mandate, or both, let me suggest that is not the big question for California policymakers.

As we have learned in Massachusetts, a mandate is a moot point if individuals, or employers, can’t afford the cost of insurance.

In Massachusetts, a health insurance plan with a $2,000 individual/$5,000 family deductible costs around $200 per month per person at an average age of 37. For a 55-year-old the cost is around $500 per person per month.

The good news is that Massachusetts looks like it has already covered about 150,000 people that didn’t have health insurance before the new law. But there are somewhere between 200,000 and 400,000 more who still do not have coverage.

When all the Massachusetts data is in, my bet is that we are going to see the very low income (under 200% of poverty), who get almost 100% subsidies, fairly well covered and those with little or no subsidy help still unable, or unwilling, to buy the coverage.

Those between 200% of the poverty level and 400% of the poverty level are going to be particularly pained to buy coverage because they make too much for assistance and too little to pay for it on their own.

In an earlier post, I argued that you don’t need an individual or employer mandate to make a health insurance reform plan workable.

My training as a health insurance underwriter many years ago taught me that to have an efficient “spread of risk” you only need to get 70% to 80% of those offered coverage to sign up.

Employer plans do not require their workers to sign up and they almost always get an efficient spread of risk. The Part D Medicare drug plan is voluntary and has achieved a very efficient pool, as has the Part B portion of Medicare, which is also voluntary.

Employer plans, Medicare Part D, and Medicare Part B all have in common the fact that they are affordable because either the employer, or Medicare, pays most of the cost so the remainder is affordable for employees and seniors. Medicare pays 75% of these costs and employers also typically pay 75% of the cost of health insurance.

California, just like Massachusetts before it, is focusing on the wrong thing—making people buy insurance and whether to do it through an individual or employer mandate.

Don’t get me wrong. The most equitable form of health reform is one everyone is a part of. Freeloaders don’t help health reform efforts. But I would not let health care reform fail over the issue of whether there should or shouldn't be a mandate.

This whole debate over whether to mandate or not misses the critical point: Have we made the cost of health insurance affordable for individuals and employers?

It’s also hard for me to see how health care reform can have any chance of being affordable unless the burden is spread across the greatest number of stakeholders—individuals, employers, health plans, doctors, hospitals, and taxpayers.

Give credit where credit is due in Massachusetts. But I hope California doesn’t make the same mistake Massachusetts made in focusing too much on mandates and too little on how to offer a health insurance policy people can afford.

Related post: The Mandate Myth--Health Reform Plans Don't Have to Mandate Coverage to Work But They Do Have Be Affordable

But maybe we won't have a practical choice other than just getting everyone covered and let the resulting out-of-control costs drive the rest of the solution: The “Realistic” Way to Do Health Care Reform
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