Shorter follow-up on Health Care

The last post addressed the costs of health care. This will address the number of uninsured.

There are three types of uninsured.

• Those who are uninsurable (pre-existing conditions)
  
• Those who are insurable and can afford it but choose not to
  
• Those who can't afford it

The Uninsurable

Congress is hoping to solve this by eliminating rejections based on pre-existing conditions. Another option is to simply require insurers to offer insurance but allow carve-outs for the pre-existing conditions.

Requiring coverage for pre-existing conditions would be a disaster. Health insurance works because people pay premiums whether or not they are sick. If there is no limit on pre-existing conditions, why wouldn't I just wait until I'm sick to get healthcare coverage and then sign up? I'd save on premiums while I'm healthy. Congress' plan doesn't sufficiently clarify why this won't happen.

If we allowed insurance companies to exclude coverage for the pre-existing condition but provide coverage elsewhere, it would eliminate the incentive to only be insured when you need to make a claim.

Of course, you're probably thinking "what about emergencies?" The only dangerous activities I do are driving, and my auto insurance covers me there. Rolling the dice on emergencies seems like a good bet.

Those who can afford to buy insurance but don't

Why is this a problem? It's gotten a lot of coverage lately because Congress can make the bill sound better if they say an additional 20 million people will have insurance, even if most of these are folks who have just decided not to and the bill only changes that by forcing them to.

The only real concern I've heard about these uninsured people is that when they are sick they go to the emergency room and the costs are passed on to the rest of us. But if they are financially stable enough to afford insurance, they will be more likely to pay some of the costs. We don't even need to collect the full debt. If they were insured, we'd pay a share of their costs and in exchange they'd pay their premiums. So as long as we can collect the amount of premiums they would have paid then we're just as well off even if they default on the rest of the costs.

Some argue that the use of emergency services drives up the costs because it's less efficient. I haven't heard a good argument yet on why this is less efficient---it seems to me that this has been a long-term problem so the staffing administrators probably take it into account, and on the other cost side, an hour of a doctor's time is an hour of a doctor's time, whether in the emergency room or the urgent care center.

But even if we assume emergency rooms are more costly, the argument is too narrow. People with insurance go to the hospital more. Those without insurance go less. So because they go less, it lowers the demand for resources and lower demand means lower prices for the insured.

(You might argue that because they miss preventative care long-term costs are higher. When someone comes down with something awful we all pay for it whether they are insured or uninsured. My sense is that many of these folks are younger, and the only preventative care that's really cost effective for young folks is losing weight and quitting smoking. The rest doesn't actually lower costs overall.)

(You might also argue that they will just declare bankruptcy, citing Elizabeth Warren's report that x% of all bankruptcies are caused by medical bills. In short, this is very exaggerated. I looked at these in a research project in my undergrad and most of the time you'd see $200 of medical bills and $60,000 in debt to Visa and Sears. Her criteria for "medically caused bankruptcy" was absurdly broad, which made the study loose its meaning.)

The uninsured who can't afford coverage

Like the insured who can afford coverage, these folks will go to the hospital less, but go to the emergency room more. So it's another balance between emergency room costs and lowering demand. Here, though, you can also just recognize that society is going to pick up the bill here one way or the other. If we give them insurance or subsidies, we pay for them with our taxes. If we don't, we still pay with our higher insurance premiums to cover their costs. So the only real issue here is how broad we want to make the collection base. The middle-class and union workers would help pay if it's through premiums. The rich will pay if it's through taxes. Unions vote Democrat. Decisions, decisions.