Tuesday, October 13, 2009

Healthcare penalties

Without knowing the exact details of the healthcare reform bill now before the Senate Finance Committee, it is difficult to evaluate the eleventh-hour case being made by the insurance industry. While the requirement that everyone have healthcare insurance stands to benefit the insurers, creating millions of new customers, it's the "adjustment" period that the industry claims is the problem.

Apparently there is a lag between the time the reform bill is implemented, requiring that everyone have a policy, and the time that penalties are assessed for not having one. During that time someone can refuse to enlist in the program, not pay any penalty, and then join only if and when medical expenses are incurred. Since they cannot be denied for a "pre-existing condition," this defeats the whole purpose of insurance and is of course highly anti-social behavior. Still, anti-social behavior is characteristic of a lot of our business activity (think bank "red-lining" and subprime mortgages, defense contractor fraud, toxic waste dumping etc.). The insurance companies themselves have been acting in this manner for decades: denying coverage in the most outrageous ways and cherry-picking healthy individuals, leaving less fortunate people to emergency rooms and state welfare.

Medicare -- most notably part D (the drug plan) -- has penalties for signing up late, and this is as it should be. It was mainly the constant obstructionism and scare-tactics of the anti-reform people -- and you know who they are -- that led the Democrats to cave on sharing the risks and eliminating strict penalties for those not signing up. They were afraid to assess fines either directly (like traffic tickets) or through the tax system, so they cobbled together some sort of delayed system whose details are seem fuzzy. I think something along the lines of the Medicare penalties could have been worked out, so that it would be clear from the beginning exactly what non-compliance would cost. Instead, the Democrats put a lot of their financial eggs in the basket of high taxes on "gold plated" expensive plans, believing that vague resentment of these plans by the masses would make taxing the plans OK. They decided that any plan costing upwards of $21,ooo/year is luxurious and would be taxed -- presumably on the amount exceeding this figure. They assumed that $21,000 was universally seen as some sky-high amount that no one but a plutocrat would ever spend. Unfortunately that figure is not so high in certain areas of the country, and they neglected, as usual, to tie this limit to inflation -- which for healthcare expenses is well into the double digits. Also, some workers forego higher salaries in order to buy very good health plans; one person's "Cadillac" plan is another's prudent investment in family health.

I don't shed any tears for the health insurance industry -- it has been feasting for a long time on most of us, even during times of economic distress. Nevertheless I think the Democrats should use both remedies: (a) have an inflation-adjusted tax on highly expensive plans and (b) make it expensive for people who try to game the system by refusing to buy a fair policy at a fair price. The fairness of the policy seems to already taken care of by the various protections built into the bills already written; the fairness of the price requires, in addition, strict government price controls or the public option. I hope this will be added during the "tweaking" period where the Senate and House bills are reconciled (if we get that far).

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