Until now, liberal Democrats’ obsession with a public option has obscured two central features of the House and Senate health-insurance reform bills: the mandate that individuals have health insurance, and the conversion of private health insurers into regulated public utilities.
Requiring people to buy health insurance is a recipe for higher costs as well as centralized control of health care and the insurance industry. Such a mandate allows the federal government to specify the types and amounts of medical services that must be insured and to act as arbiter of what care will be reimbursed.
The bills’ mandated minimum coverage levels include broader benefits and less cost sharing than many people now choose voluntarily. With most services requiring little or no extra payment, buyers would naturally try to get as much care as possible in return for all the money they had to shell out in premiums. This would lead to excessive utilization, a significant contributor to high costs. Prices for medical services would increase until supply expanded to meet increased demand.
The Congressional Budget Office estimates that by 2016, broader coverage and greater utilization of care under the Senate bill would increase average premiums for the nongroup market by 10 to 13 percent. It estimates a 27 to 30 percent increase before assumed savings in administration from new insurance-market rules and an assumed influx of buyers who are projected to use less care than those currently insured.
In addition to its direct impact on costs, an individual mandate allows the government to set health-insurance premium rates. The federal government will also determine how costs are spread among buyers. Government-mandated rating restrictions, by prohibiting insurers from turning down applicants, will require younger or healthier people to pay premiums above their expected costs of medical care to subsidize premiums for older or less healthy people. Government-mandated coverage will prevent anyone from avoiding these implicit taxes by buying less coverage or none at all, unless they are willing to pay a fine. Premiums will increase as older and less healthy uninsured people sign up, while many younger and healthier people will instead pay the penalty for non-compliance, at least until they need costly care.
Sooner or later, the higher costs and premiums that the individual mandate and rating restrictions produce will inevitably lead to further restrictions on the types and amounts of medical care that can be reimbursed by insurance. In due course, these restrictions will be extended to health coverage offered by medium and large employers as well. The Europeanization of U.S. medical care will then be complete. The results will include less freedom and reduced medical innovation, lower life expectancies, and lower quality of life — in the U.S. and abroad.
– Scott Harrington is a professor of health-care management and insurance and risk management at the University of Pennsylvania’s Wharton School, and adjunct scholar at the American Enterprise Institute.