I thought you might be interested in the article that I recently
distributed through Project Syndicate, especially the potential for
"emergency insurance" that would complement the Obamacare option of
insurance when you need it
Marty Feldstein
==
Project Syndicate Obamacares Fatal Flaw
October 29, 2013
By MARTIN FELDSTEIN
CAMBRIDGE Obamacare, officially known as the Patient Protection and
Affordable Care Act, is the health-insurance program enacted by US
President Barack Obama and Congressional Democrats over the unanimous
opposition of congressional Republicans. It was designed to cover those
Americans without private or public health insurance about 15% of the US
population.
Opponents of Obamacare have failed to stop it in the courts and, more
recently, in Congress. The program was therefore formally launched on
October 1. Although it has been hampered by a wide range of computer
problems and other technical difficulties, the program is likely to be
operating by sometime in 2014.
The big question is whether it will function as intended and survive
permanently. There is a serious risk that it will not.
The potentially fatal flaw in Obamacare is the very same feature that
appeals most to its supporters: the ability of even those with a serious
preexisting health condition to buy insurance at the standard premium.
That feature will encourage those who are not ill to become or remain
uninsured until they have a potentially costly medical diagnosis. The
resulting shift in enrollment away from low-cost healthy patients to those
with predictably high costs will raise insurance companies cost per
insured person, driving up the premiums that they must charge. As premiums
rise, even more relatively healthy individuals will be encouraged to forego
insurance until illness strikes, causing average costs and premiums to rise
further.
With this in mind, Obamacares drafters made the purchase of insurance
mandatory. More specifically, employers with more than 50 employees will
be required after 2014 to purchase an approved insurance policy for their
full-time employees. Individuals who do not receive insurance from their
employers are required to purchase insurance on their own, with low-income
buyers receiving a government subsidy.
But neither the employer mandate nor the personal requirement is likely to
prove effective. Employers can avoid the mandate by reducing an employees
workweek to less than 30 hours (which the law defines as full-time
employment). But even for full-time employees, firms can opt to pay a
relatively small fine rather than provide insurance. That fine is $2,000
per employee, much less than the current average premium of $16,000 for
employer-provided family policies.
Not providing insurance and paying the fine is a particularly attractive
option for a firm if its employees have incomes that entitle them to the
government subsidies (which are now available to anyone whose income is
below four times the poverty level). Rather than incur the cost of the
premium for an approved policy, a smart employer can pay the fine for not
providing insurance and increase employees pay by enough so that they have
more spendable cash after purchasing the subsidized insurance policy. Even
after both payments, employers can be better off financially. News reports
indicate that many employers are already taking such steps.
But the biggest danger to Obamacares survival is that many individuals
who do not receive insurance from their employer will choose not to insure
themselves and will instead pay the fine of just 1% of income (rising
permanently after 2015 to 2.5%). The preferred alternative for these
individuals is to wait to buy insurance until they are ill and are facing
large medical bills.
That wait-to-insure strategy makes sense if the medical condition is a
chronic disease like diabetes or a condition requiring surgery, like cancer
or a hernia. In either case, the individual would be able to purchase
insurance after he or she receives the diagnosis.
But what about conditions like a heart attack or injuries sustained in an
automobile accident? In those cases, the individual would not have time to
purchase the health insurance that the law allows. If they are not insured
in advance, they will face major hospital bills that could cause serious
financial hardship or even cause them not to receive needed care. Anyone
contemplating that prospect might choose to forego the wait-to-insure
strategy and enroll immediately.
But private insurance companies could solve that problem by creating a new
type of emergency insurance that would make enrolling now unnecessary and
allow individuals to take advantage of the wait-to-insure option. Such
insurance would cover the costs that a patient would incur after a medical
event that left no time to purchase the policies offered in the Obamacare
insurance exchanges. Emergency insurance might also cover the cost of care
until the open enrollment period for purchasing insurance at the end of
each year (if political pressure does not lead to the repeal of that
temporary barrier to insurance).
This type of insurance is very different from existing high-deductible
policies. Given the very limited scope and unpredictable nature of the
conditions that it would cover, the premium for such a policy would be very
low. It would not satisfy the broad coverage requirements that Obamacare
mandates, forcing individuals to pay the relatively small penalty for being
uninsured and to incur the subsequent cost of buying a full policy if one
is needed later. But the combination of emergency insurance and the
wait-to-insure strategy would still be financially preferable for many
individuals, and the number would grow as premiums are driven higher.
Employers with a large number of full-time employees could encourage their
existing insurance companies to create the emergency policies. They might
even choose to self-insure the emergency risk for their employees.
The wait-to-insure option could cause the number of insured individuals
to decline rapidly as premiums rise for those who remain insured. In this
scenario, the unraveling of Obamacare could lead to renewed political
pressure from the left for a European-style single-payer health-care
system.
But it might also provide an opportunity for a better plan: eliminate the
current enormously expensive tax subsidy for employer-financed insurance
and use the revenue savings to subsidize everyone to buy comprehensive
private insurance policies with income-related copayments. That
restructuring of insurance would simultaneously protect individuals,
increase labor mobility, and help to control health- care costs.
Martin Feldstein, a professor of economics at Harvard, was formerly
Chairman of President Ronald Reagans Council of Economic Advisors and
President of the National Bureau for Economic Research.
Copyright: Project Syndicate, 2013. www.project-syndicate.org
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10/30/2013
Received on Sat Nov 23 2013 - 12:33:18 EST
