The Wrong Road to Reform

Abstract

The road to hell, it is said, is paved with good intentions. So it is with Massachusetts' recent attempt at health care reform. The legislation is an attempt to deal with serious and legitimate problems in the health care system, undertaken with the best of intentions. But in the end, it is liable to create far more problems than it solves, leaving health care consumers with fewer choices and less control over their health care decisions while saddling taxpayers with significant new costs. In large part, this is because the Massachusetts reform stems from a faulty premise. It assumes that the primary goal of health care reform should be to extend insurance coverage, with an eventual goal of universal coverage. Having long equated insurance coverage with access to health care and access to better health, many see an individual mandate as producing better health outcomes. In reality, the experience of rationing under national health insurance schemes in other countries shows that insurance coverage and access to care are entirely different things. As the Canadian Supreme Court said recently in striking down part of Canada's national health insurance program, Access to a waiting list is not access to health care. Moreover, evidence that insurance coverage or access to health care leads to better health outcomes is uncertain at best. Evidence suggests that those without health insurance do receive less care than those who are covered. However, there is also substantial evidence that culture, education, and lifestyle are at least as important as lack of insurance in determining outcomes. At the same time, there is evidence that many of those with insurance actually over-consume health care because the true cost of care is hidden. Others, including economists of all stripes, have tended to embrace universal coverage for another reason. When an individual without health insurance becomes sick or injured, he or she still receives medical treatment. In fact, hospitals have a legal requirement to provide care regardless of ability to pay. Physicians do not face the same legal requirement, but few are willing to deny treatment because a patient lacks insurance. Such treatment is not free. The cost is simply shifted to others: those with insurance or, more often, taxpayers. Thus to a large degree individuals without health insurance are free-riding on the rest of us. But this problem is smaller than commonly believed. At the time the bill was enacted, total uncompensated care costs represented less than 3 percent of all health care spending in Massachusetts, at the low end of the national average (estimated at 3 to 5 percent). In addition, those most likely to go without health insurance are the young and relatively healthy--those least likely to impose significant costs on society. For example, although 18- to 24-year-olds are only 10 percent of the U.S. population, they are 21 percent of the long-term uninsured. For these young, healthy individuals, going without health insurance is often a logical decision. The larger problem here is that this pattern is a form of adverse selection: removing the young and healthy from the insurance pool means that those remaining in the pool will be older and sicker. The result is higher insurance premiums for those who are insured. The problem is even greater in a state such as Massachusetts, where a modified form of community rating--an economic term referring to the mandated pooling of individuals even where an insurance company might do otherwise--forbids insurance companies from pricing their products based on age or health and requires some forty distinct and often costly mandated benefits. These regulations increase costs dramatically for young and healthy individuals, many of whom then decide, rationally enough, to forego health insurance. The individual mandate attempts to solve this problem by forcing young and healthy people into the insurance pool. …