Thoughts on health reform

It appears that House Democrats do not have the guts to pass the Senate bill. From the left, there is opposition to the excise tax on insurance - an eminently unwise opposition. There's also objection to the relatively low subsidies. Some of the moderates are spooked and say that we shouldn't have done this in the first place.

The New York Times reports that some consensus is emerging on a stripped-down bill. First, such a bill could cover all people under a certain income level in Medicaid; at present, almost all states exclude childless adults. This could cover a large number of new people, possibly 10-15 million. It would be good for the homeless, for example. Recent graduates might fare differently depending on whether or not asset limits are imposed.

Beyond that, the biggest reform would be to make grants to states to start insurance exchanges. This is good but problematic.

Massachusetts has an insurance exchange. To make the exchange system work and to get to near-universal coverage, you need guaranteed issue, community rating, a mandate and subsidies, as I've explained before. Massachusetts already had the first two before starting its exchange. It had a strong economy and high insurance coverage. Going from where they were to where we want the U.S. to be was a fairly small step - it was innovative, but it was not a huge change in terms of the insurance market. Other states are not in the same position. As I said earlier, I think Minnesota might be able to pull something similar off, due to their strong economy, high level of insurance and low medical costs. Most states will be unable to do this.

Additionally, insurance exchanges need market exclusivity to work. If you have heavily regulated coverage in the exchange and an unregulated market outside, then the insurance companies will direct the sicker people to the exchange and recruit healthier people outside it. For example, they might heavily market high-deductible health plans to young folks outside the exchange. This will undermine the exchange - coverage in the exchange will be more expensive, and the healthier people in the exchange will seek a better deal outside it, and the spiral will continue.

This won't happen if the exchange gets exclusivity over the individual market. However, some conservatives are complaining that "heavily regulated" exchanges are bad. I have to wonder if state policy makers will truly take the necessary steps to ensure that the exchanges are stable. Massachusetts is a very blue state, and they were mostly willing to do what was necessary, albeit they have a much less-regulated unsubsidized market for people who don't qualify for subsidies.

Incremental reform may get us part of the way to where we need to go. However, it is morally unacceptable that anyone should be uninsured and incremental reform does not do that. In addition, the previous reform bills at least set up a situation where it would be far easier to control costs. If costs continue to spiral up, then there will come a point where we need a public plan, open to everyone and paying Medicare rates, or something even more drastic than that.