Image by mnd

Image by mnd

Ezra Klein is stating that universality will be a goal of Obama’s healthcare plan. At $634 billion, over 10 years (that’s $63.4 billion a year) it’s hard to see how Congress is going to turn Obama’s plan into real universal healthcare because that simply isn’t enough money. One hint is in the use of the phrase "individual mandates", which means that, similar to car insurance, you will be required to buy insurance.

The majority of the known details of the plan are what might be best characterized as Medicare cost savings, as Stirling Newberry pointed out last night. Costs are contained by forcing competitive bidding in regions and using the average, by paying hospitals who readmit patients too often less than hospitals who fix the problem the first time, by simple reductions in payments, and so on. Since private insurers charge more for Medicare services, in general, than the normal Medicare costs, they are also going to be forced into line with more general costs. All of this is good and smart: there’s no reason to pay private insurers a premium to do the same thing that the public system can do for less.

However, as Newberry points out, what this means is less money for insurers. They have two options, they can eat the reductions and be less profitable, or they can increase prices on their non-Medicare clients. I’m sure we can all guess what they’d prefer to do.

Which brings us back to individual mandates. I generally don’t like individual mandates. It’s not that they can’t be done well, various European countries have individual mandates, and they work fine, but that’s because they place very strict cost controls on insurers for ALL patients. Exactly what must be covered by the basic plan and what the rate of profit is on the basic plan is strictly regulated. Patients must be accepted even if they have pre-existing conditions and they can’t be charged more.

If a government doesn’t do this, two things can happen:

1) If the government has its own healthcare plan open to everyone (remember, everyone can’t enroll in Medicare or Medicaid) then the most expensive patients will wind up on the government’s dime. Private insurers will cherry pick the healthy people, then when they get sick do their best to dump them onto the public plan. Costs will soar, the government will get soaked and you won’t get the savings one should get from true universal health care (which are about 1/3 of current US costs.)

2) If the government doesn’t have its own healthcare plan open to everyone, the insurers will simply soak everyone who can’t be on the Medicare and Medicaid. So the government may pay less for healthcare, but all it’s really doing is moving costs around—from poor people and old people and on to everyone else.

In other words, for Obama’s plan to work it must have individual mandates and a public insurance option open to everyone and insurance companies must be forced to compete on even ground with the public plan – same cost schedule and the same underwriting (basically none).

Likewise individual mandates that don’t have high enough subsidies leave large numbers of people uninsured anyway because they can’t afford the insurance. If it’s a choice of eating, paying rent or paying for insurance, people will take their chances on getting sick or live with their existing health care problems. This is what has happened in Massachusetts, which has a supposedly universal system which actually isn’t, because subsidies aren’t sufficient.

The best way to do subsidies is simply to figure out the cost of a basic plan and just give everyone below the minimum income (perhaps 50,000 a person, or 100,000 per couple/family) a tax credit for that amount, which they can use at anytime during the year by filling out a form. That way no one need ever be without basic insurance.

Obama has said he’s leaving the details to be thrashed out by Congress, having learned from Clinton’s failure. But the details will determine whether it’s a plan which will simply help Medicare and Medicaid recipients and raise costs for everyone else; whether it’s a repeat of the Massachusetts experiment, whether it really contains costs not just for the government but for everyone; or if he is successful in really giving true universal healthcare where everyone gets the healthcare they need when they need it.