Why Health Insurance Isn't Like Auto Insurance

I feel a bit silly actually writing a post explaining that things with "insurance" in the name aren't all the same, but such is life. So long as non-compliance with auto insurance mandates is going to be tossed up as an argument against health insurance mandates, though, it's probably worth explaining why the two are not alike.

1) You Can Drive Without Swiping Your Auto Insurance: This is the most obvious, and most important, difference. If your car required proof of insurance to start, more people would be insured. But it doesn't. Cops don't even ask for insurance when they pull you over. The only time insurance is relevant is when you're in an accident.

Health insurance mandates, by contrast, make proof of insurance a prerequisite to using the system. To see a doctor, you do have to swipe your insurance card. To enter a hospital, you do need to show proof of insurance. In the Edwards plan, you'll need to enter your policy number on your tax form. If you can't, you'll be enrolled in the basic plan. This alone will reduce noncompliance dramatically, because compliance will be necessary to use the health system. Auto insurance, by contrast, is not necessary to use a car.

2) Car accidents are less likely than flus: Everybody reading this has been to the doctor. Most reading this have never been in a car accident. People are not unaware of the relative rarity of those events. It's easy to skip car insurance under the theory that you will not need it. It will be harder to skip health insurance under the theory that you will not need it. (This is Obama's argument. The danger is that people will skip it until they do need it, as explained here.)

3) We do not subsidize auto insurance: At least so far as I know. By contrast, all of the major Democrats, including Obama, subsidize health insurance to 300 percent or 400 percent of the poverty line. If lower income folks were given help on auto insurance, more would purchase it. As it is, they will be given help on health insurance,and so more will purchase it. This isn't rocket science. It's also one of the useful things about a mandate: The very fact of its universality means a hue and a cry will go up if the government doesn't ensure affordability. Thus, the government has to ensure affordability, or publicly dismantle its mandate. My hunch is it will do the former.

There are, of course, many more, but those should suffice for now.

Ask The Expert

MIT's Jonathan Gruber is among the leading health economists in the country. He's worked extensively with candidates of all stripes, was a prime architect of the Massachusetts plan, and has conducted an unsettling amount of the most used, most respected, current research in the field. He's asked me to post this response to Kit Seelye's atrocious article on the various Democratic health plans, in which he dives into the misuse of the research on auto insurance, explains what's actually going on in Massachusetts, and gives what is the consensus view on mandates and coverage. I'm happy to do so. His full letter is below the fold.

I was surprised and somewhat offended by the lack of balance in the article by Katharine Q. Seelye in today’s Times (“Clinton Attack on Obama Overlooks Some Realities”). The health plans of Hilary Clinton and Barack Obama differ in a number of respects, but most important is the fact that Clinton includes a requirement that individuals purchase insurance. Virtually every health expert in the nation would agree that such a requirement is necessary for universal insurance coverage within our private insurance-based system. As a result, Clinton correctly pointed out that Obama’s plan would leave the nation far short of universal coverage. The 15 million estimate that she used was validated by myself and other experts, as detailed in Jonathan Cohn’s recent post on the New Republic’s web site. In recent days advisors to the Obama campaign have made a series of incorrect attacks on the claim that Clinton’s and John Edwards’ plans would cover more Americans than theirs. Ms. Seelye’s article simply parrots these incorrect attacks.

She first points to the figure from the Insurance Research Council that states that 15% of drivers are uninsured. As detailed in research by J. Daniel Khazzom (paper available at here), this figure clearly overstates the rate of uninsured drivers by computing this rate as the share of accidents in which the driver did not have insurance. But since uninsured drivers are typically from groups that are more accident-prone, the share of accidents involving the uninsured will clearly overstate the share of drivers that are uninsured. Moreover, state reforms to improve compliance with auto insurance requirements have been very successful, with the rate of uninsured drivers (measured appropriately) in Georgia recently falling to 2%.

She then cites the experience of Massachusetts, where I serve on the Connector Board that is implementing our ambitious health reform passed in 2006. She correctly points out that, as part of a compromise last year, we exempted almost 20% of uninsured adults from mandated coverage. But half of these are low income individuals offered employer insurance who can be covered as part of the law, but for whom we have not yet had time to design an appropriate subsidy program. The other half are individuals above three times the poverty line who are excluded from subsidies through a compromise between then Governor Romney and our legislature. If subsidies were extended further, exemptions would have been unnecessary. Candidates Clinton and Edwards have said that under their plans all individuals would be subsidized so that no one has to pay an unaffordable amount for insurance. She has laid out no specific plans for mandate exemptions, and there is no reason why she should be tarred by what we have done under the constraints of our Massachusetts law.

As Ms. Seelye highlights, the 15 million figure is not a precise estimate. But the general point should not be lost in the debate over the numbers: a plan with an individual mandate will cover millions more individuals than a plan without an individual mandate. There can be legitimate debates over whether a mandate is necessary or not. I personally feel that it is necessary to prevent free riding in our health care system, to ensure fluid functioning of insurance markets, and to ensure that all citizens are protected against health risk. At the same time, I can also respect, while disagreeing with, Candidate Obama’s decision to exclude a mandate. But there can be no debate over the fact that a mandate is required to bring us to universal health insurance coverage in the United States, and that a plan without a mandate will leave us far shorter of that goal than any plan with a mandate, proper subsidies, market reforms, and sensible enforcement rules.

I Need To Go On Fewer Man Dates

Sigh. Yes, the reason the progressive health policy community supports mandates is because we desperately want to screw over poor people. Is primary season over yet?

I could go into the reasons for a mandate in really great detail, but since I've been over every inch and aspect of individual mandates at excruciating length lately, let me just offer the simple and easy one: It's critical for reforming the insurance industry.

You have to do something to end the selection problems bedeviling the insurance system. On the insurer side, you impose community rating, which means they have to offer insurance to everyone, at the same price. But let's say you impose that without a mandate. What happens? Well, a whole lot of people reason that they don't need to buy insurance. After all, the second they do need insurance, they can purchase it, no penalty. The smart move in such a world is to avoid the system when well, only pay in when sick. This will, of course, destroy the system.

So you impose a mandate so everyone has to buy coverage. The insurers can't risk select applicants, the applicants can't game the system. Without the mandate, you can't reform the insurance system. And if you're not going to reform the insurance system and not going to achieve universal coverage, then why not focus on something else?

Maggie Mahar has much more. So does health care expert Len Nichols. It's worth noting that the need for universality -- either through an employer mandate, a government mandate, or an individual one -- wasn't a controversial point among liberals until Obama brought out a plan without a mandate of any sort. Indeed, his plan is, in some ways, the worst of both worlds: It eschews single payer and its close relatives for the more moderate, less expansive, less disruptive structural design that mandates were created to complete, but also doesn't have a mandate. So the mechanism for building on and reforming the system is broken, but he doesn't construct something new to replace it.

Programs For The Poor Are Poor Programs

Kevin MD asks how single-payer advocates account for the failure of the Indian Health Service. I don't know enough about the IHS to say whether it's a failure, but for the sake of discussion, the answer is easy: As the saying goes, programs for the poor are poor programs. Native Americans are among the poorest, most marginalized, most disenfranchised constituencies in American life. That a charity program for them would be underfunded and rarely improved is among the least surprising facts you could possibly tell me. It's like asking why, in the private system, the poor seem to have it so bad. The answer is because they're poor. The virtue of single payer, and all integrated national systems, is that it puts the poor and downtrodden in the same system as the rich and politically powerful. If the rich want a decent system, then the poor get one too. In other countries, there's a word for this: Solidarity. In our country, we call it universalism.

Update: Or, as El Cid says in comments, "I am shocked, just shocked at any suggestion that a U.S. government program based on solemn promises to our native American communities is operated with anything less than perfect dedication."

The Republicans and Cancer

If anyone from The LA Times would like to come by Ezra Klein World Headquarters, I have a giant gold star for them:

When Rudolph W. Giuliani was diagnosed with prostate cancer in the spring of 2000, one thing he did not have to worry about was a lack of medical insurance.

Today, the former New York mayor joins two other cancer survivors in seeking the Republican presidential nomination: Arizona Sen. John McCain has been treated for melanoma, the most serious type of skin malignancy, and former Tennessee Sen. Fred Thompson had lymphoma, a cancer of the immune system.

All three have offered proposals with the stated aim of helping the 47 million people in the U.S. who have no health insurance, including those with preexisting medical conditions.

But under the plans all three have put forward, cancer survivors such as themselves could not be sure of getting coverage -- especially if they were not already covered by a government or job-related plan and had to seek insurance as individuals.

As you folks already know, the Republican plans do very little to reform the health care system, and absolutely nothing to reform the insurance system. If you're blocked from accessing health insurance now, these plans do nothing to help you. They would, for instance, do nothing to help Susan Brown:

Susan Brown, 53, discovered her melanoma early -- a sore spot on her left shoulder smaller than a pencil eraser. She was successfully treated in 2000. But Brown, who lives in a small town in East Texas, had to give up her job as a medical office manager -- and the healthcare benefits it came with.

Since then, she said, she has been unable to find private coverage that she can afford. One company turned her down. Another wanted a letter from her cancer specialist stating that the disease would not return. Others demanded premiums that would have drained her bank account in return for policies that still would not have covered a recurrence of cancer.

The candidates "can't sit there and say they understand what people are going through, because they've got healthcare," Brown said. "We went through the same illness, however [they] don't understand what it's like not to have health insurance."

Brown remains cancer-free but uninsured. She depends on charity care for her follow-up cancer screenings, she said.

If you have cancer and can't get health insurance, the Republican solution is a tax cut. The Democratic solution is health insurance. So far as health care goes, that's the election's bottom line. What's all the more amazing is that the Republicans offering these inconsequential, insufficient plans are, themselves, cancer survivors, who routinely laud the wonderful health care they were able to access because they had health insurance. Indeed, Giuliani's post-cancer realization was that everybody should have health insurance, and that his legacy would be expanding coverage.

That was before he decided to run for president, of course. Before cruelty became more politically expedient than compassion.

Industry Warms to Health Reform

Good piece in the WSJ detailing a recent PriceWaterhouseCoopers report showing that universal health care may have significant, positive implications for...the health care industry. Which has long been obvious. If an expansion of access is done through private insurance, that's 45 million more individuals purchasing coverage, and many millions more who'll be able to afford prescription drugs, regular treatment, and all the rest. We are, in effect, subsidizing the poor to become health care customers.

Industry has some concerns, however. Mainly, the public insurer being proposed by Democrats. They don't like that idea, and for all the obvious reasons. For all the scary stories about the dystopian hell that awaits us if we nationalize the health care system, the private insurers seem surprisingly loathe to compete against an insurer uninterested in turning a profit. It's almost as if they don't really think that Americans will hate public insurance! What're the odds!?

My hunch, sadly, is that they'll get their way on this. Barring a remarkable Democratic year, or the Democrats showing enough stones to ram this through the Budget Reconciliation process (where it only needs 50 votes), the public insurer may well get bargained away in return for a couple key Republican supporters. It'll be a shame if that happens, as the public insurer will be good for cost control and a damn useful experiment, but the Republicans -- and their corporate backers -- really are worried that if Americans have a choice, they'll choose government. And that's the sort of ideologically transformative occurrence they can't allow to happen.

Disillusionment

A sad close to a sad story of a woman with a terrible genetic illness who found that just because she had health coverage didn't mean anyone would cover her health problems:

In recent weeks, Mrs. Calder has been lobbying Mr. Calder and her children to move to Belgium, where she once lived with her ex-husband, arguing that they could get good care there cheaply through the country's universal health-care system. One of the leading researchers of EDS is a Belgian geneticist who works at the University of Ghent.

Mr. Calder, whose father was a doctor and mother was a nurse, grew up believing the U.S. health-care system was the best in the world. But he says his wife's struggle has eroded that faith. "I've actually turned around to where I'm thinking, 'Yeah, Europe may not be a bad thing.' "

It's worth noting that this story is a frontpager in today's Wall Street Journal. If business does prove more constructive in the upcoming health reform fight, it will be, in part, because the Journal's news staff has spent the last decade providing constant, substantive, and humane coverage of America's health care crisis. Indeed, the story is accompanied by an online poll asking "how would you grade your health insurance?" These polls aren't scientific, and the response rate for this one isn't particularly high, but it's a potentially interesting snapshot of a very privileged group's tepid feelings towards their own insurance:

And the comments below are interesting. A couple selections:

C, because I'm ticked right now at all the convolutions just to see a doctor.

I've got gold plated benefits about which I do not complain, just complaints against the specific health insurance company (though it is the best of three options) and getting it to work for me, not the other way around.
---------------
B.

It is Medicare. Doctors and Hospitals know the rules. There is no prior permission from the 'insurance' company for treatment. Costs are well established. Don't get any bill from any provider, either. There are no gimmicks. If a provider does not get paid enough from Medicare, that is just too bad; patient is fully protected from gouging. And there is literally no limit for treatment.
-------------
I have Medicare and blue Cross supplemental insurance. I have had major surgeries and not paid a cent,including a 9 and a half hour open heart surgery this year.
The phony spin out there is that while you may be OK with your coverage, there are tons of folks that are dying in there bedrooms because they can't get medical care. Most of the uninsured are between jobs for a few months, are twenty five and never get sick and so would rather spend their bucks on beer, nice cars, fancy cloths , and bar bills looking for babes.
--------------
I grade my current coverage, a plan that's available through my employer and which covers about 20,000 other employees, an A.

The coverage I had while I worked for myself, I give an F. Not only was it inadequate to start with, but since it was essentially individual coverage, the first answer to every claim submitted was "no." If you didn't have the time, talent and energy to wrangle with the insurer's 1-800-whocares claims office, they didn't pay. That's scurrilous, and it drove away from self-employment.

I'm treated well now that I'm backed by an employer who's an 800-pound gorilla of a customer. Amazing how that works!

I love my current job, and I'm glad I'm here. But no one living in a first-world country should have their employment choices governed by the need for health insurance.

Remember: This is all in The Wall Street Journal.

More on Universal Health Care and Innovation

I'd endorse Kevin's suggestion for using Medicare as a model for what universal health care will and will not do, but it's worth being a bit careful here. We often say that Medicare's current performance is not, in fact, a good guide to how a reformed system would perform. Medicare is a creature of the system that's currently in operation, and has not been charged, and has shown no interest in using its weight and market share to push towards reform. A Medicare single-payer plan with price controls could operate very differently. And since one of our big arguments for reform is the need for cost control, we can't assume Medicare will operate as it currently does -- spending almost whatever is asked on whatever treatment is recommended.

But nor are price controls being contemplated. A lot of the current thinking has to do with funneling research dollars towards studies that will demonstrate the cost-effectiveness of various therapies and the comparative effectiveness of similar treatments. Additionally, changing how we treat chronic diseases -- which is to say, moving from an acute care model to coordinated, maintenance oriented model -- offers an enormous amount of hope, as 70 percent of our spending is on chronic conditions. Add in electronic records, a reduction in incentives for physicians to overprescribe treatments, administrative savings, and all the rest, and you have some real hope for cost savings that have nothing to do with price controls, or indeed any policies that would impede useful innovations. There will, presumably, be fewer incentives for the development of me-too drugs, and the prescription of unproven therapies, but those are good things.

Which gets to the final point: With the possible savings, you could plow more money into the National Institute of Health, put more funds behind the FDA (thus speeding up the drug review process), establish prize funds for pharmaceutical development, and do much more that would actually accelerate innovation. We can construct a universal health care program in any way we want and if we'd like to retain something near current levels of spending in order to increase the likelihood of medical breakthroughs, we can do that too.

The Wyden Bill

So I'm not going to pretend that I understand exactly how senators decide to vote for legislation. But Ron Wyden's health care bill, which is solid, impressively comprehensive, reform legislation, now has 11 Senate cosponsors, including six Republicans. And these are powerful, conservative, Republicans -- Grassley, Judd, Gregg, Alexander, Coleman, Crapo, and Bennett (not to mention Lieberman). Grassley, for one, is actually the ranking Republican on the Finance Committee, which is the relevant committee. Crapo's on the committee as well.

So, assuming three more Republicans could be persuaded to eschew a filibuster -- say. Warner, McCain, and Graham -- couldn't this bill be passed, like, tomorrow? Bush would veto it, of course. But in theory -- and that "in theory" is where this all breaks down -- a Democratic president could come into office, send this to the floor, and sign it a week later. The world doesn't work like that, but it's very hard for me to imagine why Grassley and Crapo and Bennett are jumping onto this bill if it's only to jump off when its passage approaches reality. This is the sort of congressional coalition building around concrete legislation that didn't precede the Clinton reforms, and which many feel were the missing ingredient for their success. That it's happening organically, among the relevant players, without executive leadership, seems quite meaningful.

In (Partial) Defense of Employer-Based Health Insurance

To say a bit more on the subject of the employer link in health care, it's true, as Ramesh says, that an employer-based system is bad. It does not follow, however, that anything that weakens that link is good. The fact that A is bad does not mean not-A is good. So you have to think seriously about why the employer link is a problem, and, somewhat more counter-intuitively, what its benefits are.

The problems with the employer link are, in short, portability, job lock, and insulation. You can't move your insurance around, you're locked into jobs you don't necessarily want to keep, and you can't see the stresses on the health care system because your employer is paying the premiums. These are bad things.

But there are good ones, too: Your employer gives you a risk pool to buy into, so you're no longer ejected for preexisting conditions or poor health. Your employer contracts out with insurers, offering you more choices, at a lower price, and with an administrative buffer -- an HR person to turn to if the going gets rough. Your employer offers an easy, centralized access point to the system. In other words: They organize the system, and give individuals a way to pool their purchasing power for better prices and treatment.

The Republican plans get half of this: They realize the employer-based system is bad, that it distorts employment decisions and insulates from risks. But they don't understand the importance of risk pooling, of administrative buffers, of protections from the whims of your insurers, of easy ways to navigate the system. They want to trade in a poorly organized, heavily fractured, ad hoc social insurance system for a vulnerable, exposed, system in which every individual is on their own. As Ramesh says, it's definitely a more radical plan. But it's a bad one. The problems with the system are that it's heavily fractured and ad hoc. The benefits are that it resembles, for those lucky enough to be with large employers, a social insurance system. The Republicans are trying to magnify the failings and minimize the protections.