Medicare for everyone best way to expand the risk pool
By Thomas O'Rourke
The Affordable Care Act is a flawed model of financing health care.
That's why President Barack Obama's recent announcement that he'll allow individuals to keep their insurance as well as the subsequent U.S. House vote to support individuals' ability to keep their own insurance are poor policy decisions that further undermine Obama's signature legislative achievement. Both actions remove a cornerstone of what is essential for any insurance to be affordable and effective — a large pool of healthy people to cover the costs of those who need care. It is akin to removing an essential component of a building's foundation without expecting that the building will inevitably lean, sag and, very possibly, crumble.
Individual insurance plans that were canceled have fewer benefits than required by the Affordable Care Act. Often they are described as "stripped down" or "underinsurance" plans that provide some, but still inadequate, coverage. They usually include some combination of very high deductibles, co-insurance, limitations on or exclusion of important, expensive benefits.
That's what makes them relatively inexpensive and attractive, at least on the front end. They work well for those who don't need care or need only limited care.
But they fail miserably when significant care is needed. Not surprisingly, medical bills are the No. 1 cause of personal bankruptcies, even though most of those filing for bankruptcy were insured.
Why would people want to keep their old plan if another plan had more comprehensive benefits? Like other goods and services, out-of-pocket costs are a very high priority when choosing a plan. This is not to say people will choose the cheapest plan they can afford. Rather, people almost always will select a plan having the lowest premium that appears to meet their needs.
Not surprisingly, budget-conscious, healthy people will often choose the least expensive plan. However, people having major health needs are likely to choose plans with more comprehensive benefits, even though they are more expensive. In both cases, people base their decisions both on affordability and anticipated needs.
In essence, people are playing what I call "health care roulette" by playing the odds. But health care needs can never be fully anticipated. Bad things can and do happen even to young and healthy people who consider themselves bulletproof.
If people are allowed to keep their stripped-down plans, younger, healthier individuals, especially the young, will stay with those plans while sicker and older individuals with greater heath care needs will move into the new plans available on the Obamacare exchanges.
The result is a vicious cycle called adverse selection.
With a pool of less healthy people concentrated in the newly formed exchanges, premiums will inevitably rise. As they do, healthier people will drop out, causing premiums to rise even further.
This defeats the intended purpose of health insurance, which is to spread risk over a wide pool composed of the healthy and unhealthy rather than targeting the risk by concentrating people in smaller pools of healthy and less-healthy individuals.
America's Health Insurance Plans President Karen Ignagni correctly cautions that this will destabilize the insurance market and cause premiums to rise. She should know since her organization was a major player in the insurance-industry-designed Affordable Care Act.
The real problem with Obamacare is not the debacle of a failed rollout or the recent back-pedaling by President Obama. It's that the Affordable Care Act is just a bandage on a wound that attempts to repair a fatally flawed system.
Far better, less expensive and more equitable solution would be to use Medicare as a foundation and build from there by expanding it to all. No rollout would be needed. Medicare is a known, stable and popular program that will celebrate its 50th anniversary in 2015.
Yes, it's certainly not perfect and will always need tweaking. But it is far better than the Affordable Care Act can ever hope to be.
Thomas O'Rourke is a professor emeritus of community health at the University of Illinois.