Two More Bad Ideas

Until now, liberal Democrats' obsession with a public option has obscured two central features of the House and Senate health-insurance reform bills: the mandate that individuals have health insurance, and the conversion of private health insurers into regulated public utilities.

Requiring people to buy health insurance is a recipe for higher costs as well as centralized control of health care and the insurance industry. Such a mandate allows the federal government to specify the types and amounts of medical services that must be insured and to act as arbiter of what care will be reimbursed.

The bills' mandated minimum coverage levels include broader benefits and less cost sharing than many people now choose voluntarily. With most services requiring little or no extra payment, buyers would naturally try to get as much care as possible in return for all the money they had to shell out in premiums. This would lead to excessive utilization, a significant contributor to high costs. Prices for medical services would increase until supply expanded to meet increased demand.

The bills' mandated minimum coverage levels include broader benefits and less cost sharing than many people now choose voluntarily.

The Congressional Budget Office estimates that by 2016, broader coverage and greater utilization of care under the Senate bill would increase average premiums for the nongroup market by 10 to 13 percent. It estimates a 27 to 30 percent increase before assumed savings in administration from new insurance-market rules and an assumed influx of buyers who are projected to use less care than those currently insured.

In addition to its direct impact on costs, an individual mandate allows the government to set health-insurance premium rates. The federal government will also determine how costs are spread among buyers. Government-mandated rating restrictions, by prohibiting insurers from turning down applicants, will require younger or healthier people to pay premiums above their expected costs of medical care to subsidize premiums for older or less healthy people. Government-mandated coverage will prevent anyone from avoiding these implicit taxes by buying less coverage or none at all, unless they are willing to pay a fine. Premiums will increase as older and less healthy uninsured people sign up, while many younger and healthier people will instead pay the penalty for noncompliance, at least until they need costly care.

Sooner or later, the higher costs and premiums that the individual mandate and rating restrictions produce will inevitably lead to further restrictions on the types and amounts of medical care that can be reimbursed by insurance. In due course, these restrictions will be extended to health coverage offered by medium and large employers as well. The Europeanization of U.S. medical care will then be complete. The results will include less freedom and reduced medical innovation, lower life expectancies, and lower quality of life--in the U.S. and abroad.

Scott Harrington is an adjunct scholar at AEI.

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Tuesday, September 16, 2014 | 5:00 p.m. – 6:00 p.m.
The Constitution as political theory

Please join us for the third-annual Walter Berns Constitution Day Lecture as James Ceasar, Harry F. Byrd Professor of Politics at the University of Virginia, explores some of the Constitution’s most significant contributions to political theory, focusing on themes that have been largely unexamined in current scholarship.

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Wednesday, September 17, 2014 | 8:10 a.m. – Thursday, September 18, 2014 | 1:30 p.m.
Third international conference on housing risk: New risk measures and their applications

We invite you to join us for this year’s international conference on housing risk — cosponsored by the Collateral Risk Network and AEI International Center on Housing Risk — which will focus on new mortgage and collateral risk measures and their applications.

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Thursday, September 18, 2014 | 2:15 p.m. – 3:00 p.m.
Speaker of the House John Boehner on resetting America’s economic foundation

Please join us as Speaker John Boehner (R-OH) delivers his five-point policy vision to reset America’s economy.

Friday, September 19, 2014 | 9:15 a.m. – 11:00 a.m.
Reforming Medicare: What does the public think?

Please join us as a panel of distinguished experts explore the implications of the report and the consumer role in shaping the future of Medicare.

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