Mandate might be key to reform, but not all can afford insurance

One of the central questions about the health care reform plans Congress is debating is how to pay for expanding health care coverage for tens of million more Americans.

The latest proposals (pdf) carry a price tag of about $900 billion over 10 years.

Proposals have been floated ranging from a tax on medical device makers to one on high priced insurance plans, but economists say the key to paying for reform is requiring everyone to buy insurance.

Twenty-eight year old Dave Thomes sits in his car in the midst of a downpour while he waits to begin delivering pizzas in Minneapolis' Uptown neighborhood. He works about 30 hours a week and has no health insurance. On tough driving days like this, he's keenly aware of the risk.

"They call it accidents for a reason," he said. "You don't really have a choice. If I were to get hurt or get sick, it would put me in a bind really quickly."

There are three reform bills in Congress and all of them would require people like Thomes to buy health insurance. He said he'd like to but doesn't know if he could afford to pay the premiums. Right now, it's unclear if and how much the government would help him pay.

"Cost really is an issue for a large number of us who don't have insurance that even $200 a month is a lot of money," Thomes said. "It's something that's really going to stretch a budget and I'm single, healthy, don't smoke, don't drink. So, in theory, I should have money to pay for something, but it's not true."

The whole concept behind insurance is to spread risk among many kinds of people in hopes that those who pay their premiums and remain healthy will subsidize those who get sick. It turns out that many of the uninsured are also some of the healthiest, people like Thomes in their 20s and 30s who are young and free of health problems.

University of Minnesota health policy and management professor Jean Abraham said to understand why the mandate is important, you need to look at the U.S. as one giant pool of insurance risk.

"One of the effects of that mandate is that will bring in more younger, healthier individuals into the broader risk pool. They'll be cross-subsidizing older and sicker individuals in the population."

Abraham was an advisor to Arizona Republican Sen. John McCain 15 years ago and most recently a senior economist on the President's Council of Economic Advisors for health care. She served on the council during the last six months of the Bush administration, and President Obama's for the first six months.

The three drafts also suggest health insurance companies might cover people with pre-existing conditions in exchange for obtaining more enrollees under the mandate, but the details are far from specific.

Julie Brunner, executive director of the Minnesota Council of Health Plans says the details in the health care reform bills keep changing, said getting everyone into the risk pool would be major step forward, but she said companies are going on faith that the mandate will survive. She said nearly everyone gets health care now and society pays for it one way or another.

"People who don't have coverage show up in emergency departments, get coverage and it's the most expensive coverage that's available in our health care system," she said. "If people had coverage and could get in for preventive care, which is much less expensive and there'll be much more money to go around."

Earlier proposals called for penalizing individuals who don't get insurance up to $950 per year, but last Friday, the Senate Finance Committee backpedaled a bit. It called for a $750 penalty that would be phased in over four years.

Some opponents of the penalty call it a tax on the middle class, which candidate Barack Obama promised he would not impose. The Senate bill also requires the Government Accountability Office to study the provision's effect on small businesses with a report due to Congress by February of 2014.

Abraham said considering all the proposals, including the mandate, the basic question of whether the U.S. can afford health care reform turns on a value judgment:

"Whether we think the welfare gain to those who will get insurance is greater than the cost."

"In some back of the envelope calculations that we did at the council of economic advisors showed that indeed, it would pay for it," Abraham said. "The question is for how long will it be worth it given the growth of health care costs."

Abraham says by her calculations, the reform plans will have enough funding until about 2020. The problem she says is in the ensuing years because unless the U.S. can stem the growth of health care costs, it's going to have to come up with other revenue sources and spending cuts to pay to cover everyone.

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