A Simple Alternative to the ObamaCare Mandate

The health reform law is trying to force $15 an hour workers and their employers to buy more than a million dollars of coverage when they don't have anything like a million dollars in assets to protect. Further, some of these families are being forced to give up "mini-med" plans that paid the first $2,000 or $3,000 of medical bills and enroll in plans with deductibles of $10,000 or more. Why do we need to force a family at this income level need to pay the first $10,000 of medical costs? We don't.

Suppose other people have insurance but you do not. Instead of paying premiums to an insurer you consume all of your income and live paycheck to paycheck. Then a medical emergency occurs and you end up requiring care you cannot pay for. Result: everyone else in the community ends up paying for your care. Because other people are paying their own way (by insuring), they must consume less each year. Because you are relying on their charity, you get to consume more. That is the problem of free ridership.

What is the least intrusive solution to this problem? The cost of unpaid medical bills in this country is estimated to be about $57 billion. That works out to a little more than $1,000 for every uninsured person. So if we are worried that the uninsured will be willful free riders, the appropriate mandate is a requirement that we all purchase $1,000 worth of insurance every year or pay a fine of $1,000.

People whose income is small enough to qualify for Medicaid or the CHIP program are going to get free care anyway. Years ago, Gene Steuerle and I advocated making the child tax credit claimed by middle- and upper-middle income families conditional on proof of insurance for each child, however. For adults, we could make $1,000 of the standard deduction conditional on proof of insurance. But there is no reason to require more than this.

What about obtaining insurance to protect assets. Is this a purely private matter, or does society as a whole have some interest in it?

Suppose I choose to be uninsured and I develop an expensive-to-treat chronic illness. I will be expected to pay my medical bills. If I can't, suppose the provider institutions go to court and seize my assets. If a bankruptcy judge determines that I was being irresponsible by not insuring, the judge may garnish future wages as part of the bankruptcy resolution. Once my assets and take-home pay are low enough, I may qualify for Medicaid or free care.

Is this the type of social outcome we are willing to tolerate? Not if you listen to the Physicians for a National Health Program. They become almost apoplectic at the thought of people declaring bankruptcy because of medical bills. Let's note parenthetically that the PNHP greatly exaggerates the problem, ignores a large body of scholarly research, ignores the fact that "medical bankruptcies" are usually the result of loss of work income, not the medical bills themselves, ignores the fact that medical bills bankrupt Canadians at similar rates as U.S. citizens, and ignores the fact that there has been no significant reduction in bankruptcies as a result of health reform in Massachusetts. Perhaps they are still right about the principle, however. Maybe our national psyche can't deal with these outcomes.

If so there is a straightforward solution. Let people insure for the sole purpose of protecting their assets. Suppose a family has assets worth $10,000 and they buy an insurance plan that pays the first $10,000 of medical expenses. Then we should let them exclude the $10,000 of assets in determining whether they are eligible for Medicaid, if they need to apply for help in paying additional medical expenses. We can apply the same principle to income. Suppose the family earns $30,000. Then by buying insurance covering an additional $30,000 of expenses they would be entitled to have their earnings disregarded, should they need to apply for Medicaid. (These numbers could be adjusted for reasonable deductibles, especially if backed by a Health Saving Account.)

The decision to insure in this way could be voluntary. Or if you think that medical bankruptcies are socially intolerable, the purchase could be mandatory. In the latter case, however, the mandate would cost a fraction of the ObamaCare mandate.

Nobody seems to want to write out the most simple way to avoid the Mandate (AKA Tax/Fine). The only method the IRS has according to the law to collect the Tax is by deducting it from the taxpayers Tax Refund. It has no other power of collection such as a tax lien etc. Therefore, all a taxpayer has to do is adjust their deductions or quarterly estimated tax payments to ensure that hey aren’t entitled to a refund. Allowing for a refund is a poor way of saving money anyhow as it lets the Government hold on to your money and you gain no interest on it.

The least intrusive way to solve the problem is to make people accountable for their own care and start a second tier of medical care that is adequate, but not top notch. (Sorry, but not everyone can afford a Porshe.)

American doctors can fix a cleft pallet in the 3rd world for a couple hundred dollars, but here it is in the thousands or tens of thousands. The difference? Mainly overhead, like malpractice and regulations.

Got a wart? $10 bottle of Compound W, 5 minutes a day, and a month of sloughing is cheaper than a Dermatologist cut and $600 in anti-fungal meds.

Also, we could run an account on people vs. public assistance, and you get 10% deducted from your pay until you pay off the tab.

One big reason is that the footing the bill isn't the one receiving the service. The origins of this problem can be traced to WW2 when health insurance became a standard employment benefit, in order to attract scarce workers. The "fix" involves giving employees a raise, and telling them to go out and buy their own health insurance, like they go out and buy their own life insurance, car insurance and homeowner's insurance.

At this point, there aren't even any common charges for anything. WNYC did a survey of cash prices for mammograms in NYC. The range? From $50 to $2,786.95! (Memorial Sloan-Kettering asks $125.)

http://clearhealthcosts.com/blog/2013/05/how-much-does-a-mammogram-cost-prices-payments-vary-widely-our-survey-with-wnyc-finds/

The cost of malpractice insurance is one of the reasons health care in America is so expensive. The 'larding up' of insurance policies by legislative requirements is one of the reasons health INSURANCE is so expensive. Not everyone WANTS prescription drug coverage, so why should they be forced to pay an extra $4K a year for it?

Since WWII, when health insurance started being considered part of the wage benefits attached to employment, people have been treating health insurance like a unending pool of money, and didn't think about how demanding free doctor visits would cause the price of health insurance to skyrocket. When you have a third party paying the bills, you don't want to pay anything yourself, or don't think you're paying it.

If folks had higher deductibles with the ability to pay out of pocket, using Health Savings Accounts, they may not overuse doctor visits, and might be able to drive down the cost of routine tests, by paying cash for them, instead of filing insurance claims. It's amazing how little basic medical procedures can cost, if you pay cash.

I suspect it is very difficult to ascertain the actual unpaid medical bills, since pricing for hospital services is often wildly overstated (as wonderfully shown in several posts above). If a hospital invoices an uninsured patient for $1000, but would accept $200 as full payment from Blue Cross, or any other insurer, is it really reasonable accounting to say they had a $1000 unpaid bill? I'd say the unpaid bill is more like $200, which is what they would accept for the same service from other payers.

Given that uncertainty, reported data I have seen for New Hampshire hospitals shows that their losses from unpaid care are roughly equal to what they spend on interest on the loans they took out to build their new buildings. Given that they took on the second expense voluntarily, and well aware of the first expense, it seems like providing some care in situations where payment is unlikely is a standard cost of their business, just like any other business that extends credit.

As to the argument that their losses from providing free care increase everyone else's costs, the increase in New Hampshire at least is about the same as the increase caused by interest expense for the bonds financing all of the fancy new buildings the hospitals have built in the last five years, which account for about 2% of total costs.

From the data I have seen, if there were no unpaid hospital bills in our state the overall costs would change by a few percent.

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