Number of UNDERinsured Growing & What to do about it

The latest Commonwealth Fund study looks at the problem of counting the underinsured, i.e., counting the number of people who have health coverage -- but where it fails to fully protect them from high medical expenses. They conclude the numbers are rising:

The number of underinsured U.S. adults—that is, people who have health coverage that does not adequately protect them from high medical expenses—has risen dramatically, a Commonwealth Fund study finds. As of 2007, there were an estimated 25 million underinsured adults in the United States, up 60 percent from 2003.

Much of this growth comes from the ranks of the middle class. While low-income people remain vulnerable, middle-income families have been hit hardest. For adults with incomes above 200 percent of the federal poverty level (about $40,000 per year for a family), the underinsured rates nearly tripled since 2003.

Welcome Attention to the Real Problem: How do We Control Costs?

This study is timely as the presidential match up is now between McCain and Obama. This will shift the national debate from universal coverage and individual mandates to costs.

Obama proposes having the government try to control costs by significantly increasing the regulation of the insurance industry, establishing a standard minimum benefits package, requiring insurers to accept all applicants regardless of their health, and prohibiting risk-rating of insurance premiums.

Obama's Plan -- The Unintended Consequences of Rising Costs and Rationing

Clinton was correct that one goal of health-care reform should be to get people to enter the insurance pool while they are young and healthy. Ideally, what you want is to make insurance inexpensive for young and healthy and to penalize them if they wait to buy insurance when they are old and sick. This is the one tried and true way to keep overall costs down.

But in an insurance market, Obama's mandate requiring insurers to accept all applicants regardless of their health, and prohibiting risk-rating of insurance premiums will achieve the opposite goal: it'll raise the cost of insurance for the young and healthy and remove any penalty for waiting. Of course, this creates incentives for young healthy people to make an unintended rational choice -- to go without insurance.

Additionally, to control costs -- Obama's plan would likely lead to rationing health care: For example, Obama assumes that allowing the federal government to directly negotiate Medicare drug prices will yield substantial savings. But the Congressional Budget Office has said that private insurance plans have already reduced drug prices about as far as they can go -- unless the government is prepared to severely restrict drug formularies and denying seniors access to some drugs.

If the health care costs for the young and healthy start moving up, then this is exactly what the government will need to do.

McCain's Radical Proposal & Real Change (for a change)

One of the world's top blogs on health care issues is Cato@Liberty (Health Care) (ranked 14 out of 100). They suggest that McCain's plan (so far) removes these uncontrolled and unintended consequences by proposing the most radical overhaul of American health-care policy in over a decade:

71 percent of Americans now receive insurance through their place of employment. This limits consumer choice by giving decisions over coverage to employers rather than employees, meaning workers who lose their jobs lose their insurance. McCain would move us away from such a system. He would count at least some of a worker's employer-paid insurance as taxable income. At the same time, he would provide all Americans with a $2,500 refundable tax credit for individuals and a $5,000 credit for families, regardless of how people obtain their insurance.

In addition, McCain's campaign maintains that his proposal would make insurance more affordable for everyone, including those with pre-existing conditions. In particular, by making insurance more affordable to the young and healthy, McCain's plan will attract them into the market before they develop pre-existing conditions. And McCain rightly claims that deregulation will lead to the creation of new and innovative insurance products that can help solve these problems.

Most notably, McCain would allow people to purchase health insurance across state lines, a practice now prohibited. For example, New Jersey imposes more than 40 mandated benefits. As a result, according to the Commonwealth Fund, the cost of a standard health insurance policy for a healthy 25-year old man in New Jersey comes to $5,580. However, a similar policy in Kentucky, which has far fewer mandates, would cost him only $960 per year. Unfortunately, it is illegal for that hypothetical New Jersey resident to buy the cheaper Kentucky plan. McCain would change that. (Michael D. Tanner, Orange County Register on May 6, 2008)

One reason regulations increase costs is that they typically increase complexity. McCain is calling for more simplicity:

"We should pay a single bill for high-quality health care," he says, "not an endless series of bills for pre-surgical tests and visits, hospitalization and surgery, and follow-up tests, drugs and office visits."

McCain also rightly calls for greater transparency for health care costs and prices:

"We should pay a single bill for high-quality health care," he says, "not an endless series of bills for pre-surgical tests and visits, hospitalization and surgery, and follow-up tests, drugs and office visits."

Steve Parente, professor of finance at the University of Minnesota, estimates that the McCain plan would cut the number of uninsured Americans by roughly half. But equally important, McCain's proposal would drive down the cost of health care for everyone.

Humm . .. NOT having the government take over even more of the health care system? Now that's a real change!

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