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If we want "affordable" health care, we need to leave it to the free market




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December 7, 2013 | 1037 views | 66 comments

By Dr. Tracy Miller

The problems with the healthcare.gov website offer a glimpse of the way the Affordable Care Act (ACA) is likely to fail at accomplishing its most important goals: providing affordable, high-quality health care to all Americans, without increasing the deficit. The ACA is the latest of a series of attempts by the federal government to use subsidies and regulations to make health care affordable for all Americans regardless of their health status. The ACA, like the regulations and subsidies that came before, only increase the problems resulting from the incentives created by our health care system. If Congress repealed the ACA, along with other regulations and subsidies that distort the market for health care, health care could become more affordable and provide better quality than it ever will be under the rules and subsidies of the ACA.

A major problem with our health care system is that it costs much more to insure people with major health problems than it does to insure the majority who are in reasonably good health. If health insurance premiums were determined by the market, they would be affordable for most who are in good health, but unaffordable for many who have serious health problems. Over the years, governments have used a variety of regulations and subsidies to make it easier for sicker members of the population to afford health insurance.

One way that the cost of health insurance is kept down for sicker people is through employer-sponsored health insurance plans. Although these plans arose in response to wage controls during World War II, they have grown in importance because of tax deductions and a variety of regulations. If the tax deduction was not limited to group health insurance plans offered by employers, many of the healthiest workers would buy their own low-cost health insurance in exchange for a higher wage from their employers, who would save the cost of premiums on those workers.

Employer-sponsored insurance (ESI) works well for those working for large corporations. One drawback is that it discourages workers from changing jobs, particularly if they develop a health condition that will increase the likelihood that they will incur major health care expenses. To keep premiums from rising for ESI plans, health insurers may choose not to cover pre-existing conditions of newly hired workers. To protect those who change jobs from not being covered, several state governments require ESI plans to cover pre-existing conditions, sometimes allowing a short waiting period following the hiring of a worker.

Small companies that provide ESI have an incentive to hire only healthy workers if regulations do not permit insurance companies to exclude pre-existing conditions from the coverage they offer. A small firm also has an incentive to find an excuse to lay off a worker who develops costly health problems while employed, since insurers are likely to raise premiums for firms whose workers incur higher health costs.

Because all of the existing subsidies and regulations are not enough to keep those with chronic health problems from facing premiums that are much higher than average, the ACA requires insurance companies to provide full coverage for everyone who applies, regardless of health status, and prohibits companies from varying premiums except based on age or whether the insured smokes. It includes an individual mandate so that healthy people will not opt out of buying insurance. The greater the percentage of healthy people paying premiums, the lower the premiums for everyone, including those with chronic illnesses.

No existing government regulation or tax policy has succeeded in preventing many of those with high health risks from being charged more for their health insurance. Even with its mandate, it is doubtful that the ACA will succeed at providing insurance that enables those with chronic health conditions to pay the same prices as everyone else and still receive high-quality health care. Government may be able to force insurance companies to provide affordable coverage to high-risk people, but without adequate incentives, don’t be surprised if the insurance pays for care from a very limited network of health care providers, severely limiting the options of high-risk clients.

Rather than fighting market forces, the best way to promote affordable health care is to allow entrepreneurs competing in the market to devise a solution that would make it profitable for insurance companies to cover those with high health care costs. One solution, proposed by the Heritage Foundation, is health status insurance, whereby people insure against declines in their health status. If early in their lives people could pay extra for insurance against developing a chronic health condition in the future, then insurance companies could afford to cover everyone regardless of what happens to their health over their lives. Premiums for health status insurance would be affordable, even if set high enough to compensate insurance companies for the expected cost of providing high quality care for chronic illnesses, which some fraction of their clients would develop later in their lives.

Affordable health care remains the goal. To get there, let’s leave it to the free market.

Dr. Tracy C. Miller is an associate professor of economics at Grove City College and fellow for economic theory and policy with The Center for Vision & Values. He holds a Ph.D. from University of Chicago.

Dr. Tracy C. Miller is an associate professor of economics at Grove City College and fellow for economic theory and policy with The Center for Vision & Values. He holds a Ph.D. from University of Chicago. The views & opinions
expressed herein may, but do not necessarily, reflect the views of Grove City College.
 
« Previous Blog Entry (December 4, 2013)
 


Your Opinions and Comments
 
squawk box  
Pandora, Tx  
December 24, 2013 12:57pm
 
 
Don"t you just love the holiday spirit ? ")
 
 
ObamaBackToNiger  
Niger,Africa  
December 24, 2013 9:49am
 
 
BHO is a rat b a s t a r d !
 
 
PRAIRIE GROUCH  
GRAND PRAIRIE TX  
December 23, 2013 12:43pm
 
 
Chief.....stop messing with the baptists....you know it
is verse 1-27.
 
 
Chief Noetall  
Wise, Texas  
December 23, 2013 12:40pm
 
 
Paraphrasing Genesis 1-28. And the president created
Obamacare in his own image. Kemo sabe...nuff said :)
 
 
ObamaBackToNiger  
Niger,Africa  
December 23, 2013 11:21am
 
 
Obama and anyone else that voted for this damnable health care act are traitors to their country and fellow countrymen. Power is their game not health care. Any idiot ... Read More Read More
 
 
PRAIRIE GROUCH  
GRAND PRAIRIE TX  
December 23, 2013 7:44am
 
 
The ( fine, penalty, tax ) for not having health
coverage applies also applies to children. The
fine is half of the adult fine. Welcome to 2014,
the year that democrats ... Read More Read More
 
 
PRAIRIE GROUCH  
GRAND PRAIRIE TX  
December 23, 2013 6:25am
 
 
Senior Citizen....Since you said that you don't have
to visit the Doctor and Uncle Sam sends you a monthly
check, it appears that the good Lord has answered
your prayers ... Read More Read More
 
 
Senior Citizen  
Wilson County  
December 22, 2013 4:48pm
 
 
I pray for health and wealth, and I do not have Plan B
 
 
PRAIRIE GROUCH  
GRAND PRAIRIE TX  
December 21, 2013 9:16am
 
 
Senior Citizen....Do you pray to meet your savior
soon or ask for a delayed meeting ? :)
 
 
PRAIRIE GROUCH  
GRAND PRAIRIE TX  
December 21, 2013 9:05am
 
 
Senior Citizen.....Monthly premiums for Plan B are
subtracted from the monthly Social Security checks.
For most people, the cost is a bit over $104.00.
I believe you can ... Read More Read More
 

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