This Idea Gets Only One Starr
Professor Paul Starr, of Princeton University, is the author of The Social Transformation of American Medicine (Basic Books, 1984), a must-read for anyone interested in health policy.
In The New York Times, Starr proposed an interesting twist to the question of mandating that people buy health insurance. As he correctly notes, passing a law preventing health insurers from demanding actuarially fair premiums (a.k.a. “banning exclusions for pre-existing conditions), makes it possible for people to wait until they fall ill to buy health insurance. That’s why current state and federal laws only offer this protection to those who have had continuous coverage.
So, the state has to force people to maintain continuous coverage or fine/tax them instead. The problem, as we see in the Senate and House bills, is that a fine or tax that is actuarially fair (about $14,000 per household, on the average) is politically and practically unfeasible. That’s one reason why the Senate and House bills try to hide the taxes by moving them to employers, drug makers, medical-device makers, etc., and subsidizing the heck out of people or groups who get covered through the new “exchanges.”
In what is perhaps a sign of desperation amongst those who support the federal take-over, Starr proposes a novel approach: a so-called voluntary mandate. He would allow anyone to opt out of the mandate on an annual basis by promising that he will forgo subsidies for coverage for five years after electing this choice on his/her annual income-tax return. At first glance, it looks like this squares the circle between universal coverage and the massive subsidies and government control required to achieve it. But the proposal has two significant flaws.
First, the “uninsured” pay more than enough to cover the medical costs that society bears when they show up at the emergency room for treatment for which they cannot pay. Although most uninsured people earn low wages, enough high-earning people who choose employment without benefits voluntarily pay extra income taxes every year as a trade off for receiving higher money-wages instead. Because health benefits are excluded from taxable income, these voluntary income taxes are not reported separately to the IRS, so the sum is not transparent. Those of us who do take health benefits instead of money-wages reduced federal revenues by about $200 billion in 2007. However, if the federal government eliminated the exemption, it would have $200 billion to allocate to individuals as a tax credit instead. In this case, the number of people who forgo the tax credit would be easily observed by the IRS. One way to deal with those who declined insurance is proposed in John Goodman’s Characteristics of an Ideal Health Care System: give the lump sum of the foregone tax credits to the states to fund safety nets, in case uninsured patients cannot pay their medical bills. People do not have to forgo five years of subsidies to pay for opting out: One year is more than enough.
The second problem is political. Look at how the government has dealt with its housing crisis: Futile attempts to “keep people in their homes” with unlimited taxpayer bailouts. We can’t seriously believe that the government would stand by passively as increasing numbers of those who signed away five years’ worth of medical subsidies fell ill without coverage. Indeed, it’s highly likely that a healthy young person can take the risk of being uninsured for one year. Five years gets a lot riskier. Why encourage people to take more risk than they’d prefer to take? Prof. Starr’s proposal surely leads to a massive increase in government dependence for medical care.
I would give Starr zero stars, especially in light of his life long support of nationlized health care.
Let’s give him half a star for relizing that incentives matter. Most people on the left don’t know that.
It’s a starling idea.
I like the idea of allowing people to voluntarily forgo insurance (by signing away the right to subsidies for five years) more than I like the idea of mandated health coverage made more appealing by putting taxpayers on the hook for much of the cost.
Of course, both proposals are heavily flawed. People should set money aside while young that is available for use when older and sicker. The lifecycle theory of saving for retirement is a good example. The concept would be similar to a community-rated premium – except the excess funds beyond expected health costs would go into an account the insured owns and controls rather than into a risk pool used to subsidize someone else. Risks should be pooled over a working life rather than over a large pool of people of differing (put known) risks.
The individual mandate is only one of several ways to tax the healthy in order to subsidize those of higher risk. Other ways are to use tax money to provide explicit subsidies to high risk individuals, or to subsidize them indirectly by subsidizing the purchase of community-rated coverage (which we already do to a great extent with employer-sponsored coverage).
The distinguishing characteristics of the individual mandate approach seem to be: (1) it conceals the size of the excise tax on healthy individuals, (2) it conceals the value of the subsidies for the less-than-healthy, and (3) it conceals the true cost of the insurance policy for everyone regardless of risk status. This price-concealment is only compounded by using an income-based sliding scale to set the insurance premiums.
I think Starr’s proposal for a re-entry penalty is at least on the right track, even if I’m not sold on the specific proposal.
The penalty currently written into the bill is merely part of a bait-and-switch tactic. It’s obviously inadequate for the purpose, but a realistic penalty would look too draconian and make the bill less popular. Once in place, the penalty will increase and become what amounts to “insurance or jail” (forgo coverage, refuse to pay the increased penalty, go to jail for tax evasion).
If course I agree with Devon Herrick that one person’s health risks should be pooled over his life, and not pooled with other people who work at the same widget factory for a 12-month period, as the government now encourages.
Whether we go to a Goodman-Pauly-McCain tax credit, whereby a person who does not buy health insurance sacrifices one-year’s worth of subsidy, or a Starr model whereby that person sacrifices five-year’s worth of subsidy, is only a matter of degree, at first glance.
However, we must also be aware that the more the government tilts the playing field, tax-wise, the more distorted (badly designed) will be the product that people are encouraged to buy, via the subsidy/punishment. Health benefits will become “richer”, but also “flabbier”, and add less value, because people will be less discriminating in choosing them. The primary goal of acquiring health insurance might be to “cheat” a five-year long “fine”!
This makes sense up to a point, but seems wasteful if carried too far. Nobody knows what their expenses will be in the far future.
And if you’re giving them 100% of the money with which to save, it’s hard to see the point. A tax credit should be designed to encourage desirable behavior (e.g. saving one’s earnings for the future), not to supplant it.
The premise that health care is a right is of course the flaw.
My plan would limit that to a transferrable “social”dividend (a debit card balance) which would enable the heathy to aid the sick and lead to a consumer driven medical economy like it was 50 years ago. Older patients might be forced to forgo some treatment but at least they could leave accumulated dividends to whomever.
Not perfect but workable.
Dividend accumulates.
Pop equal 300 million times $2000/yr = $600 billion/yr in accumulating liabities.
Sketchy I admit. Add in more to fill in the cracks I think it works.