My previous blog about health care reform and Generation Y did not touch on one specific detail about the prospect of a mandates-only insurance law like the state of Massachusetts has. This follow-up will address that 800-pound gorilla and a bit more.
Let’s take the hypothetical that Congress passes, and the President signs, a bill that requires American adults to purchase a private insurance policy but does not provide a public plan. Let us suppose that noncompliance is punished with a fine that is automatically taken out of one’s taxes, as is done in MA. In that state, you must provide proof of insurance for the entire tax year or, barring extreme poverty, you will get fined for it.
Generations Y and Millennial, which contain the largest number of uninsured, will get hit the hardest by such a law. The bill that proposes this, the “Baucus bill,” would cap the out-of-pocket cost of premiums at 13% of a person’s yearly income. A year’s full-time work at the minimum wage (probably the most common wage for this age group) comes to $14,790 before taxes; you can skim off about 20 percent of that in various taxes, of which perhaps half will be recovered by the following year. (The rest is Social Security and Medicare. Yes, Virginia, there is socialized medicine in America already, but only if you’re older than 65.) I am not sure whether the 13% figure applies to gross income or income after taxes. If it is gross income, that’s $1922.70 a year for insurance premiums, or $160 a month. For net income, it is $1538.16 a year, or $128.18 a month.
This may not sound so bad until you realize that this leaves a single person making minimum wage with either $9909 a year or $10294 a year, and this must cover housing, food, transportation (including auto insurance in most cases), utilities, and perhaps other necessities such as child care. It also must cover all medical bills that this “insurance” is not covering because of deductibles and co-pays.
The only plans that run for less than $128 a month are plans that are not intended to be long-term. They are meant for people who are between jobs and need creditable coverage to avoid getting blasted with a pre-existing conditions clause when they get a job again. They often have expiration dates of a year after issuance. The kind of a plan a minimum-wage worker would afford gets them a ridiculously high deductible (up to $5000) and a horrible co-pay. This sort of policy is worthless. It’s extortion, quite frankly—forcing money out of a person to avoid a punishment, but not offering anything tangible to show for it. People with these policies pay twice; they pay for their premiums and then they pay for the cost of medical care, because the insurance doesn’t cover a bit of it unless they get catastrophically ill.
I defy anyone, anyone in the world other than Ebenezer Scrooge, to suggest that this is a reasonable thing to do to someone making minimum wage. In many cities, it is tantamount to condemning a person to living in a shelter. It encourages people to make very poor decisions in order to have enough household cash to stay out of cardboard boxes: Find a roommate, any roommate, cohabit and therefore risk an unplanned pregnancy, get married when they have no business doing so, etc. Some people will find ways of committing suicide (and decrease the surplus population?) rather than continue with what they believe is a never-ending downward spiral. Forcing vulnerable people into making bad decisions is not good policy.
However, even the most diehard Scrooges of the world surely will not have a word to say about the other horrible aspect of this hypothetical mandates-only insurance law. I am talking about deficit explosions. This is the 800-pound gorilla, the aspect of bad reform bills that I did not touch on in the previous blog. Deficits are popular to talk about these days, and it says something about the insurance industry’s stranglehold on our political system that deficits suddenly don’t get discussed when bills come up that could reap them a mountain of profit.
That 13 percent in the Baucus bill is not a cap on the market cost of a policy. It is a cap on the buyer’s out-of-pocket costs toward buying that policy. You cannot force people to pay money that they don’t have; debtor’s prisons are against the law and I think there might well be blood in the streets if we actually started sending people to jail for nonpayment of “fines” for not being insured. The government, you see, helps out. It makes up the difference by offering subsidies to poor people. There is no proposal to cap the absolute cost of policies, and there is no proposal to cap executive payrolls. Basically, there’s no means to control runaway health insurance costs. This bill, a national version of the failed Massachusetts system, would simply shift the bulk of the expense to the government.
You think the deficit is bad now? Wait till the government has locked itself into paying whatever insurance companies demand. This is what has happened in Massachusetts. I used to live there; the system that they have there has only exploded premium costs, with the state government paying the price for it. Much of the money is paying for garbage—the lousy junk (or more accurately, bunk) insurance policies that are all that’s affordable to private individuals without group coverage. The purpose of business is to make money. That’s neither evil nor good in itself, but it should be taken into account. Government policy telling a particular industry “Charge what you like and we’ll foot the bill” is blatantly stupid.
Sure enough, the most expensive Congressional bills, as scored by the Congressional Budget Office, are those that attempt such a thing. The least expensive are those that have a sturdy cost control mechanism, namely a government-administered insurance option.
The main benefit of a public plan would be that NO money going to it would be funneled into the 8-figure salaries and bonuses that have actually driven the cost of health insurance premiums sky-high. It could pay for people’s health care rather than the yacht of some corporate bureaucrat. It is a complete myth that malpractice lawsuits, overuse of medical services, and/or a reckless iPhone-loving generation voluntarily going uninsured are what have caused costs to go up. All of these things undoubtedly happen on case-by-case bases, but the real culprit, pure and simple, is executive greed, just as it was for Wall Street.
A private-only reform plan could work, theoretically. Other countries have done it. However, the countries that have pulled it off have regulated their private sectors to the hilt. There are strong cost control mechanisms and in many cases, take-home pay is capped. I don’t think such a system would be the best fit for the United States of America. We are about choices in the marketplace. A government plan is just another choice. If it provides a better product than the private sector, well, that’s the marketplace at work. They would either improve themselves or take the consequences.
I do believe in economic freedom, provided that basic safety of labor, consumers, and the environment has been accounted for. Earlier in the year when people were screaming for Congress to cap executive pay, I was against the idea; I favored a punitive tax on firms that had abused the bailout money. I am against the government placing a cap on the pay of any private sector individual, including those most hated. All legitimate businesses get government assistance, whether in the form of tax benefits or in the much loathed bailouts. In many situations, government contracts jobs out to private businesses, paying them with taxpayer money. Saying “X business should have its salaries capped because it gets money from the government” is a slippery slope, and what the people calling for it actually wanted was a cap on “bad” businesses encoded into U.S. law. This is a bad idea. I am all for highly progressive taxes on the wealthy, but I am unequivocally against dictating a maximum limit for a person’s gross income.
So, a mandates-only bill will drive people who are barely treading water further into financial disintegration, most of whom are the young generation and are already saddled with mountains of debt and a truly atrocious economic situation. It will force them to create more credit card debt as they pile basic living expenses onto their cards out of sheer necessity. (Do you hear the voice of personal experience in this?) It will drive governments into a sea of red ink as they foot the bill for the remainder of whatever outrageously priced bunk insurance policy that the private sector, when guaranteed a captive customer base, will force on people. This is not theoretical, though the theoretical financial estimates of such a proposal back it up too. This has actually happened in the state, Massachusetts, where it has been tried.
There’s a call these days that “some reform is better than none at all.” I most vociferously disagree. There are ways of making the status quo worse, and the Congressional bill out there that does not have a public option definitely does that. It may be bad for the Democratic Party to fail to pass a bill, but the long-term fiscal health of the United States of America takes precedent over the health of a political party.