Friday, July 28, 2017

A Thought on How to Deal with Pre-Existing Conditions in the Individual Markets

It occurred to me, if the big issue with health care is how to deal with people with pre-existing conditions, would it not make more sense to develop a subsidy system for insurance and to let insurers do more actuarial pricing?

Note: This is about how to deal with the biggest Obamacare problem, the individual markets that are encountering a huge rise in prices, and is not an attempt to solve other issues that have arisen.
Essentially, what we have now is partial community rating. In real terms, that's like putting a head tax on insurance for healthy people. If we are going to subsidize health insurance for people who are too expensive to insure on the market, would it not make more sense to do it out of income tax revenue?

Put another way, why not subsidize insurance prices at varying rates as percentage of income? For example, you have to pay your premiums up to the first 12% of your income (I choose that figure because it amounts to 1% of annual income a month, the actual numbers could be different), then get, say, a 50% subsidy for the next 12%, an 80% subsidy for the next 12%, 90% for the next 12%, 99% for the next 12%, and 99.9% beyond that?

For someone making an adjusted gross income of $50,000 a year, this is what they would pay out for various monthly premiums:

$ 500.00.......$500.00
$1000.00.......$750.00
$1500.00.......$850.00
$2000.00.......$900.00
$2500.00.......$905.00
$5000.00.......$907.50
$10000.00......$912.50

For someone making an adjusted gross income of $100,000 a year, this is what they would pay out for various monthly premiums:

$ 500.00........$500.00
$1000.00.......$1000.00
$1500.00.......$1250.00
$2000.00.......$1500.00
$2500.00.......$1600.00
$5000.00.......$1810.00
$10000.00......$1815.00

We could avoid the issue of mandated coverage raising prices by allowing insurance companies to set rates actuarially, because then if you truly did not need coverage you would pay very little for it; i.e. a 55-year-old childless woman would still have to get pediatric dental, but due to the fact that very few 55-year-old women would need it, it would only add 25 cents a month to her bill. Without community rating, much of the "coverage I don't need" issue would become moot.

We could also avoid the issue of companies trying to make money off of the subsidies by overcharging (hey, the customer will pay $1000 more a month if he gets $999 back) by giving the full subsidy only to the cheapest plan (if you get a more expensive plan you have to pay, e.g., the greater of your basic subsidy, or your basic subsidy for the cheapest plan plus 20% of the difference between plans. This would encourage price competition.

This could be paid for in a variety or ways, either using existing tax revenue, raising income taxes, or putting on a special income tax (like we have for Medicare).

The advantages are that we would not be taxing health, and the subsidies would be less for those who could most afford not to have them, as opposed to the current system where a person making, say, 5 times the poverty level (i.e. not eligible for official subsidies) could easily be subsidizing a sicker person who is making 10 or 20 times the poverty level. We would get better risk pools if we were able to charge healthy people less.

That is all.

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