** CHP, #1 of n
Topics: Health
30 Sep 1993
From: ervan
The Clinton Health Plan is so huge, proposes so many bad
policies, and rests on so many logical & economic fallacies,
I've been at a loss where to start attacking it.
I thought that I might start by nibbling at some of the
non-obvious difficulties.
First, I get tired of hearing about the uninsured. There are
no uninsured in the U.S., only self-insured. The poor are
already covered under Medicare (and obligatory ER treatment).
The people without insurance could have afforded it and truly
decided not to. That doesn't mean it would have been cheap or
easy of course.
And, why are there uninsured? The value of insurance is the
expected cost of medical care plus piece of mind for not being
hit with big bills. For the sake of argument, let's say piece
of mind is worth $500/year. So, people are willing to pay
their expected cost of care plus $500/year, where $500 also
represents profit and risk value to the insurer. That people
do not know what that expected cost is does not keep market
mechanisms from finding the right value any more than farm land
settles to value appropriate to what it can produce in crops
even if farmers cannot do exponentiation for interest payments.
Now, in steps the government (usually state in this case),
and mandates that insurance companies not charge gender
specific rates, or race specific rates, or pre-existing
condition specific rates, or sexual preference specific rates.
Regardless of the 'fairness', these policies make the typical
straight white male pay for "women's problems", black violence,
someone else's disease that he certainly doesn't have, and AIDS
for which he is not at risk.
That makes his insurance cost expected cost + $500 + AIDS
subsidy + black subsity + ... and he is only willing to pay
expected cost + $500. The natural response is to drop
coverage. Thus, government in the process of mandating
conditions on insurance companies has created the very crisis
of the 'uninsured' that Clinton now cynically exploits to
rhetorical advantage.
Second, the 7.9% cap and 3.5% cap for companies with less than
50 employess creates a couple of perverse incentives.
2.a) it is a craven attempt to buy the support of
businesses which would otherwise in the right minds be
opposed. Most business pay more than this now; so, it looks
like a break to them. It just means that taxes are going even
higher.
2.b) Since this is less than most companies pay now, they have
no incentive in the future to try and cut costs; they pay the
same regardless. They do have these incentives now because
large companies are self-insured and small companies have their
rates go up with claims. This incentive does show up by
encouraging employees to do healthy things and by forcing
copayments on them.
2.c) For those companies on the 50 employee margin, the next
employee costs them (7.9%-3.5%)*(avg salaray)*50=$44K (for an
average salary of $20K). That means if they want to expand by
only one employee, it costs them triple! I checked the
summarized on-line version for details and it was vague about
exactly how this break would be made. It may not be this
sharp, but regardless it discourages economies of scale.
2.d) Even for a fixed 3.5%, this favors low wage labor over high
wage labor. A 3.5% cap on a firm employing only high wage
labor makes no difference (e.g. 3% of 80K would cover most
policies anyway). However, a 3.5% cap on low wage labor is a
large subsidy.
Third, it applies only to employees working more than 10 hours
per week. Many part time jobs are now going to become quarter
time jobs.
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