A letter from Bernd Wollschlaeger, MD...
Dear Friends and Colleagues;
The Massachusetts legislature last month overwhelmingly approved a bill that would be the first in the nation to require all residents to obtain medical insurance. The bill is expected to be signed by Gov. Mitt Romney and would be a big step toward universal health coverage in Massachusetts.
The bill also requires that businesses not offering health insurance pay penalties to help cover the uninsured and uses a combination of added state spending, tax incentives, insurance subsidies and expanded government-insurance programs to reach the estimated 550,000 Massachusetts residents who are currently uninsured. Gov. Mitt Romney, widely viewed as a possible presidential candidate, has indicated he intends to sign the bill.
Massachusetts, a state of 6.4 million people, would join only Hawaii, which for decades has required employer-provided insurance, in attempting to mandate universal coverage, according to the National Conference of State Legislatures. A handful of other states, including California and New York, have measures pending that seek to cover many more state residents, and dozens of others are trying to address the problem in smaller ways.
Under the approved plan, uninsured residents who don't buy new, low-cost plans -- some subsidized by the state -- would face financial penalties beginning in July 2007. In the first year, those who don't buy insurance -- provided the state makes available one deemed affordable -- forfeit their personal state tax exemption, now worth about $150. In the second year, those who don't buy would have to pay a fine equal to half of the monthly premium cost of an affordable plan. For a full year, the fine could total about $1,200 for a young adult who would be eligible for an individual plan. There are no criminal penalties for not buying insurance.
In another provision that stirred unease among some businesses, the proposed law would require companies with 11 or more employees to provide health coverage or pay a per-employee annual fee of $295. In addition, employers whose uninsured workers make multiple use of emergency room care -- "free riders," in the bill's parlance -- would have to pay between 10% and 100% of the portion of those medical bills exceeding $50,000.
The bill would shift about $1 billion in government money -- mostly federal -- to several programs to provide low-cost insurance plans to the uninsured. One plan would increase eligibility for state Medicaid to more families; another would provide state subsidies for low-income families; another would create a big insurance pool that aims to make coverage more affordable for small businesses to give their employees the chance to buy health insurance with pretax dollars. In an interesting commentary Arnold Kling argues that "new plan is a perfect illustration of what happens when politicians approach a problem unconstrained by reality."
He outlines a compelling argument against this plan:
"Nevertheless, three numbers stand out: $295, the annual penalty per worker a company must pay to the state if it does not provide health insurance; $0, the deductible on the typical state-subsidized health-insurance policy under the plan; and $6,000, the average annual expenditure on health care for a Massachusetts resident. Each of these numbers represents one of the irreconcilable goals of health-care policy:
• $295 represents the goal of affordability. We would like to be able to purchase health-care coverage for $295 a year. If that's what it actually cost, my guess is that the problem of the uninsured would pretty much disappear.
• $0 represents the goal of insulation. As individuals, we would like to be insulated from health-care costs. That is why, instead of real insurance -- which would have us pay for at least the first $10,000 of health care out of pocket -- most of us have health-care policies with much lower deductibles.
• $6,000 represents the goal of accessibility. We want access to the best care that modern medicine can provide, whatever the expense.
The question is this: What insurance company will provide coverage with $0 deductible, at an annual premium of $295, for someone whose health care costs on average $6,000 a year? The numbers imply losses of over $5,700, not counting administrative costs. To subsidize zero-deductible health insurance, state taxpayers might have to pay out about $6,000 per recipient.
Even though I wholeheartedly embrace the concept of insurance for all we cannot ignore the laws of medical economics and fiscal responsibility. This plan is doomed to fail unless the state of Massachusetts finds new resources (i.e. TAXES) to finance this expensive experiment.
This plan is a turkey, which will die before Thanksgiving is coming around.
Yours truly,
Bernd
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