By Georgia Feuer
Last week Jon Stewart hosted Secretary of Health and Human Services Kathleen Sebelius on The Daily Show. During the interview, he kept returning to the same question: Why was the piece of the Affordable Care Act that requires businesses to provide health insurance delayed for one year, but the piece requiring individuals to obtain health insurance (the “individual mandate”) was not delayed?
In her answer, Sebelius mentioned that there are subsidies and tax credits available to individuals starting in 2014 and also that the so-called “employer mandate” affects a very small number of businesses. The employer mandate only applies to businesses with 50 or more employees. Only 5% of businesses have 50 or more employees, and most of these companies already offer insurance.
But Jon Stewart was not satisfied with her answer, and that is because she did not give the whole answer. The real reason why the individual mandate cannot be delayed is that it is too crucial to the success of health care reform. To understand why, let’s suppose that getting health insurance was, in fact, voluntary. Then the people who would be most motivated to purchase health insurance are those who are sick.
When everybody buying into insurance has a lot of health care expenditures, everyone has to put in more money, and premiums become too expensive to afford. Suppose a potluck dinner is planned for ten people, all of whom arrive very, very hungry. In order for all ten people to get enough to eat, they will all need to bring a lot of food. Now suppose that thirty people are coming to the potluck, but not all of them are hungry. Sure, some are hungry enough to eat the raw kale garnish along with the turkey, but others just don’t eat very much in general. In this situation, each of the thirty people can bring less food and everyone will get the amount of food that they need. The individual mandate encourages those who don’t have a very large appetite to still bring a dish to the potluck. Without healthy people purchasing health insurance, premiums will be too high. Furthermore, some of those people who think they aren’t hungry will turn out to be starving.
The employer mandate was delayed not for the purpose of giving businesses a reprieve from paying for insurance, but to give them a reprieve from the burden of reporting to the I.R.S. Not only is extensive reporting required, the IRS still had not released regulations for the reporting.
Towards the end of the interview, Stewart points out that the ACA relies on market competition to drive down prices. Plans within the exchange are grouped to be at the same actuarial value, allowing purchasers to price shop based on premiums.
Massachusetts has tried to increase price transparency further by passing legislation requiring insurance companies to disclose the cost of a procedure. But Stewart points out that there are so many externalities in health care, such as additional costs, unknown future health care needs, and intricacies of coverage, that make it far more difficult for competition to reduce prices, as it does in other industries. It would be like buying a bicycle where you know the price, you know the total cost of the parts, and you know it has all the essential elements that a bicycle needs, but you may not know what kind of seat it has or where the shock absorbers are located until you have an actual need for shock absorbers. Furthermore, you have no clue what you will need this bicycle for. Is it just for the occasional trip to the market or might you join a racing team and need the bike to train and compete?
Certainly, a single-payer system, in which one government-run health plan covers all health care costs (such as the systems used in Canada and the U.K.) would be simpler and save substantial administrative costs, as Stewart points out. The idea had support among Democrats in 2009, and it was countered by labeling as “socialized medicine.” Ultimately, a single-payer system was decided to be politically unfeasible, in addition to the fact that it would have required many people who are happy with their current insurance to make a change. So instead, we have the markets and the hope that the competition they introduce will help reduce health care costs. That is, after the many costs associated with getting the law in place are factored in.
Georgia Feuer is a health care consultant in the Boston area. Her website is georgiafeuer.com and you can follow her on Twitter at @GeorgiaFeuer.