It's a Health Insurance Subsidy, Not Health Care Reform

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The health care legislation passed by Congress in March is important politically since President Obama now looks suddenly like a "winner." But will it actually achieve the objective of improving the nation's health care? More people will get insurance, yes, but will they actually get more health care paid for?

Not necessarily. We've had a bailout for bankers, and now the principle seems to be extended to the insurance industry. The health care bill entrenches the centrality of private health insurance companies and contains no serious proposals to limit costs. More people will get hit with deductions, co-pays, annual limits (for several more years), exclusions, and out-of-pocket expenses. This will ensure that health care remains too expensive for many Americans to actually take advantage of their new insurance. And premiums are bound to rise.

Health insurance remains the primary payment mechanism, not just for expenses that are unexpected and large, but also for nearly all health care expenses. The "reform" introduced by this bill largely promotes the status quo by pulling more people into an expensive health care system that is managed and funded by private insurers with no countervailing government option. Given that over half of all household bankruptcies are due to health care costs, forcing people to turn over an even larger portion of their income to insurance companies will further erode household finances. It's the Wall Street bailout principle extended to the health insurance industry.

Our progressive allies have criticized us for drawing attention to these uncomfortable truths and failing to celebrate the President's great social triumph. Yes, it may well have been catastrophic had the bill not passed, as it probably would have emboldened the radical forces of the right and torpedoed any hope of further significant reform legislation of any kind. But the "victory," such as it is, comes at the cost of a huge price subsidy to private health insurers.

Robert Prasch, a professor of economics at Middlebury College, notes that health insurers were losing premiums because employers were dropping coverage. This happened in part because they could not compete, since no other country in the Western world uses private insurance exclusively to provide health care. Healthy individuals were opting out because no reasonable calculation could show insurance to be good value for the money.

Why is this? Because the economics of private health insurance consists of marketing to people who are relatively unlikely to need health care, while avoiding selling it to those who are more prone to get sick. Of course, the opposite applies to a potential consumer of health care. Healthy individuals do not want to buy health insurance, and sick people pay too much on the basis of what the insurance industry considers to be actuarially sound principles. …