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Sunday, September 13, 2009

The Cure Can Be Worse Than the Disease: Health Care Reform and Unintended Consequences

One permutation of the Democratic health care overhaul features a proposed "fine" of up to $3,800 on anyone who fails to sign up for insurance.   This could have a disastrous unintended consequence.   Such a "fine" -- also known as a "tax" or, even better, an "unfunded mandate" -- is likely to prompt insurers to raise their rates by close to that amount. As with any product or service, if I am charging you a rate (call it "A") and can pitch you on the idea that you have to pay "A" in order to avoid getting hit with the fine (call it "B"), there is nothing to prevent me from raising "A" to at least what "B" would cost you. This basic cause-and-effect principle is almost assured of causing rates to skyrocket virtually instantaneously.

President Obama pitched his health care initiative principles -- since there really isn't a plan yet -- on the basis that under the promised plan, "everyone will have insurance."  But access to health care is not a problem because there is the fallback of the emergency room.   There are people who complain, and rightfully, that health care is expensive.   It is expensive to get sick, or to have an accident.   This is why insurance is attractive, since having it promises that a major illness or accident will not bankrupt us and that we will get treatment. 

The problem is the affordability of the insurance and the growing realization that at a certain price point -- which many of us have passed -- the benefits of insurance do not match the cost.

One practical use of insurance is to finance care for major problems. Insurance is thought of as a way to get health care without going broke. However, at the current rates which amount to well in excess of $1,000 per month for a basic family plan in many Northeastern states, many families are already "cash flow negative" right now and they are slowly going broke anyway.   Arguably, they may stand a better chance of preserving what assets they have now, if they drop all insurance and play the odds of not getting a major sickness.   Remember, in this country no one is denied coverage; if you have the flu and show up in an emergency room, you get charity care treatment.   The illegal aliensundocumented already know this.   And guess what?   They won't be paying the $3,800 annual fine.   Thus they have a net benefit.

And by the way, what happens to the truly poor under the poverty line? What happens when their annual fines go unpaid and start accruing? How will these people ever escape poverty if after five years they owe $15,000 in fines to the government?  Talk about an unending cycle of poverty.   If this won't be the most efficient way of keeping people dirt poor, please suggest one that fits the bill.

In advance...everyone should periodically check for the bill (or bills) when proposed, so you can be better informed.   Don't trust the various synopses of the plans.   Read the details for yourselves.  You'll be a step or five ahead of your local congressman.

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