Monday, July 2, 2012

Free-riders and the Individual Mandate: Problem solved?

The one line of reasoning making the case for an IM that finds resonance with me is the argument that it prevents free-riders from gaming the system. Essentially, free-riders can game private or public funders of medical care by refusing to cover themselves, and relying on those that do. An example:

Fred makes 50k a year, is younger, and does not choose to be covered by his employer-provided insurance options. He doesn’t self-insure either. Fred gets sick, goes to a clinic, is cared for, receives a bill, and doesn’t pay it. Ultimately, the doctors eat the loss, or, as is more likely, make it up in general charges to all patients, having previously planned for such shortfalls, upping standard rates to cover the projected losses. So, in the end the responsible citizen foots the bill, or the doctor takes the loss.

Suppose Fred goes to an ER. Hospitals have such eventualities covered by government. Govs allocate funds targeted for uninsured ER care. They also can and do plan for such shortfalls in what they charge paying patients. So, in the end, taxpayers foot the bill, and/or the hospital takes a loss.

Fred is free-riding. The new mandate/tax charges Fred for doing this. He can’t get away with this anymore. Over the next several years the annual amount of the tax/penalty goes up a certain amount for each year, ending up around 600-700 clams a year. So, Fred no longer can get away without paying something for his health care (even if it is well below the market value of actual coverage, if he had chosen to purchase it). So, that’s a personal responsibility themed argument that I like.

Problem is; I don’t see how the mandate solves the problem. It either leaves it essentially unaffected or exacerbates it. Here’s how, illustrating with Fred again:

Fred now has two options, given the law/mandate/tax/requirement: He can go on as per his usual, pay the tax penalty at the end of each year, or; he can buy insurance. It’s still more expensive for him to do the latter (probably around 2200-2500 clams a year). So, he’ll probably choose to pay the annual penalty/ tax. At some point, he’ll get sick again, or have something more serious occur. Due to the portion of the ACA that forbids insurance companies from refusing coverage for previously existing conditions, he now has the option to pick up insurance just as soon as he finds out about his plight, with the amount of coverage that will make it as inexpensive as possible for him to right the condition.

Since the minimal package now available is fairly generous, (due to other portions of the ACA) he can join up for just the amount of time necessary for him to take care of things, and receive some pretty good coverage. Once he’s cured, he can opt out again, pay the tax until the next emergency; rinse and repeat – rinse and repeat.

So, over a considerable chunk of time, and assuming all else is equal (particularly, assuming the insurance companies can stay in business given this state of affairs) Fred will be receiving health care, but paying well below what the responsible citizen would have paid for the same coverage over the same period of time. He’s still free-riding. He’s “covered” as it were, but at a discount rate as opposed to those that are honestly keeping themselves covered / complying with the new mandate/tax/requirement/or etc...

In fact, the ACA, as written, sets up incentives to behave in just this fashion, for, even at its most expensive, the cost of the tax/penalty/mandate rate for free-riders is much less than prevailing insurance rates for the same period. Over time, this way of gaming the system will become public knowledge, as knowledge of the ramifications of the law work their way into the world. More people will choose to behave in this fashion, as economists might point out, behaving rationally, in terms of individual cost/benefit analyses.

The collective effect is apparent. Now, one might suspect that the law, creating as it does, a much larger pool of people that are required to purchase insurance, will have the end result of sending more people to the insurance market than will free-ride, thus cancelling out, and overcoming this possible mass effect.

 That we’ll have to see about, but we also have to look at the business side of things. Your typical business now has two options; cover employees or pay a fine/penalty/tax. Here again, the cost to employers is less to cut people loose. There will be a mass effect here too. So, overall, there will be more folks uninsured, and taxes being paid that bring in funds that are less than the going market rate for the medical care being provided.

The shortfall will have to be made up, price or service controls put in place, or government will have to provide the care and foot the bill. In either case, there will be more government involvement in health care, deficit spending and free-ridership. If empirical evidence is anything to go on, the results will be problematic not only fiscally, but in terms of quality and timeliness of care.

I Blame PETA for this

Clearly this tick bite induced 'meat allergy' is too much of a coincidence. Suddenly the "Lone Star" tick bite causes Texans and other beef lovers to break out in hives, and fall into anaphylactic shock?

[T]he known distribution of the immediate reactions to cetuximab was similar to the areas with high prevalence of Rocky Mountain spotted fever (RMSF). In addition, this area is similar to the area for maximum prevalence of human ehrlichiosis. We were also aware of patients who thought that their reactions to red meat started after receiving multiple tick bites. Finally, we were informed that Dr. van Nunen in Sydney,Australia and Dr. Deutsch in Georgia (personal communication, 2010) had reported to their local allergy meetings about patients who had become allergic to meat after experiencing multiple tick bites.

Mere coincidence? Over to you History Channel ancient aliens guy;

Do you think it is possible that PETA has a secret bio-lab and are genetically engineering ticks via viral insertion of code that makes folks react violently to certain components of red meat? Is such a thing even possible?