By Carl Schramm
If universal coverage is the goal, inexpensive, simple catastrophic health plans will do
When ObamaCare is under attack, its defenders retreat to several well-worn claims. Among them is a provision that compels insurance companies to allow parents to keep their “children” ages of 21 to 26 on their family policies.
Yet this part of the Affordable Care Act was not engineered in response to any noticeable interest group. Instead, political considerations are responsible for the provision—which is an unnecessary and a deceptive ripoff of the “young healthies.”
The first consideration is that young adults facing chronic unemployment—thanks to government policies that have retarded economic growth—commonly return to their parents’ home. Understanding that this is what the economic “new normal” looks like, the Obama administration sought to avoid a potential political storm by providing a benefit normally connected to holding a job for one of its most reliable support groups.
Second, government’s actuaries are well aware that this much-touted benefit basically costs nothing. Actuarial and other research suggests that the average male sees a physician six times between the ages of 21 and 35. The parental coverage provision seemed like a “freebie” for the administration’s universal coverage sales pitch.
Third, ObamaCare’s financing won’t work unless “young healthies” (or their parents) pay through the nose for coverage under parental plans or via the individual mandate. The 18-26 age group is the lowest user of care, the least costly to cover and the most profitable of all health-insurance coverage. Yet the group faces extraordinarily high ObamaCare rates.
A Manhattan Institute analysis of Health and Human Services numbers notes that a 27-year-old male will pay 99% higher premiums under ObamaCare than he would under previously prevailing market rates. One reason is that the law now limits insurers to charging the sickest seniors no more than three times the amount they charge their youngest customers. Given that 64-year-olds use on average six times as much health care as 19-year-olds, the Affordable Care Act forces young people to pay considerably more than the cost of their own care.
Young men and women who pay a fine instead of buying coverage are not making an irrational choice. They know how little care they need and use. They also may be beginning to understand that the high cost of their plans reflects the redistribution of their wealth to older people and a bunch of mandated services that don’t make sense for them.
Still, young healthies might see it in their interest to purchase a more affordable health policy that provides simple preventive care (check ups) and major medical coverage in the event of an accident or costly (and rare) episode of disease. There is such a cheaper alternative; I helped to devise it.
In 1993 I was president of Fortis (now Assurant AIZ +1.50% ) Health Care, a major health-insurance company. Sam Shriver, one of our brokers, noted that students graduating from Loyola College in Baltimore (he sold these students their group health-care coverage) were without health insurance before they landed their first jobs. We devised a “transition” product to provide graduates with two years of affordable coverage.
The product became very successful because it provided catastrophic coverage, including for things like motorcycle accidents, and was inexpensive. It became one of the company’s most popular products and was copied by many carriers in the individual market. Health policies that cover catastrophic care may still be sold to individuals up to age 30—but buyers are likely to be subject to an annual fine for nonconforming coverage.
Suppose the federal government simply provided everyone under the age of 26 with a voucher to buy simple primary care/catastrophic plans that many companies could provide tomorrow. The number of uninsured would be greatly reduced at a fraction of the cost of covering them under ObamaCare.
A similar approach might have been used for those who do not qualify for Medicaid because they make too much money but not enough to purchase a plan, perhaps because of pre-existing conditions. The government could provide them with a voucher enabling them to buy a private health plan.
This approach—coupled with federal legislation limiting medical malpractice claims and permitting carriers to offer more efficient multistate products—would provide health reform without the current drama of incompetency and injustice that will inevitably deny us all affordable care.
Mr. Schramm is University Professor at Syracuse University. He was president of Fortis (now Assurant) Health Care.