Let’s face it, giving someone medical insurance benefits that he hasn’t paid for whether in cash or with insurance premiums is a form of charity anyway, however it’s packaged. Somebody always pays for it, whether it’s the other members of the insurance plan, or the taxpayer.

My MD also says one reason hospital costs are so high is that they have to provide emergency room care to literally anyone, whether it’s an emergency or not, and whether they can pay or not. If “non-emergency” care were tax deductible, then it could be provided in non-hospital settings at lower cost. Even better, it would be voluntary and not mandatory, which makes it more American, in my opinion.

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Indeed, “creativity” is the key element of workable solutions to healthcare financing, and it should be the job of the government to create an environment to encourage that creativity instead of re-enforcing a system of total dependence and entitlement.

1) The counterexample doesn’t need to be universal to falsify Krugman’s statement.

2) If you aren’t trying to use forced participation by healthy people as a hidden tax to finance the subsidy for sickly people, then universal participation is no longer critical. The total societal cost to subsidize high-risk people down to a given premium level should be the same whether everyone signs up, or only those sick people. Sure, lack of participation is a problem for small businesses, but that’s not really what we’re talking about here.

Back to the first point, I’m sure there are many things that influence participation in employer plans. Laws vary from state to state, thereby affecting small business rates. Tax rates aren’t uniform, so lower-income workers face the double disincentive of a lower tax incentive on top of having less disposable income to spend on insurance. And the pools are not uniform. And as you say, some healthy people just don’t want to pay for insurance. So I agree with all that. But with all the gaps, employer-sponsored insurance is still the most common form of coverage in the U.S. If you back away from the variations, the overall picture is one of a system that subsidizes community rating using the income and payroll tax, rather than a hidden head tax.

An alternative would be to develop something along the lines of “whole life medical expense” insurance, where healthy people buy a “level premium” life time cover similar to whole life insurance. Actuarially this must include a major component of cash build up to “level” the premium out (in fact, a guaranteed increasing scale of premiums is probably more practical than a truly level amount – it would still call for significant “paid in” extra in the early years). This would be the equivalent to an HSA type accumulation vehicle intended to be drawn down to cover the increasing costs going forward after a certain point. There are a number of interesting actuarial and other practical challenges to such a product (not the least of which is to factor in inflation and the impact of any Medicare benefits), but nothing that can’t be accomplished with a little creativity. There would be sizable cash values to such a policy, which could be transferable should the insured decide to switch to a different carrier later on, and that would serve as that transition transfer, of sorts, to which you prefer. This just deals with the financial side of the issue, of course, and doesn’t discuss how it interrelates to the “provision” side.

In either case, the subsidy to high-risk individuals has to come from somewhere. Transferring the money directly from low-risk individuals rather than cycling it through the general fund doesn’t make it free. Concealment of this fact seems to be the main purpose for the complexity of the House and Senate bills.

If a high cost patient leaves Plan A (to which he has been paying premiums all these many years) and enters Plan B, then A ought to make a payment to B to cover the extraordinary expenses B will now have to pay for. That payment is what you get from what I am calling change of health status insurance.

No question that this makes the management of risk more diffficult. But it’s easier for insurers to manage that risk than individuals on their own.
This should not add costs to the system as a whole, however, since we still have the same medical bills we had before.

Suppose, for example, that Congress took the advice of those who want to ban insurance discrimination on the basis of medical history, and stopped there. What would happen next? The answer, as any health care economist will tell you, is that if Congress didn’t simultaneously require that healthy people buy insurance, there would be a “death spiral”: healthier Americans would choose not to buy insurance, leading to high premiums for those who remain, driving out more people, and so on.

This statement is absolutely false. The proof by counter-example: employer-sponsored insurance is prohibited by law from discriminating on the basis of medical history, subject to a waiting period for individuals without prior creditable coverage. But government doesn’t require those individuals to purchase insurance, nor does it prohibit them from seeking cheaper insurance outside the workplace.

Instead, favorable tax treatment gives healthy individuals incentive to participate. Naturally, this requires the expenditure of tax dollars.

The scheme Krugman seems to think necessary requires a transfer of tax dollars as well, but in this case the taxes are hidden. For healthy individuals, the difference in cost between community-rated and individually-underwritten coverage is effectively a head tax. Congress attempts to compensate for this highly regressive tax by adjusting the premium based on income. So now you have what amounts to a shadow graduated income tax, presumably requiring a shadow IRS operating within HHS, and who knows what anyone’s effective tax rate will be. It’s no wonder the proposal grew to over 2000 pages.

Rather than a regressive implied tax that requires extensive compensation to turn regressive into progressive, a fairer and more honest source of funding would have been the existing tax system. That’s what 2/3 of the country already uses; compared to the annual $200 billion cost of the employer tax exclusion, the cost of a voluntary community-rated alternative would have been relatively minor.