The 2% Solution

What exactly is health reform all about? Readers will be forgiven if they can't come up with a quick answer to that question. No one else can either. But during the Presidential election campaign, Barack Obama mentioned universal coverage a lot. With that in mind, consider that:

  • Uninsurance is a lot like unemployment; it happens to many people for short periods of time, but it afflicts very few people for long periods of time.
  • In fact, of all the people who are uninsured today, less than half will be uninsured a year from now.
  • Less than one in ten will be uninsured two years from now — an amount equal to less than 2% of the nonelderly population.

Let's concede for the sake of argument that these chronically uninsured people have a problem that warrants federal attention. If Congress doesn't keep its eye on the ball (and it is inconceivable that it will keep its eye on the ball) we can end up spending $1.5 trillion over the next 10 years and — at the end of the day — have no assurance that the 2% will actually have been helped!

That works out to about $325,000 for each person who may not be helped!

When logic and proportion
Have fallen sloppy dead …

Remember what the dormouse
Said: "Keep your head."

Who exactly are the uninsured? At any given time:

  • Roughly one-fourth of the uninsured are eligible for Medicaid or a State Children's Health Insurance Program (SCHIP), or have already enrolled and are erroneously counted as uninsured. If they are not otherwise getting free care, they can generally enroll at the time of treatment — or even later!
  • More than 40% of the uninsured live in households with annual incomes in excess of $50,000 and presumably could pay premiums (or the employee's share of premiums) — although there is some argument about the meaning of this number.
  • About one-fourth of the uninsured are immigrants, many of whom are illegal and will not be helped by health reform in any event.

Some of these categories are overlapping. Here is Keith Hennessey's attempt to give an integrated accounting.

Two more things to keep in mind: (1) federal and state legislation has made it increasingly easy to get insurance after people get sick and (2) an enormous amount of free care is delivered to people who have no insurance. These two factors alone virtually guarantee that many people will voluntarily choose to remain uninsured so long as they are healthy:

  • Federal legislation prohibits employers from denying coverage to employees because of health status and legislation in every state prohibits group insurers from denying coverage because of health status.
  • Six states even extend this type of regulation to the individual market and almost every state that does not has risk pools with subsidized insurance for people with pre-existing conditions.
  • The Urban Institute estimates that public and private charity care totals to more than $1,100 per year for every uninsured person in America.

So tell me again, why we are about to spend $1.5 trillion on health reform?

Comments (29)

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  1. Larry C. says:

    Hard to believe this is actually happening.

  2. Jose Montemayor says:

    Mr Goodman, these are very compelling statistics which are well known to people that have studied health policy–even to a limited extent. However, those bent on seizing control of the healthcare delivery system continue to demagoge the issue into a foamy froth of half thruths with impunity from public accountability.

    Thank you for continuing to shine a light on the subject.

  3. Larry says:

    A much needed explanation of exactly who the uninsured are in America. Since the uninsured are the rallying call for healthcare reform the American people deserve to know for whom they are being asked to pay the bill.

    The cost of health care should be the rallying call, but Congress is set on increasing these costs with its deal with AMA, the incremental taxes they will levy and their ‘optomistic’ projection of trends, revenues, and inflation.

    Follow the debate at http://www.ilovebenefits.wordpress.com

  4. DoctorSH says:

    Healthcare reform is not about helping individuals obtain care, but about the federal govt again and again using politics and class warfare to sieze control of another sector of our economy and our freedoms.

  5. DoctorSH says:

    In regards to an above statment by Larry:

    The AMA is a political organization and does not represent the interests of the supermajority of physicians. Please refer to the following press release for more info.
    http://www.businesswire.com/portal/site/google/?ndmViewId=news_view&newsId=20090717005470&newsLang=en

  6. John R. Graham says:

    Furthermore, I reckon that about 2 million uninsured are actually employed at new jobs with health benefits, but have not yet completed the waiting period to be covered by their new employer (http://tinyurl.com/cmqnbv, pp. 12-13). So, individually owned (voluntary) health insurance would dramatically reduce the number of “uninsured”.

    This is why we opponents of government control of access to medical services really have to challenge the paradigm of employer-sponsored health “benefits” (which quickly turn into liabilities when someone loses his job). As long as this is the paradigm, there will be tens of millions of “uninsured”.

  7. Frank Timmins says:

    John, I am not sure about the suggestion that “illegal immigrants” would not be helped by the proposed Democrat healthcare plan.  Unless someone has found otherwise, it seems that “illegal immigrants” are not excluded anyplace in the bill itself, which means by assumption that the taxpayers will indeed be providing coverage for these people as well.

    Of course if we focus on the word “helped”, perhaps the statement would be still apply.

  8. Mike Sullivan says:

    John,
    This subject matter was an area of concern that I mentioned in response to your 7/13 alert with the additional wish that the a “critical mass” of experts with your help would publish a master list of accurate data to be used to evaluate current and ongoing programs. When the majority of the designers of the current proposed solution are quoting and basing their solutions on incorrect data the result is obvious–failure and a solution that is DOA. Thank you for your persistence in trying to share reality with those who are willing to listen.

  9. Mark Levin says:

    Excellent piece, well said John.

  10. Brant Mittler says:

    John:

    Excellent blog today. Also, See today’s budget analysis: the Gov’t paid $1.50 /lb for canned ham. Food Lion sells it for $0.79/pound. And now doctors and hospitals have to take a pay cut??? So we’ll have more money to spend on overpriced canned ham and overpaid investment bankers.

  11. Paul Nachtwey says:

    These facts are conveniently ingnored in the press and political debate.

  12. Bart Ingles says:

    “Uninsurance is a lot like unemployment; it happens to many people for short periods of time, but it afflicts very few people for long periods of time.”

    Apparently those who are uninsured for only part of the year were still counted as “insured” (from http://www.census.gov/prod/2008pubs/p60-235.pdf ):

    Uninsurance is a lot like unemployment; it happens to many people for short periods of time, but it afflicts very few people for long periods of time.

    For some reason I had been under the opposite impression.

    “More than 40% of the uninsured live in households with annual incomes in excess of $50,000 and presumably could pay premiums…”

    But what percentage of those with income are uninsurable because of a pre-existing condition and lack of alternative coverage? This seems to me to be the heart of the insurance reform question.

    As for those without the income to afford health care or coverage, this should be regarded as a poverty problem and not the fault of health care. Is it worth tampering with one-sixth of the nation’s economy just to hide the stigma of poverty?

  13. Bart Ingles says:

    Sorry, my quote from the census publication should have been this, from the panel on page 19:

    People were considered “insured” if they were covered by any type of
    health insurance for part or all of the previous calendar year. They were
    considered “uninsured” if they were not covered by any type of health
    insurance at any time in that year.

  14. Al Waxman says:

    In the campaign of 2008 and the first six months of 2009, the call for healthcare reform has been a refreshing and important theme. It has been widely recognized that
    1. Healthcare costs are out of control. You cannot have healthcare expenses inflating at 8% in an economy that is growing in the best of times at 4%. (today, the current inflation rate is negative 1.3%)
    2. 47 million Americans need coverage
    3. 14,000 Americans lose their insurance everyday
    4. Medicare is in peril, and along with Medicaid, the combination of ever-increasing costs are the main drivers of this government’s budget deficits that threaten our economic future.
    Our politicians pledged to deliver comprehensive solutions to address these problems and they promised budget neutrality. The President told us, that health care costs are driving our deficit; that the current trend is unacceptable, unsustainable, and we are going to change it in 2009.

    Now we know they did not mean it.

    The President and the Congress appear to be functioning as they always do- Job #1 is getting elected. Thinking out of the box, trying to break out of the mold of old and failed ideas requires courage and political will. All seem to be missing. Instead, we get an approach that expands government. The demand for a public plan to achieve savings is silly. We already have two public plans in Medicare and Medicaid. Where are the savings from these plans? The increase of taxes, on the top portion of the country’s citizens to pay for insurance for the uninsured, does nothing to save money or control costs. In addition, there is no mention of the fact that by adding complexity to a flawed system will only cause the system to fail faster, not reform it. The CBO quickly came out and said the two current reform bills will not substantially reduce the cost of medical care over the long run.

    There are viable solutions on the table, however, that do address the problem. These concrete solutions include:
    1. The Wyden-Bennett “Healthy Americans Act” to make people more accountable for their own health and health insurance.
    2. Proposals that remedy the inefficient and poor quality associated with the treatment of the chronically ill and excessive re-hospitalizations.
    3. Promising approaches in designing Value- Based Benefits that effectively lessen chronicity, improve quality and stimulate compliance and adherence to an individual’s care plan.
    Why are we not hearing about and considering these concrete approaches? Why are our elected officials so intent on a “quick-fix”? We know that a quick fix is just that. We must have a systemic overhaul. Systemic overhauls require expertise and thought, not haste. Quick fixes are the modus-operandi of politicians with eyes on the next election, not the behavior we expect from trusted public fiduciaries committed to the health of Americans and of our economy. We have seen enough of that behavior for the past twenty years.

    Dr. Albert S. Waxman PhD is current CEO of the Psilos Group, a leading venture capital firm which focuses on providing growth capital to those companies operating in the healthcare economy. In addition, Dr Waxman is a scientist, serial entrepreneur, a frequent speaker and recent author of “Change, Innovation, and Investment in the New Healthcare Economy– a 2009 Outlook on Healthcare Venture Capital.”

  15. Linda Gorman says:

    Bart, HIPAA already requires that every state make some policy available to people who are “uninsurable.”

    Some do it via a high risk pool, some do it via an insurer of last resort, a very few do it by forcing all policies to be guaranteed issue with the result that individual policies are virtually unavailable at any reasonable price.

    As for poverty, note that the poverty statistics only count money income and do not count the in kind assistance that makes up the majority of aid to people judged to be poor.

  16. Bart Ingles says:

    Linda, I haven’t been able to find any info on Nevada’s risk pool or insurer of last resort. I’d really like to see that info. California has a risk pool, albeit with a waiting list of up to 36 months. But at least both states have HIPAA plans for people who are about to lose group coverage.

  17. Brian says:

    More minimalizing of the issue.
    The goal? to desensitize people to the issues at hand in the hope that reforms will die and nothing gets changed.

    Regardless of HIPAA, states do not make some policy available to the un-insured. Case in Point- Tennessee. There is no healthcare available through the state to those who are not female, who do not have breast cancer and/or are older than 18. REGARDLESS of income or lack of income. You can have a gross yearly income of ZERO and still be in-eligible for state healthcare.
    That is the reality which beats any opinion paper anyday.

  18. Lance Kates says:

    It isn’t about care, it is about control. Just like the federal government’s attempts at gun control. Just like the federal government’s control of the financial sector through TARP, or the bailouts of GM that came with government control.

    It isn’t about helping, it is about an ever increasing federal government.

    In truth, it isn’t about the dollar figure. We’ve already lost if that is all we concern ourselves with. When did “Is that Constitutional?” stop mattering?

  19. Art Blanchard says:

    The argument has been framed (pretty successfully) in terms of “insurance”. The debate should be over healthcare. Insurance is a cost on top of the cost of care whose benefiaries are all the stakeholders in the health insurance business and the masses of clerks in governmental insurance offices. JG helps, I hope, in showing that care extends beyond insurance. Art Blanchard

  20. Devon Herrick says:

    A 1995 issue of the Bureau of Labor Statistics’ Monthly Labor Review analyzed the consumption for people with different levels of health coverage. Compared to the “fully insured,” both the uninsured and underinsured were younger. Both the uninsured and under insured also spent more of their income on alcohol and tobacco ($552 and $624, respectively) than the members of the other two groups (Medicaid; $412 and fully insured; $496).

    Interestingly, the uninsured spent five times more money on transportation; and three times more on entertainment, than on health care. The under insured spent twice as much on recreation and nearly four times as much on transportation as on health care. As a percent of their total expenditures, the uninsured spent less of their income on health care (2.9%) than those on Medicaid (3.6%), the partially insured (5.5%) or the fully insured (6.6%).

    Undoubtedly, some of the uninsured have a tough time when illness strikes them unexpectedly. However, the above analysis suggests many are young and healthy; and use their income on other goods and services.

    Unfortunately, the analysis has not been updated. But it makes for interesting reading: http://www.bls.gov/opub/mlr/1995/03/art4full.pdf

  21. Anthony Kotin says:

    It seems a curious argument that since 50% of the uninsured this year will be covered next year – that we don’t have a problem.
    I doubt that you would be happy about your home burning down during a year without insurnace – or being involved in an auto accident when the other driver was uncovered during his “off” year.
    The fact is that there are millions of Americans without coverage – and unfortunately they can’t all stay healthy while they wait for the time that they are covered.

  22. beverly says:

    Here is an true example of the uninsured. I know of a company with 150 employees in MO. They offer health insurance that only costs the employee $28 per month (less than that since it is payroll deducted pretax) Plus the employer will contribute $50 monthly per employee into a feeless health savings account that draws interest. 70 of the employees waived the coverage. Over half of those said they would remain uninsured. When I asked them why, I was told because they don’t see a need for it, and if they do go to the local clinic and say they are uninsured, they do not have to pay anything. So they prefer to stay uninsured.

  23. (Mr.) Dana R. Hyde says:

    Beverly and Anthony both have good points of concern regarding this author’s sweeping minimization regarding the problem of the uninsured. If health insurance is to be truly available and affordable on an equitable basis, coverage of everybody must be required as it is for drivers. The only way to get rid of pre-existing conditions is to continuously cover everyone from birth, period!

    My state (NJ) has had a well-intentioned legislature that has attempted to guarantee availability for everyone. As a result, the cheapest individual policy I could obtain was a 40% co-insure EPO costing over $350/month. {Premiums on a traditional indemnity policy for my age and residence were in excess of my take-home pay!} I had to give it up last year after exhaustion of my unemployment benefits made keeping it unsustainable. For low-income families NJ has a subsidy plan similar to NY’s Healthy NY, but money in the budget ran out in 2000 to provide for single individuals; you can only qualify in NJ for this if you happen to have kids. [Healthy NY buys a single individual private HMO coverage for about $150/mo but only if you're earning about $12/hour or less.]

    I would enjoy the opportunity to open a tax-sheltered HSA and get an affordable high-deductible policy to protect against catastrophic illness, but I haven’t been able to find an insurer offering this in my state. While HIPAA restricts employer-based policies from discriminatory practices, I think that this might be keeping me from employment opportunities at small enterprises. At 57, I could easily skew the group premiums if most of the workers are half my age.

    Divorcing health care financing from employment would be a wonderful boost for our economy, because it would raise job-market mobility and liberate thousands who are stuck in jobs they don’t like because someone in their family has a health problem. A robust private insurance market would be created if the government would scrap Medicaid in favor of subsidized HMO plans for all. The government will need to remain involved with Medicare, because the risk profile for this group, like that for real estate in flood plains, does not lend itself to a profitable and competitive insurance environment.

  24. beverly says:

    Dana,
    Yes, we need to divorce health insurance from the employer. Imagine if benefit money was added to everyone’s paycheck and they were given the freedom to go purchase their own plan and get the tax deduction through their 1040. Policies would be truly portable.

    But we do need an active, true health market. Unfortunately, the laws in New Jersey of guaranteed issue and community rating have made the rates high for everyone. The mandated policy benefits do not permit HDHP/HSA plans for individuals.

    Rates in states that permit underwriting and HDHPs have more affordable options available. For example, A 57 year old, healthy non-smoking male in my area can get a popular major medical HDHP for $152 a month.

  25. Bart Ingles says:

    Beverly, I dispute the idea that community rating necessarily makes rates “high for everyone.” More accurately, it should make rates “middling for everyone”. Higher for some, much lower for others.

    If rates are higher than expected for the average consumer, then the likely culprits are things like excessive mandates to cover various services, or guaranteed issue without sufficient restrictions to prevent gaming the system.

    Underwriting will only result in low premiums for some individuals. It’s not fair to compare a best-case quote to the average case.

    That said, I’m not in favor of a government mandate for community rating. I just hate to see it blamed for the portion of high costs that are generated elsewhere. After all, employer-provided coverage is community rated, and while expensive it’s generally not as bad as Dana’s New Jersey experience.

    I do think that any successful attempt to reform to the tax code will have to recognize that the employer exclusion is effectively a tax subsidy for community-rated insurance. It will be hard enough to reform the exclusion to end regressivity and employment discrimination without the added burden of overturning a 70-year precedent for preferential treatment of rate-adjusted coverage.

    I’d like to see the two types of coverage continue to coexist: individual underwritten coverage with no preferential tax treatment, and a modified community-rated option with premiums roughly 2.5 times the cheapest underwritten rate, but which qualifies for a 20- or 25-percent tax credit to reduce the after-tax cost to equal the high end of underwritten policies.

  26. (Mr.) Dana R. Hyde says:

    The chronic lack of health insurance among many of the middle-aged, both employed and unemployed, manifests itself when these individuals finally turn 65 and become Medicare-eligible: Their long-term pre-existing conditions, which Medicare must now cover, have often worsened and become much costlier to treat. If Medicare expenses are to be further trimmed, people entering its domain will need to be healthier at the outset. It’s notable that, right now, leading clinics and physicians are cost-shifting toward patients covered by private insurers because current Medicare and Medicaid reimbursements are already inadequate.

    It is so frustrating that my current home state restricts individual offerings so as to prohibit HDHP/HSA policies. They also mandate some coverages, such as for substance-abuse treatment, that lifestyle choices render me unlikely to ever need. I’m looking forward to a transparent national market, but do realize the potential difficulties with such should any consumer-protection issues arise.

    I will soon be employed again by another staffing agency which offers some employer coverage. I am hoping that this time it will be a little better than my last such limited-benefit policy, which was great for basic needs ($10-15 copays) but had a lifetime cap of just $45,000 which could be exhausted with just a few days in the hospital. When I had that coverage (2004-06), I did take better care of myself than I might have in an HSA situation, where on my low income I would have tended to be very miserly.

    I do worry about exposure to catastrophic illness, and wish that I had enrolled in the VA system before their embargo of January 2003. Veterans such as myself who have no disabilities or service-connected conditions can still enroll, but eligibility is now means-tested by both income and assets. Because my financial situation has deteriorated seriously in the past two years, I believe that I can now qualify.

  27. mikoz7 says:

    i really hav no idea..

  28. hoads says:

    Here’s the issue: only 8.000 or so people have enrolled in the HHS federal high risk health insurance pool–well below the 350,000 predicted despite 5 billion appropriated. So we have 50% of the uninsured already eligible for Medicaid/Medicare so technically, already insured, and then a majority of uninsured deemed uninsurable because of pre-existing conditions, aren’t even interested in enrolling in a government subsidized health insurance plan.

    We’ve built a culture of third party healthcare payment that has obliterated the idea of health care as an individual responsibility. So, even if we throw money at the uninsured, without personal initiative, it is just throwing good money after bad.

    We can see this in Medicaid. Despite having access to healthcare, recipients continue to be sicker than the rest of the population. You cannot improve the health status of a population that does not prioritize and take responsibility for their own individual medical care.