There is a number that should not be horribly hard to calculate by the actuaries of the health insurance companies. In fact, it’s a number that they have surely already calculated. What would alternate health insurance systems cost?
A lot of confusion in the health debate concerns two views the public has of health insurance. On the one hand, it’s insurance. Which means that of course insurers would not cover things like most pre-existing conditions. Insurance is normally only sold to cover unknown risk in every other field. If your neighbours regularly shoot flaming arrows onto your house, you will not get fire insurance to cover that, except at an extreme price. Viewed purely as insurance, it is silly to ask insurance companies to cover these things. Or to cover known and voluntary expenses, like preventative care, or birth control pills and the like. (Rather, an insurance company should decide to raise your prices if you don’t take preventative care, or allocate funds for the ordinary costs of planned events, because they don’t want to cover choices, just risks.)
However, we also seek social goals for the health insurance system. So we put rules on health insurance companies of all sorts. And now the USA is considering a very broad change — “cover everybody, and don’t ding them for pre-existing conditions.”
From a purely business standpoint, if you don’t have pre-existing conditions, you don’t want your insurance company to cover them. While your company may not be a mutual one, in a free market all should be not too far off the range of such a plan. Everything your company covers that is expensive and not going to happen to you raises your premiums. If you are a healthy-living, healthy person, you want to insure with a company that covers only such people’s unexpected illnesses, as this will give you the lowest premiums by a wide margin.
However, several things are changing the game. First of all, taxes are paying for highly inefficient emergency room care for the uninsured, and society is paying other costs for a sick populace, including the spread of disease. Next, insurance companies have discovered that if the application process is complex enough, then it becomes possible to find a flaw in the application of many patients who make expensive claims, and thus deny them coverage. Generally you don’t want to insure with a company that would do this: while your premiums will be lower, it is too hard to predict if this might happen to you. The more complex the policy rules, the more impossible it is to predict. However, it is hard to discover this in advance when buying a policy, and hard to shop on.
But when an insurance company decides on a set of rules, it does so under the guidance of its actuaries. They tell the officers, “If you avoid covering X, it will save us $Y” and they tell it with high accuracy. It is their job.
As such, these actuaries should already know the cost of a system where a company must take any client at a premium decided by some fairly simple factors (age being the prime one) compared to a system where they can exclude or surcharge people who have higher risks of claims. Indeed, one might argue that while clearly older people have a higher risk of claims, that is not their fault, and even this should not be used. Every factor a company uses to deny or surcharge coverage is something that reduces its costs (and thus its premiums) or they would not bother doing it.
On the other hand, elimination of such factors of discrimination would reduce costs in selling policies and enforcing policies, though not enough to make up for it, or they would already do it, at least in a competitive market. (It’s not, since any company that took all comers at the same price would quickly be out of business as it would get only the rejects of other companies.)
Single payer systems give us some suggestion on what this costs, but since they all cost less than the current U.S. system it is hard to get guidance. They get these savings for various reasons that people argue about, but not all of them translate into the U.S. system.
There is still a conundrum in a “sell to everybody” system. Insurance plans will still compete on how good the care they will buy is. What doctors can you go to? HMO or PPO? What procedures will they pay for, what limits will they have? The problem is this: If I’m really sick, it is very cost effective for me to go out and buy a very premium plan, with the best doctors and the highest limits. Unlike a random person, I know I am going to use them. It’s like letting people increase the coverage on their fire insurance after their house is on fire. If people can change their insurance company after they get sick then high-end policies will not work. This leaves us back at trying to define pre-existing conditions, and for example allowing people only to switch to an equivalent-payout plan for those conditions, while changing the quality of the plan on unknown risks. This means you need to buy high-end insurance when you are young, which most people don’t. And it means companies still have an incentive to declare things as pre-existing conditions to cap their costs. (Though at least it would not be possible for them to deny all coverage to such customers, just limit it.)
Some would argue that this problem is really just a progressive tax — the health plans favoured by the wealthy end up costing 3 times what they normally would while poorer health plans are actually cheaper than they should be. But it should put pressure on all the plans up the chain, as many poor people can’t afford a $5,000/month premium plan no matter that it gives them $50,000/month in benefits, but the very wealthy still can. So they will then switch to the $2,000/month plan the upper-middle class prefer, and go broke paying for it, but stay alive.
Or let’s consider a new insurance plan, the “well person’s insurance” which covers your ordinary medical costs, and emergencies, but has a lifetime cap of $5,000 on chronic or slow-to-treat conditions like cancer, diabetes and heart disease. You can do very well on this coverage, until you get cancer. Then you leave the old policy and sign up for premium coverage that includes it, which can’t be denied in spite of your diagnosis.
This may suggest that single-payer may be the only plan which works if you want to cover everybody. But single-payer (under which I lived for 30 years in Canada) is not without its issues. Almost all insurance companies ration care, including single payer ones, but in single payer you don’t get a choice on how much there will be.
However, it would be good if the actuaries would tell us the numbers here. Just what will the various options truly cost and what premiums will they generate? Of course, the actuaries have a self-interest or at least an employer’s interest in reporting these numbers, so it may be hard to get the truth, but the truth is at least out there.