Thu, 28 Feb 2008

The Roberts plan: Taking on health care?

Apart from the foolish tax cuts I write about so often, most of the budget ills afflicting our state and municipal budgets can be traced to exploding health care costs of one kind or another, whether it be health benefits for employees or Medicaid expenses. It's been fairly pleasant, therefore, to hear the noise that Lt. Governor Elizabeth Roberts has been making about health care reform over the past several months.

During the fall and winter, amid a fair amount of publicity, Roberts convened a "working group" of people to speak and brainstorm about what health care reform in Rhode Island should look like. A couple of weeks ago, we saw the fruits of the effort, and she announced the introduction of the "Healthy Rhode Island Reform Act of 2008."

The plan consists of several parts. There is a requirement that people who earn more than four times the poverty line buy health insurance. There is another provision that creates a "Hub", a non-profit organization to offer health plans to individuals and small businesses, with a modest subsidy provided by assessing a fee on businesses that don't provide health care for their employees ($1,000 per uncovered employee). The plan also proposes to increase competition among health insurance companies by allowing insurers licensed in Massachusetts or Connecticut to do business in Rhode Island, and there are some attempts to gather cost information about health care and insurance, too.

So, what will the Roberts plan do for a small business owner who already buys his own insurance? (I'm thinking of me here.) Pretty much nothing. Mandates in the plan only require that I do what I already do. I'm not looking for a handout, but there's a lot to fix. The Roberts plan doesn't even promise that costs will be kept under control, only that mechanisms will be established that some future government might use as a small part of a scheme to control costs. Pardon me for not jumping with joy.

The truth is that this is not a plan to reduce the cost of health care, nor is it a plan to provide health care to anyone at all. This is only a plan about health insurance. Essentially, the plan is to encourage competition, force purchasers into the market, provide more information and hope that all this makes the costs lower. It's all about making the "market" work better; call it a Republican plan. That won't be a bad thing to people who believe that a lack of competition, too many people opting out of the market, and a lack of transparency are what bedevil the health insurance market.

But here's a question for those who believe that: Why do you believe it? Is it your pet economic theory or actual evidence? As I reported last year in the RI Policy Reporter (#24), health insurance premiums in Rhode Island, though higher than the national average, are lower than anywhere in the northeast for certain classes of buyers, according to the US Department of Health and Human Services Medical Expenditure Panel Survey. For other classes, they're quite high. There's plenty of competition in many other states. Can the lack of competition in Rhode Island explain both the low premiums for some folks and the high premiums for others?

Maybe you believe that lots of uninsured people are the problem? It may interest you to know that Rhode Island has one of the lowest rates of uninsured people in the nation. Shouldn't that mean our rates would be low? Maybe you believe that group purchasing for health insurance will bring costs down? Of course it can, but this is old news. Some Chambers of Commerce and the Good Neighbor Alliance have been doing it for years. Their rates are decent, but they're not an obvious bargain, and I left them years ago when I found a better deal. In other words, the argument that these reforms will help is hardly self-evident, so long as we're talking about the real world, and not the world of economic abstractions where increased competition always helps.

Alternatively, while we're discussing markets, you might believe that high health care costs are largely a result of markets doing what markets will do: setting prices that "clear". This is economist-speak for the situation where all the sellers can find buyers. It doesn't say anything about buyers who are inevitably priced out of the market, nor does it speak to the market power of sellers, nor to the fact that sellers -- doctors, hospitals, drug companies -- know a whole lot more about the products they're selling than the buyers (i.e. you) ever can.

And I haven't yet mentioned the dumbest problem of all. Because most people get health insurance with their jobs, one of the big cost drivers in the health care industry is -- wait for it -- health insurance. A hike in Blue Cross premiums means RI Hospital employee benefit costs go up, so that their rates have to go up, so Blue Cross has to raise their premiums again the next year. Part of the increasing cost of health insurance is to pay for the increasing cost of health insurance.

None of this has anything to do with the amount of competition in the various markets, so the market "reforms" in the Roberts plan won't address them at all. But these are all problems that governments are in a position to do something about.

Unfortunately, our governments won't do anything about them so long as we are led by people for whom economic theories overrule observations and data from the real world. My fear is that this plan shows Roberts to be just one more of those.

21:03 - 28 Feb 2008 [/y8/cols] link

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