The logic behind mandating health insurance is two-fold.
First, when people get extremely sick, the only alternative to dying may be going to the emergency room (ER). Letting someone die in the waiting room because they don’t have health insurance and can’t afford care is unconscionable. That’s why ERs are not allowed to turn away anyone who desperately needs help. But treating patients in the ER is incredibly expensive. ERs are equipped with a lot of modern technology and staffed around the clock by highly trained medical professionals. Just as it’s more cost-effective to prevent fires than to put them out, it is far more cost-effective for society to keep people healthy than to treat them in the ER. Better to make sure that everyone can afford to seek routine medical care than to let minor problems escalate into major ones.
The second reason for mandating health insurance is that, eventually, something medically catastrophic is going to happen to each of us. While not everyone drives a car and not everyone owns a home in a flood plain, everyone is human and will someday fall ill. But if people wait until they’re sick to buy health insurance, it’s like buying fire insurance when your house is on fire. If people were allowed to do that, they’d have been freeloading on the security funded by everyone else’s insurance premiums. If that were allowed, everyone would do it, and the result would be that the only people paying for insurance would be the sick. With the costs of our healthcare system funded only by the sick, instead of being spread out over the whole population, each sick person would be charged a very high price for their care. At the end of the day, such insurance isn’t even insurance.50
Some people might try foregoing insurance for the same reason that someone buying a TV might skip the warranty: they think they can just save up money and pay for whatever they need when the need arises. When it comes to healthcare catastrophes, the problem is that at least some of these people still won’t be able to afford the emergency treatment.51 Does that mean it will be denied them? Of course not. In these cases, society provides the backstop, which is morally sound but also means that everyone should buy into the system.
In 2013, uninsured patients paid about $25 billion out-of-pocket for healthcare, but hospitals and physicians logged $85 billion worth of services for which they weren’t able to collect payment from a patient, also known as “uncompensated care.” Healthcare providers can’t be expected to bear those kinds of losses, so in 2013, federal and state governments paid $53 billion to offset uncompensated care.52 And where did that money come from? Taxes—so society still paid.
What about the remaining $32 billion in uncompensated care? Hospitals and physicians can’t absorb losses like that and stay in practice, so those losses are offset by charging higher prices to everyone else who does pay—in other words, by the rest of society. The solution, then, is clear: If our healthcare system is to provide expensive emergency care to uninsured and desperate patients—as it inarguably should, morally speaking—then it is already functionally insuring those people but in the most expensive and least efficient way possible. Let’s do it properly by requiring that everyone enroll in insurance and contribute what they can afford.
Insurance for Pre-existing Conditions
Until relatively recently, not everyone could qualify for health insurance. Companies could refuse to cover a patient’s pre-existing conditions. That resulted in America watching as patients suffered from their diseases because they couldn’t afford to pay for treatment themselves and had no insurance, either because they had chosen not to get health insurance while they were healthy, or because they’d lost their insurance due to a job change or move and were denied a new policy because of a pre-existing condition. The ACA changed that by outlawing denial of health insurance on the basis of a pre-existing condition. The ACA also barred health insurance companies from charging higher insurance premiums to people who were already sick. That’s great for patients. And since insurance falls apart if people can sign up for it only when they need help, the ACA attempted to have everyone participate.
The whole point of insurance is that the costs of helping people who need it are covered primarily by all the people who don’t need it. Those unclear on the concept might grumble, “But why should I pay if my house hasn’t had a fire in 30 years?” Those are the lucky people. Insurance is something you buy and hope you never need. If it were only bought by the people who knew they would need it soon, it wouldn’t be insurance.
Spreading the Costs Around
If having insurance is mandatory, then the cost of buying that insurance is functionally a tax. Like many taxes, that cost is not spread evenly. Only people who buy things pay sales taxes, and those who buy more pay more. Those who own homes pay real estate taxes, but those who rent seemingly do not. Renters may not realize it, but their rent is influenced by the landlord’s real estate taxes and insurance costs, so renters indirectly pay those costs. People who make above a certain threshold of income pay income taxes. We try to spread costs across the population in such a way that everyone can afford a certain minimum living standard, which is meant to include safe neighborhoods, clean water, and schools good enough to give children a chance to realize their full potential. That America has fallen woefully short on one or more of these in some communities does not mean that we shouldn’t continue to try to live up to our ideals.
Just as taxes are spread unevenly, the premiums paid by people for a necessary type of insurance should be, can be, and are spread unevenly, with some people even getting insurance coverage for free or at a subsidized price. Funding should be gathered as fairly as possible from everyone who can afford to pay in order to cover those who need help.
Some call this scheme utopian, claiming that there is no one solution for “as fairly as possible.” One could say the same thing about how taxes are imposed; does that mean that we should dismantle the tax system and bring our society to ruin until we agree on the perfect system of taxation?
There is no one way to spread costs in a way that will make everyone happy, but that shouldn’t stop us from ensuring that everyone in America has access to preventative care and the security of health insurance to be able to afford it, not simply the last resort of going to an ER. The bickering over costs should come after we have secured access to decent healthcare as a right for every American. While that statement might trigger a brawl in Congress, both liberal and conservative politicians have supported policies that acknowledge healthcare as a right, whether it was called Romneycare in Massachusetts, Obamacare nationally, or expansions of state insurance plans for the poor (Medicaid) across many red and blue states.
We already offer health insurance subsidies to families with lower incomes, so I’m not proposing anything unprecedented. I’m calling for a shift in the current balance.
A Byzantine Patchwork Leaves Some Patients Without a Safety Net
For people who can’t afford private health insurance, the government (federal and/or state) offers three main types of health insurance plans. Those living well below the poverty line are covered by Medicaid, which is administered by states and funded by a combination of state taxes and federal subsidies, which are themselves funded by federal taxes. Older Americans (65+) are covered by Medicare, which is paid for by taxes and administered by the federal government, like Social Security. The third type is for veterans of the armed services (with the exception of those who have been dishonorably discharged). The Department of Veterans Affairs administers this type of insurance, which is also funded by federal tax dollars.
That leaves a lot of Americans who aren’t veterans, are not poor enough to qualify for Medicaid, and are not old enough to qualify for Medicare. If they work for a company, even a small one, odds are that they get health insurance through their employer. It is important to note that this insurance isn’t provided to the employee for free; it is a part of their compensation. If employers didn’t provide health insurance to their employees, they would have to pay
higher salaries, so that employees would be able to afford to buy health insurance on their own. But since income is taxed and health insurance benefits are not, it’s cheaper for both the employer and employee for a company to directly pay for health insurance than it would be to pay a higher salary and have the employee buy that insurance.53
So, what about the people who don’t qualify for any of the three main government plans and are not employed by a company that includes health insurance as part of its compensation package? Today, those people have the option to buy health insurance via state-run exchanges through which various insurers sell policies. Under the ACA, the government also provides subsidies to help individuals and families with lower incomes pay premiums and other costs. Today, the average cost of health insurance coverage for an individual qualifying for subsidies is around $2,500/year.54 Without these subsidies, a family of four with an income of $50,000 would pay around $17,000/year for health insurance; with subsidies that family would pay closer to $3,000/year.55 A family of four that earns less than $100,000, which is 400% of the $25,000/year poverty line for a family of that size, can get subsidies that would reduce the cost of health insurance to about $10,000. But if that family were to make just a bit more, crossing over the 400% mark, then they would be ineligible for all subsidies, and they would have to pay around $17,000. That means that a family of four is technically better off making $100,000/year than $105,000/year. It’s especially in these income zones, in which the subsidy math gets strange, where healthcare can feel particularly unaffordable.
The ACA attempts to help everyone, but it is imperfect and leaves some families, such as those living in cities where the cost of living is higher, still struggling to pay for health insurance. Some who are eligible for subsidized coverage might not even realize it. The system is complex, wordy, and inaccessible to millions, especially those who are functionally illiterate. Others understand their options perfectly but still feel that they can’t afford to purchase insurance. So, they just take their chances.
Altogether, around 13% of Americans fall through the cracks in the system by not having health insurance. These people will not be turned away at the ER, which means that they are still partaking in America’s health system, but in the most expensive way possible—both for themselves and for society as a whole. When an uninsured person receives an ER bill, the amounts due are often huge, in part because they reflect inflated list prices of procedures, medicines, hospital stays, and personnel costs. If you’re insured, your insurance company negotiates a lower price for these expenses. The fact is that our healthcare system wasn’t designed for people without insurance.
Many people without health insurance who get care from a hospital can, if they push back on their bill, get it reduced and may be able to pay it off over time with an installment plan (kind of like insurance premium payments after the fact). Hospitals will also often sell their uncollected debts to collectors at a discount, and those collectors will then try to extract payment from patients. The cost of all this bureaucracy and billing is staggeringly large. It is estimated at roughly $500 billion, coming in at 2.4% of GDP, proportionately twice what Canada and Germany spend administering their healthcare systems.56 That’s almost twice what America spends on branded drugs. Consider that for all the outrage over drug prices, the savings from streamlining billing and bureaucracy to the level of, say, Germany, would be greater than if every single currently branded drug went generic. Bureaucracy never goes generic.57
As a society, we have inflicted this failure on ourselves. Every American should have health insurance. Massachusetts has mandated this, and now only 2.8% of residents lack insurance.58 Given the way politicians are talking, it is—one would hope—only a matter of time before we achieve universal coverage or something much closer to it than what we currently have. Some taxes will go up, but it will result in savings elsewhere. If everyone is “in the system,” hospitals and physicians would no longer need to increase prices elsewhere to offset costs for uncompensated care. Bureaucracy would be reduced, billing streamlined. More people would feel financially able to seek out preventative care, which would result in fewer of the most expensive type of doctor visits. Fewer ER visits means fewer lost days of work, and fewer families bankrupted by illness. I would consider that a general upgrade to the integrity of our social fabric, wouldn’t you?
Not Just Some Insurance, but Enough Insurance
But even with universal health insurance in America, the devil will be in the details. And that “skin-in-the-game” con I raised at the beginning of this chapter, supposedly intended to ensure that patients do not seek unnecessary treatments, is at the heart of where our insurance system isn’t holding up its end of the Biotech Social Contract.
The notion that patients should pay for a portion of their healthcare through deductibles and copayments is called “cost-sharing.” Most reasonably healthy people can afford these out-of-pocket costs, because they don’t use many healthcare services or take branded medications. Lisinopril or a statin might cost someone no more than $10 per month, for example. Of patients with some sort of insurance, 91% pay less than $500 per year in out-of-pocket costs.59
But many people struggle with out-of-pocket costs, especially when they have complex medical conditions requiring frequent visits to the doctor and multiple medications. These are the patients for whom cost-sharing really means that they have inadequate insurance coverage. Approximately 2% of patients with insurance pay more than $1,500 per year in out-of-pocket costs, some much more.60 2% may not seem like a lot, but that’s millions of people, most of whom have modest incomes and are unable to afford needed treatments. Their dilemmas are what disproportionately drive outrage over drug prices.
The ACA sets a limit on the out-of-pocket costs private insurance plans can impose on patients in a given year, but many families with private insurance still struggle to meet them.61 For example, the annual out-of-pocket limit for a family of four with a $50,000 income is $6,500—a significant sum relative to total income, and that’s on top of the insurance premiums they pay.
There are three main reasons why insurance companies impose cost-sharing on their policy holders. Let’s take a close look at all three.
Reason #1: Preventing Over-Utilization of Care
As mentioned earlier: The theory is that if patients have to pay for a portion of a treatment, it will discourage them from seeking more treatments than necessary and running up more costs than necessary. This is called “over-utilization” of care, and it applies to both doctor visits and medications. This is fine—in theory—but the problem is that in practice, these out-of-pocket costs, if unaffordable, can cause patients to abandon treatments that they actually need or avoid going to see their doctor when they should, which leads to worse outcomes and more expensive treatments down the road.62
When a car insurance deductible discourages a car owner from fixing a ding in the door, there’s a risk it will rust. When a patient is discouraged by out-of-pocket costs from taking cholesterol-lowering medication, there’s a risk of a heart attack.
Insurance companies already have checks in place to prevent over-utilization in case a physician prescribes an expensive drug too liberally. One such check, called a “step edit,” rejects paying for a branded drug unless a patient has failed to benefit from or can’t tolerate one or more other cost-effective, typically generic treatment (i.e., the patient must step through a generic).63 Insurance companies also commonly impose a requirement that physicians get “prior authorization” (PA) before the payer will agree to cover a drug.64 This process requires that the physician submits paperwork to the insurance company documenting the diagnosis and prior treatments that the patient has received, sometimes with evidence for why the branded drug for which the PA is being sought is medically necessary. Insurance companies will sometimes impose a PA requirement on a new drug to make it harder for physicians to prescribe (since no one likes paperwork) an
d so the PA can be considered a mechanism for ensuring that physicians have skin in the game, likely seeking a PA only for patients they strongly feel need the new drug.
So why then, when a patient has met the step-edit requirements and an insurance company has issued a PA, does the insurance company still impose a copayment for the drug or make the patient pay for it out of her deductible? Towards what decision is that insurance company nudging the patient? To abandon the treatment that both the physician and insurance company agree is appropriate. That’s heartless. Yet that’s what happens.65 A patient comes into a pharmacy to fill a prescription, maybe a drug for diabetes, an asthma inhaler, or heart-failure medication; the pharmacist looks up the patient’s insurance and reports what the copayment will be; and the patient just walks away without the medication. Clearly, reducing inappropriate utilization is not the only purpose behind cost-sharing.
Reason #2: Lower Premiums
The second reason is that cost-sharing allows insurance companies to offer lower premiums to everyone, most of whom are healthy. That is lousy in both theory and practice, since the whole point of insurance is to have the currently healthy members of society subsidize the cost of treating the currently sick, not the other way around.
Lower premiums make an insurance plan look more attractive to new, typically healthy subscribers, except that what insurance companies are now selling is no longer insurance (unless you can afford the out-of-pocket costs). Increasingly, subscribers need to read the fine print and estimate what costs their plans would saddle them with should they develop one or more chronic illnesses.
Imagine that a college lured students with low tuition and then charged them a copayment for entering each class.66 The administration might even say that the copays are intended to prevent inappropriate attendance. The trouble is that poorer students who thought they were signing up for an affordable education would miss classes because they can’t afford the copayments and then drop out without an education or degree.
The Great American Drug Deal Page 6