Column: What Medicare can teach the GOP about this basic rule of insurance
Editor’s Note: Journalist Philip Moeller is here to provide the answers you need on aging and retirement. His weekly column, “Ask Phil,” aims to help older Americans and their families by answering their health care and financial questions. Phil is the author of the new book, “Get What’s Yours for Medicare,” and co-author of “Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security.” Send your questions to Phil.
Republican efforts to replace Obamacare are delivering many teachable moments, along with a big bucket of stress inflicted on people fearful of losing their health insurance. Will it dawn on GOP House members and President Trump that Americans want guaranteed access to health insurance and do not want to return to the days when they could be denied insurance due to preexisting conditions?
One of these teachable moments, yet to be realized, is in plain sight every day in Medicare. It involves the very nature of insurance itself, the fundamentals of which seem to have escaped many critics of Obamacare.
In order to have an insurance market for anything, there must be a pool of insured people. It is called a risk pool, and you may have seen this phrase tossed about during the Obamacare repeal soap opera. Within any risk pool, the premiums paid by people who do not wind up needing to use the insurance will be used to help pay the claims made by people who do.
If insurers can identify high-risk people in a risk pool, they may charge them more money. This reduces burdens on other people in the pool and can work if the added payments are affordable to the high-risk folks. Insurers are sensitive to this, because if high-risk payments were too steep, many people would skip insurance if they could.
High-risk pools have been a big deal in the Obamacare repeal debate. To hold down premiums for healthier people, the Republicans have proposed creating and funding such a pool. At first blush, shifting premiums from individuals to government is a really, really strange thing for fiscally conservative folks to do.
The GOP has come to terms with this in part by proposing to fund this pool with only a small percentage of the many billions of dollars needed by a successful high-risk pool for health care. If this proposal comes to pass, insurers would be forced to raise rates for people in the pool so much that coverage would be unaffordable.
On paper, perhaps, Republicans could say that people had access to coverage, but chose not to buy it. The reality is that people would be denied health insurance, because it was too expensive. And the more dramatic part of this reality is that people would die, or die sooner, because they could not afford health care.
Regardless of what the bill or its supporters say, there’s just no escaping the reality that healthy people wind up paying for the care of sick people. This is how insurance works. Yet time and time again in recent months, we have seen Obamacare opponents object to the notion that healthy people should bear this burden.
This principle can be hard to see through the fog of other health care issues, so let’s use the very clear example of home insurance. Nearly everyone has home insurance, either because they’re prudent or more likely because their mortgage lender insists on it. And because the risk pool of people with home insurance is so large, the premiums that everyone in the pool must pay to insure their home is relatively modest. (There is the matter of whether home insurers make too much money on this business, and while this always is a valid concern, it does not affect the basic function of this insurance market.)
Last year, my neighbor’s house was nearly destroyed when a huge, 175-year-old oak tree was blown into the front of their home during a violent storm. My home suffered only modest damage; I didn’t even have reason to file an insurance claim.
I was grateful that I dodged a bullet. I was sad to see the damage done to my neighbor’s home, and the impact on their lives as they began the multi-year stresses of dealing with insurance companies and home contractors in their efforts to rebuild their home.
My home insurance premiums did not go up, even though many homes in our neighborhood suffered storm damage. That’s because of that very large risk pool for home insurance. And while no amount of money can compensate my neighbors for their loss and rebuilding efforts, there at least was money available to fund their insurance claim. The insurance market worked just as it had been designed to do.
What I did not do, by the way, was complain that my “healthy” home had to pay for their “sick” home. How silly would that be, right? Yet this is exactly what many Obamacare opponents are doing when it comes to their motives for wanting to replace its provisions.
You can see this time and time again. Last week, late-night host Jimmy Kimmel shared the story of how his newborn son required open heart surgery. He tearfully noted how wrong it would be to force parents to watch a child die, because they did not have the money or could not afford health insurance.
It was no more Kimmel’s fault that his son needed care than it was that the front of our neighbor’s home was obliterated by an oak tree (by the way, they had an arborist who regularly thinned the tree and inspected it for signs of vulnerability).
However, many Obamacare opponents directly say or imply that it is a sick person’s fault that they require care, and that it’s not the job of government to support a health insurance system to pay for such care.
This is just wrong.
If there is a clear example where health insurance functions like home insurance, it would be in Medicare. The government doesn’t require that older Americans get Medicare, but it does use a big stick to encourage enrollment by applying lifetime premium surcharges for late enrollment. In most cases, of course, older Americans are grateful they can get Medicare. As a result, there is a big, big risk pool for Medicare.
While critics may complain that the government spends too much money subsidizing Medicare expenses, enrollees themselves are often financially strapped and challenged to afford ever-rising Medicare premiums. If you are seeking a quick death, get in front of a crowd of Medicare enrollees and tell them they are welfare cheats.
Grousing aside, Medicare premiums are kept affordable because there is such a large risk pool of enrollees. As with home insurance, healthy enrollees help pay for the health needs of sick enrollees.
There is a regular flow of stories and research reports noting that the small percentage of Medicare beneficiaries with chronic health problems is responsible for a large percentage of overall program expenses. Why this should surprise anyone is beyond me. It’s the way a functioning insurance market is supposed to work.
There are a lot worse ideas than a “Medicare for all” insurance system. If you want to see some of them, check out the Republicans’ health care proposals.