Health insurance dilemma
LAST YEAR, Massachusetts enacted a fill-in-the-gaps approach to expanded health coverage. The hope was that by using existing subsidy dollars more efficiently and levying a token penalty on employers ($295 per employee) who failed to provide coverage, most people would be insured.
On Jan. 8, California Governor Arnold Schwarzenegger launched a more robust version of the Massachusetts plan. And on Thursday, a coalition of business, medical, insurance, and consumer groups proposed a national version of a similar formula.
The Massachusetts plan brings coverage under MassCare to everyone with incomes below the poverty line. People with incomes up to about $50,000 for a family of three can buy subsidized private insurance on a sliding scale. The insurance industry is devising new plans for people above that line.
Healthcare for All, the reform coalition whose director, former state Representative John McDonough, helped broker the deal, felt it did not go far enough, but that the plan got a foot in the door to universal coverage. But is it the right door?
It's commendable that more people will be covered, though the current funding is inadequate to meet the promises. But the Massachusetts approach builds on, and reinforces, an inefficient and fragmented system -- one where private insurers divert too much money from medical care and have too large a political role. In that respect, the strategy takes us further away from efficient, universal health insurance.
Some 80,000 uninsured people have already gotten coverage either through MassCare, or through "Commonwealth Care," the new, subsidized program for people moderately above the poverty line. The unsubsidized, supposedly affordable plans, will be unveiled by the insurance industry by July.
Eventually, McDonough expects over 97 percent of people in Massachusetts will be insured. "It's not universal coverage, but it's not a bad day's work," he says.
True enough. However, surveys by the Greater Boston Interfaith Organization indicate that the proposed premiums may not be affordable for many moderate income people. And insurers simply cannot deliver unsubsidized plans that are both affordable and adequate for working people of slightly higher incomes.
Decent family insurance costs at least $8,000 a year. To deliver a plan for, say, $3,000 or $4,000 a year means either wholly inadequate insurance or huge out-of-pocket payments that will force many "insured" people to forgo needed care. Without more tax dollars, more people may be nominally insured -- but more insurance will be inadequate.
Indeed, while over 47 million Americans have no insurance, and nearly 85 million are uninsured at some point during a two-year period, America's hidden health problem is under insurance. A large share of bankruptcies caused by medical bills are declared by people who had health insurance that proved inadequate.
As employers keep shifting costs to workers and insurance companies more intensely "manage" care -- i.e., deny it -- the under insurance epidemic will only worsen. By partnering with the insurance industry, state policies could end up improving the statistics on people insured -- and worsening the broader problem of under insurance.
Schwarzenegger's plan, at least, would levy a more serious charge on employers who fail to provide insurance -- 4 percent of payroll. But the whole approach remains a big subsidy to the insurance industry, just like President Bush's privatized Medicare drug program.
A better alternative was recently proposed by Yale professor Jacob Hacker and the Economic Policy Institute. Employers would either have to provide good insurance or pay a tax of 6 percent of payroll. People without insurance could buy into a public program much like Medicare, on a sliding scale. That same program would enroll people whose employers elected to pay the tax instead of providing insurance.
Hacker estimates about half of all Americans would soon be in the universal pool. Over time, the superior efficiencies of the public program would attract more people. The private health insurance industry, as a superfluous and inefficient middleman, would dwindle. Eventually there would be universal and public coverage without the fragmentation.
Of course, the people who brought us HMOs will fiercely oppose it, but that's not necessarily bad. Harry and Louise, the stars of the insurance industry commercials that helped kill the Clinton plan, have a lot less credibility these days. Reformers seeking universal coverage should recognize that the private insurance industry is less a credible partner than the prime obstacle.
Robert Kuttner is co-editor of The American Prospect and a fellow at Demos. His column appears regularly in the Globe. 
