Troubles understanding health-insurance reform

The health bills passed by the U.S. house and Senate are complex. Some polls suggest that citizens like them a lot better once their provisions are understood. Both bills contain a logical sequence:

1. Prevent insurers from discriminating on the basis of health risks, such as pre-existing conditions.

2. If this were the only change, insurance costs would go up, and low-risk people would drop out, leading to more increases as insurance covered only those at risk, more drop-outs, more increases, and so on. This has happened when compulsory auto-insurance laws have not been fully enforced. Thus, to make sure that this does not happen, we must have a mandate. And that means a penalty for not having insurance.

3. But the cost of compulsory insurance would hit the near-poor very hard. (The poor are already covered by Medicaid.) Thus, they need a subsidy.

4. To provide this, we need additional funds, either through taxes on the rich (the House bill) or on expensive employer-provided health insurance (the Senate bill).

In sum, any adequate reform has these four elements:

E - equality of those who are healthy and at risk;

P - a penalty if people do not get insurance;

L - help for low-income people;

T - a tax, or reduction of a tax deduction, to pay for L.

To examine people's understanding of these issues, I gave a questionnaire to a panel of people who do questionnaires on the World Wide Web for Pay. I waited for 90 responses. The panel is typical of the U.S. population in income and education, although most are women, and some are foreign.

After defining "health" and "at risk", I started with a basic description of a full plan, EPLT (for all four elements):

"Insurance companies must treat at-risk and healthy people the same (for example, cannot exclude people with pre-existing conditions or charge them more), people must pay a penalty if they do not have health insurance, the government will help low-income people pay for health insurance, and the government will recover the funds by some combination of increased taxes on those with high incomes and reduced tax deductions for expensive employer-provided health insurance."

Then I presented 7 different modifications of the plan: E, EP, EPL, EL, ELT, L, and LT. Then I presented EPLT again. After each of the 9 plans, I asked the several questions, which I list at the end. All the questions, except those asking for an overall opinion, were introduced with: Compared to the present system, how would this proposal affect each of the following?" (I plan to present more details in a later post.)

The most interesting result was the one for question about effects on "The number of healthy people who have health insurance". For the E proposal alone, which specified, "Insurance companies must treat at-risk and healthy people the same (for example, cannot exclude people with pre-existing conditions or charge them more) AND NO OTHER CHANGES", many subjects thought that the number of healthy people with health insurance would INCREASE (40 thought it would increase, 12 decrease, p=.0001). This is diametrically opposed to the economic argument. That argument requires thinking ahead about how insurance companies will respond to the new regulation, and how consumers will respond to that response. It is like thinking two moves ahead in chess. Work I have done with Ed McCaffery (McCaffery and Baron, 2006) suggest that many people rarely think beyond the primary or intended effect of a policy.

It seems that many of my subjects did think through to the first move, however. When asked about "The overall cost (including insurance) to a healthy person who has insurance now" of E alone, 54 said it would increase and only 9 said it would decrease. Thus, the problem seemed to be in the understanding of the effect of price on demand. As the price goes up, fewer people are willing to pay it.

Conclusion: Opposition to the health proposals is based in part on lack of understanding of the four-step sequence outlined above. People may be sensitive to argument about the need for a mandate to prevent people from dropping out because of higher prices ... and to
keep prices lower by making sure that healthy people stay in the pool.

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All questions:

What do you think of this proposal, compared to the present system:

much worse -- somewhat worse -- not sure --somewhat better -- much better

Compared to the present system, how would this proposal affect each of the following?

The number of healthy people who have health insurance:

fewer -- not sure -- more

The number of at-risk people who have health insurance:

fewer -- not sure -- more

The overall cost (including insurance) to a healthy person who has insurance now:

less -- not sure -- more

The overall cost to a healthy person who do not have insurance now:

less -- not sure -- more

The overall cost (including insurance) to an at-risk person who has insurance now:

less -- not sure -- more

The overall cost to an at-risk person who does not have insurance now:

less -- not sure -- more

The cost to taxpayers who already have insurance, including workers who already have insurance through their employers:

less -- not sure -- more

The cost to a person with lower income:

less -- not sure -- more

The U.S. government's budget deficit:

lower -- not sure -- higher

Now that you have considered all these effects, what do you think of this proposal, compared to the present system:

much worse -- somewhat worse -- not sure -- somewhat better -- much better

Reference:

McCaffery, E. J., & Baron J. (2006). Isolation effects and the neglect of indirect effects of fiscal policies. Journal of Behavioral Decision
Making, 19, 1–14.