2 Plans and Many Questions on the Uninsured

The New York Times

By KEVIN SACK

Saturday, February 23, 2008

ATLANTA — Brandy Coons is what health economists call a free rider.  She may not fully appreciate it, but her decision to go without health insurance, like millions of similarly situated Americans, has become central to the pre-eminent policy dispute of the Democratic presidential campaign.

Ms. Coons, a 23-year-old waitress who rents a room and rarely eats out, said she could probably afford a high-deductible policy if she gave up her gym membership and spent less on her amateur photography. But she chooses instead to gamble against the odds of confronting a bankrupting catastrophe.

“I’m young and in pretty good shape,” Ms. Coons said one recent afternoon, on her way to the treadmill at the Fitness Factory in Midtown Atlanta. “I looked at Blue Cross Blue Shield. But the only thing I could see myself really needing it for are prescriptions and dental because there are so many free clinics, or a hospital visit really isn’t all that expensive.”

She continued, “The insurance premium was more than what I would pay for my prescriptions, so I just decided not to deal with it.”

Senator Hillary Rodham Clinton contends that the only way to achieve universal health coverage, and to make the marketplace fair and efficient, is to require that everyone have insurance. That would include people like Ms. Coons, who may not currently rank health care above other needs and wants.

Senator Barack Obama, Mrs. Clinton’s rival for the Democratic presidential nomination, shares her goal of insuring all Americans. But he says that a mandate could mean financial devastation for middle-class families if the government did not first adequately reduce the cost of insurance.

Both candidates express confidence that by pumping at least $110 billion into subsidies and tax credits they can make policies affordable for all. The difference is that Mr. Obama insists he will be able to lure all of the uninsured simply by dangling the carrot of low premiums; Mrs. Clinton believes there will always be some free riders who respond only to a government stick.

Neither campaign has provided enough detail about its plan to enable more than guesswork about how it might influence consumers like Ms. Coons. They have not detailed what kind of subsidies would be needed or who would be entitled to them. Mrs. Clinton has not fully explained how she would make everyone comply with her plan or exactly how she would cap the amount a family would have to spend on premiums.

Each candidate would raise the money needed to subsidize premiums by rolling back President Bush’s tax cuts for high earners, taxing businesses that do not insure their workers and reducing costs through electronic record keeping, preventive medicine and chronic disease management.

But there is little certainty about how much those initiatives might save, or when. Nor can it be known if the savings would offset the potential cost of new technology and drugs and the cost of providing care to the newly insured. There are also questions about whether the new savings and tax increases would be enough to subsidize insurance for all who need help.

Both candidates are backed by teams of prominent economists from top universities and policy groups. But with little real-world precedent to guide them, their assessments are necessarily an amalgam of statistical modeling and back-of-the-envelope calculation.

“In a campaign, people put out proposals that aren’t highly specified, that don’t have enough detail to model them effectively,” said E. Richard Brown, director of the Center for Health Policy Research at the University of California, Los Angeles, and an Obama adviser. “These numbers are based on a lot of assumptions.”

In speeches, debates and dueling advertisements, Mrs. Clinton and Mr. Obama have brandished projections that even their originators acknowledge are tenuous.

Mrs. Clinton, for instance, has charged repeatedly that Mr. Obama’s plan would leave 15 million people uninsured. Doing so, she has said, amounts to Democratic apostasy. “I don’t want to leave anybody out,” she said in Thursday’s debate in Austin, Tex.

But the economist who devised that number, Jonathan Gruber of the Massachusetts Institute of Technology, said that while he felt strongly that a mandate was needed to achieve universal coverage, he was less firm about his projection. “There is a lot of margin for error around that estimate,” Mr. Gruber said.

Mr. Obama, meanwhile, maintains in a television advertisement that his plan will “cover everyone.” That claim is disputed by some of his own advisers, including Mr. Brown, who recently calculated that the Obama plan might leave behind two million free riders.

“That’s the number we would expect to continue to be uninsured unless they’re forced to buy coverage,” Mr. Brown said.

There is no consensus among health economists about how many free riders there are, or on their economic impact. But of the 47 million uninsured people in the United States, 7.3 million come from families with incomes of $75,000 or more, and an additional 6.9 million earn between $50,000 and $75,000, according to 2006 census estimates.

Some of those with moderate or high incomes may have been shut out of the insurance market because of age or pre-existing health conditions. Researchers believe a majority are self-employed or among the growing number of Americans whose employers do not offer affordable insurance. Their only insurance options may be high-priced individual policies.

Many free riders are assumed to be young and at little risk of major illness, but they do consume health care. A recent analysis by the New America Foundation, a Washington policy group, found that 16 percent of the patients who received uncompensated medical care in 2004 had family incomes of at least four times the federal poverty level (which would currently be $41,600 for an individual and $84,800 for a family of four).

They accounted for $5.8 billion of the estimated $41.4 billion in uncompensated care that year. Most of it was delivered in hospitals, which are required by federal law to treat patients with emergency conditions, regardless of ability to pay. A vast majority of that care is covered by the federal, state and local governments in a direct cost shift to taxpayers.

But there is also a shift to the privately insured. Hospitals and doctors raise their fees to compensate for the losses they incur by treating uninsured and underinsured patients, and insurers pass those increases along to consumers. A 2005 study found that the shift added 8.5 percent to the average premium.

Many free riders, including Ms. Coons in Atlanta, never consider that the care they receive in community clinics and emergency rooms is subsidized by taxpayers and private policyholders. “I still pay for everything,” Ms. Coons said, “and I certainly pay taxes.”

Mrs. Clinton says that requiring everyone to get insurance, in addition to addressing the taxpayers’ cost-shift, is a prerequisite to ending discrimination against those with pre-existing medical problems. Only then, she argues, would it be fair for the government to require insurers to cover even those likely to require expensive care.

“By allowing people to stay out, you risk that only the sick will come in,” said Len M. Nichols, director of health policy for the New America Foundation, and a reluctant supporter of a mandate. “Insurers have to protect themselves. Bringing everyone in also lowers costs across the board because the risk pool is wider.”

Mr. Obama, for his part, all but denies the existence of free riders. “I don’t see those folks,” he said when asked last month about people who may need to be forced to buy insurance.

He said he would mandate coverage for children and allow parents to cover children up to age 25 on their policies. But recognizing that affordability is often in the eye of the beholder, he would not immediately require coverage of adults. He says he would be open to a mandate later if there were holdouts, convincing some economists that the dispute is more about the timing of a mandate than the need for one.

“I believe the reason people don’t have health care isn’t because no one’s forced them to buy it,” Mr. Obama said this month in Wisconsin. “It’s because no one’s made it affordable.”

There is no settled view about what makes health insurance affordable. A survey last year by the Kaiser Family Foundation found that the average annual premium was $4,479 for an individual and $12,106 for a family.

Massachusetts, the only state that mandates insurance coverage, considers insurance to be affordable for anyone with a family income that is more than three times the federal poverty level, above $31,200 for an individual and $63,600 for a family of four. Coverage for those making less is subsidized in full or in part by the state.

Unlike Mrs. Clinton’s plan, however, Massachusetts offers exemptions from the mandate to those who can demonstrate they would otherwise suffer financial hardship. It expects to offer 60,000 such waivers this year.

Some share of the population will disregard virtually any government mandate, either by intent or inertia, and the early evidence about the Massachusetts law is mixed. Only half of the state’s estimated 600,000 uninsured enrolled by the end of 2007, the first deadline. That may be because the state set a gentle initial tax penalty of $219 to soften any perception of heavy-handedness. This year, the fine will rise to as much as $912 for some residents.

“The Massachusetts experience shows that unless you have very clear, very stringent penalties that are directly enforceable, mandates don’t work,” said Austan D. Goolsbee, a University of Chicago economist who advises Mr. Obama.

Mrs. Clinton acknowledged Thursday that a mandate would be politically unpopular, noting in the debate that she “took a big risk” to propose one.

“You chose to put forth a health care plan that will leave out at least 15 million people,” she told Mr. Obama. “That’s a big difference.”

Mr. Obama responded that his goal was the same as hers, to cover everyone. “We think,” he said, “that there’s going to be a different way of getting there.”