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King Canute and health care, part 2

Who’d'a thought we’d see two shout-outs to King Canute in as many days in the health care arena? Yet there he is, popping up again in Business Week in the service of opposing more government intervention in health care.

According to legend, King Canute of Denmark facetiously tried to stop the rising tide by simply raising his hand and commanding the waters to roll back. The tide, of course, kept rising. Yet policymakers throughout history have followed Canute’s lead. From Hillary Clinton and John Edwards to Mitt Romney and Arnold Schwarzenegger, politicians across the spectrum have tried or vowed to solve America’s health-care woes by enacting an individual mandate – a law requiring every adult to purchase health insurance. Despite its bipartisan support, the individual mandate is bad policy, a vain attempt to command a better result while doing nothing to achieve it.

An excellent discussion of the folly of individual mandates follows. Of some interest is the way the estimate of the size of the problem meshes with that made below.

According to an Urban Institute study released in 2003, uncompensated care for the uninsured constitutes less than 3% of all health expenditures. Even if the individual mandate works exactly as planned, that’s the effective upper boundary on the mandate’s impact.

If you do the math, I think you will find that Mark Steyn’s number of the poor uninsured comes out to about 3% of the population.

More importantly, Whitman points out the major flaws in the individual mandate proposal – it would not work (people will still refuse to buy health insurance), and it will make the problem worse by driving costs even higher.

Even now, every state has a list of benefits that any health-insurance policy must cover – from contraception to psychotherapy to chiropractic to hair transplants. All states together have created nearly 1,900 mandated benefits. Of course, more generous benefits make insurance more expensive. A 2007 study estimates existing mandates boost premiums by more than 20%.

If interest groups have found it worthwhile to lobby 50 state legislatures for laws affecting only voluntarily purchased insurance policies, they will surely redouble their efforts to affect the contents of a federally mandated insurance plan. Consequently, even more people will find themselves unable to afford insurance. Others will buy insurance, but only via public subsidies. Isn’t that just what the doctor didn’t order?

His prescription for incremental policy reform strikes me as being pretty sound, as the fundamental shift that needs to be made in health care insurance is away from first dollar coverage, low deductibles and copays, etc. and toward catastrophic insurance. First dollar coverage has proven to distort if not destroy any semblance of financial responsibility on both sides of the health care transaction, and is one of the primary drivers of high costs. Catastrophic coverage fulfils the true function of insurance – protection against risks you can not afford – without creating the disastrously misaligned incentives that our current system has.

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