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35 IRET Congressional Advisory 1 (1994)

handle is hein.taxfoundation/iretcgadv0034 and id is 1 raw text is: Advsory July 5, 1994 No. 35 BOB DOLE'S BILL - BETTER BUT STILL BAD Senator Dole has introduced a health care reform proposal that avoids the job-crushing Clinton and Congressional Democratic mistakes of employer mandates and payroll tax hikes. The Dole bill also avoids the stick of individual mandates, providing instead a carrot in the form of low income subsidies to induce people to buy insurance. Nonetheless, there are mandates in the Dole bill that would dictate the design and the premiums of the policies that insurance companies could offer that will limit consumer choice and raise the cost of health insurance for most people. The real issues of health care reform should be 1) how to assist the poor who cannot afford ordinary coverage or fees for preexisting conditions, and 2) how to fix the problems with the insurance market created by the tax bias in favor of employer- provided third-party-payor health care, such as lack of portability and over-consumption of medical services. Throughout the entire debate on health care reform, Washington has consistently mis-identified the issue as 1) helping sick people, regardless of income, bear even less of the cost of their health care and insurance than they do now, and 2) of finding some mechanism for stopping the resulting rise in health care costs confronting the federal budget. The Dole bill is no exception. While avoiding taxes and business mandates, it imposes insurance mandates similar to those imposed in all the other proposals with respect to pre-existing conditions, portability, and (modified) community rating. Furthermore, Dole's medical saving account proposal is ineffective and unworkable, and will do little or nothing to curb the over-consumption induced by over-generous employer-based plans. Modified community rating is off-budget welfare for the sick, whether they need it or not. Forcing insurance companies to eliminate (community rating) or restrict (modified community rating) the risk differential in premiums for people of different ages or health status results in transfers from the young and/or healthy to the old and/or sick. If insurers have to give the under-charged high risk policyholders a partial free ride, they have to raise premiums above the actuarially correct amounts for their other policyholders. The latter, getting a bad deal, then tend to cancel their coverage, unless they are required by law to buy it. Guaranteed renewal without a rate increase regardless of developing conditions is akin to forcing insurance companies to offer only multi-year policies at a fixed premium. Since the chances of getting a serious or chronic illness are higher over several years than over one, the average annual premium for such a policy must be higher than for single year policies with periodic rate adjustments for new conditions. In other words, people who formerly bore some of the cost of their illnesses through higher premiums in the years after they became ill will now be covered by the insurance, which means that premiums must be higher in all years for all members of the pool. People could have demanded such policies from insurers in the past, but they chose not to. Why should the government make them the only policies that can be sold? The real issue with respect to preexisting conditions is not whether insurers will provide coverage for people with preexisting conditions but Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N.W., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

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