High-Risk Pools v. Community Rating and the Individual Mandate

Here’s a little intra-mural squabble that I haven’t gotten into much on this site: Is support for an individual insurance mandate compatible with consumer-driven health care? I’ve periodically linked to Who Killed Health Care?, a book by Regina Herzlinger, a fellow at the Manhattan Institute and professor at the Harvard Business School. It does a great job of laying out how health insurance companies, Congress, hospitals, employers, and academics have wrecked havoc on our health. I also liked its business-oriented solutions such as an emphasis on “focused factories” for health care and five-year contracts for insurance.

Though the Manhattan Institute website says Herzlinger is known as the “Godmother of Consumer-Driven Health Care,” a term embraced by many analysts of conservative or libertarian leanings, she makes some significant departures from commonly held positions. In a recent book review of The Top Ten Myths of American Health Care (PDF) by Sally Pipes of the Pacific Research Institute, Herzlinger makes that point clear.

Though Herzlinger has high praise for Pipes, she adds this:

But here is where Sally Pipes and I part company. Absent community rates (charging everyone the same regardless of age or health status), I do not see how sick consumers will be able to afford the purchase of health insurance (as she notes, they account for about 80% of health care costs). And absent government mandated universal coverage, community rates will be absurdly high because only the sick will enroll. Although she does not discuss this problem, the typical Republican solution of government-funded high risk pools for the sick means their care will be overseen by the very government whose competence she has so effectively skewered.

By this light, there will be massive government involvement in any case. So which will it be: Regulations of a high-risk pool that enroll only a small number of people (perhaps aided by general tax revenues), or an individual mandate and community rating? The high-risk pool approach affects only a few people; individual mandates and community rating affect everyone. High-risk pools bring about yet another government bureaucracy and stream of government spending; individual mandates, on the other hand, take government into new philosophical territory by imposing a tax simply for living.

Given the choice, I’d prefer to have general subsidies for a high-risk pool. Then again, if the idea of health status insurance takes off, we may not have to choose between these two alternatives.

(The review is in the Winter 2010 edition of the Claremont Review of Books.)

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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