By Tom Curry National affairs writer
updated 8/11/2009 11:13:33 AM ET 2009-08-11T15:13:33

Both those Americans who can’t afford to buy health insurance and those who have decided to get by without it will face the same order from congressional Democrats as they prepare legislation to overhaul health care: buy health insurance. And if they can’t afford the coverage,taxpayers will help them pay for it.

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The reform bills offered by both Senate and House Democrats would impose an individual mandate — a requirement that everyone obtain health insurance. Taxpayer-provided subsidies would go to lower-income Americans if they could not afford to purchase it.

The Senate health committee’s draft bill would require all legal residents of the United States to have insurance and would penalize people who did not obtain insurance, except those with incomes below about $16,250. The House Democrats’ bill has a similar provision.

In the most recent Census estimate, published last August, nearly 46 million people, or about 15 percent of the population, were without health insurance in 2007.

That number has risen during the recession as people have been laid off and lost their employer-sponsored health coverage.

The national unemployment rate has risen from 5.6 percent in June of 2008 to 9.5 percent last month. A study done by the Kaiser Commission on Medicaid and the Uninsured estimates that for every one percentage point increase in the unemployment rate, there’s a 0.59 percent increase in the percentage of uninsured adults.

A 10 percent unemployment rate would equate to 5.8 million additional people being uninsured, according to the Kaiser study.

One reason that the topic of the uninsured has loomed large in the current debate, economists say, is that enrolling the healthy uninsured can improve insurance risk pooling and may help control costs over time.

“One of the goals of health reform is to create broader-based risk pools,” said health care economist Linda Blumberg, a former advisor to President Bill Clinton who is now at the non-partisan Urban Institute in Washington. “The more healthy people that we can bring in, the lower will be the average cost in that risk pool.”

Seeking a mix of risks
She explained, “If we just open the pool and don’t require everybody to come in, then we’re making it a high-risk pool. The only people who are going to end up in that pool are going to be the sick. To make those pools sustainable over time we need a mix of risks — we need both the sick and the healthy in.”

If Congress imposes an individual mandate, she said, “you’re bringing in higher-income people who aren’t going to be subsidized and you’re bringing in the people who are healthier and didn’t expect to use medical care.”

There’s more than one risk pool: the uninsured would be buying insurance in the individual market, the small-business market, or through a new “health insurance exchange,” a federally regulated Web-based marketplace similar to a travel Web site such as Orbitz.

Paul Fronstin at the Employment Benefit Research Institute, a nonpartisan research group in Washington, said, “To some degree, requiring the (healthy) uninsured to have coverage is simply bringing them into the system to cross-subsidize the people that already have coverage.”

Bringing in the healthy uninsured will reduce the average cost of care, Fronstin said, “because you’ve brought in more people in paying, but not necessarily more people using health care.”

He added, “We’re assuming that this (uninsured) population is healthier on average than the general population. We know that because they are younger on average than the overall population.”

According to the Kaiser Commission, nearly one-third of the uninsured in 2007 were between ages 19 and 29 and another 42 percent were between ages 30 and 54.

An essential element of the Democrats' proposals is “guaranteed issue” — a requirement that insurers not turn away people who are sickly and have high medical costs.

Who's who in the health care debate“It’s a package deal,” Fronstin said. “You can’t have an individual mandate without guaranteed issue — and you can’t have guaranteed issue without an individual mandate. If we’re going to require insurance companies to sell people insurance independent of their health status, then everyone has to be in the system. Otherwise people are going to wait until they get sick to buy health care.”

During last year's presidential campaign, President Barack Obama supported mandating coverage for children, but not for adults.

But in a June 2 letter to Sen. Edward Kennedy, D- Mass., the chairman of the Senate health committee, and Sen. Max Baucus, D- Montana, chairman of the Senate Finance Committee, the president signaled his openness to an individual mandate: "I understand the Committees are moving towards a principle of shared responsibility — making every American responsible for having health insurance coverage, and asking that employers share in the cost."

The way to make certain that uninsured people obtain insurance is a combination of incentives — subsidies for the low-income uninsured — and financial penalties for more affluent uninsured who try to get by without insurance.

And what about lower-income and middle-income people who are currently struggling to keep paying their health insurance premiums? “You can’t just subsidize the uninsured because that would create real inequities,” said Blumberg. “You don’t want to penalize the people who are sacrificing to buy health insurance.”

Cost of subsidies: $700 billion
This will be a costly proposition: the Senate health committee bill calls for more than $700 billion in taxpayer subsidies over 10 years to help low-income people buy insurance.

And then there are those who could buy insurance but prefer not to. The task for Congress will be to devise penalties that prod these people into becoming paying members of a risk pool.

As Fronstin and Murray Ross of the Kaiser Permanente Institute for Health Policy said in a recent analysis: “While there is considerable reluctance to criminalize being uninsured, having only token financial penalties would miss the point.”

Fronstin said, “The crucial difficulty is finding that financial penalty sweet spot. If it’s too low, then you’re going to have a lot of people who just pay the penalty.”

Timeline: Health care highs and lowsSince neither the House nor the Senate has debated legislation yet, many of these important details remain unknown.

“You want to see what the penalty is. You want to see what the rules are regarding subsidies for the low-income. You want to see what actually qualifies as a health plan. And some of these details may not actually be in the bill,” Fronstin said.

Congress is likely to leave some of nitty-gritty to the secretary of Health and Human Services.

The House Democrats’ bill gives broad authority to a new Health Choices Commissioner who would oversee the health insurance exchanges and the system of subsidies for low-income people.

Higher spending in the short run
One thing seems certain: even though the dominant theme of the debate so far has been the need to achieve cost savings, insuring the uninsured isn’t a cost savings measure, at least not in the short run.

If an individual mandate became law, there would be higher — not lower — national health care spending, at least initially, said MIT health care economist Jonathan Gruber. “Higher for sure in the short run,” Gruber said. “If you newly cover 47 million folks, costs are going to go up.  But hopefully this can lower costs in the long run” as people use medical care more efficiently.

Blumberg agrees with Gruber. “If everybody is in the system, at least in the near term, we are going to see an increase in national health spending,” she said.

That’s because, she said, “there are a lot of people who are currently not getting the care that they need. Once they are brought into the system, at least in the early years, health care costs are going to go up.”

But, she added, the hope is that cost-containment efforts will lead to lower spending than if reform hadn’t been done.

The forces driving the constant increase in America’s health care spending are not primarily the cost of uncompensated care for the uninsured, said Gruber. Uncompensated medical care of the uninsured amounts to an estimated $57 billion a year — equivalent to about 2.6 percent of the $2.2 trillion in annual health care expenditures.

The hoped-for cost savings will need to be found in the way America pays for all who get medical care, not just the uninsured.

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