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The “moral imperative” of providing “more affordable options” to the uninsured

On June 11, in Green Bay Wisconsin, President Obama announced, “We must also provide Americans who can’t afford health insurance with more affordable options.” He went on to declare this “a moral imperative.” Moral imperative is a much overused term by politicians these days and any cynicism that arises as soon as we hear these words is certainly justified.  Cynicism put aside, though, in this instance it is appropriate, although for reasons not immediately apparent to most, possibly even to President Obama.

 

Having health insurance today is not what it was like in the 1950s and 60s. Then, health insurance actually shared the medical risks of all those insured by an insurance company. This was called community rating. Health insurance indemnified those risks so that if someone in that group got sick, other than the deductible, all other medical expenses were paid and the costs were shared among the entire group.  Unlike today where medical charges were paid at a discounted rate, back then they were paid at the usual, customary and reasonable rate. Indeed, there were other out-of-pocket costs for insured people because insurance benefits were not as comprehensive as they were now.  Major medical coverage paid for exactly what its name implied, coverage for major medical problems usually requiring hospitalizations. Patients, not insurances, paid for routine physical exams and minor illnesses. Doctors charged whatever they wanted; however, their fees were governed by forces in the marketplace, and people, not insurance companies, decided with whom they would do business based on what they wanted to spend.  Once they decided,  that person paid the same price for this doctor’s services as everyone else, whether or not he or she had insurance.  Insurance was not a factor. In fact, if you were hospitalized in those days and had no insurance at all, most hospitals discounted your cost according to your annual income. 

 

This marketplace did not come about by an act of Congress or previous efforts to reform health care.  Instead, it arose from the marketplace, itself, as a matter of self regulation. Sure, it was better to have insurance than not back then; however, if you did not, for whatever reasons caused you not to, you were treated no differently and were actually cut some slack.  So that hospitals could continue offering discounts to the uninsured, they padded their charges and a aspirin might cost $5, but insurances paid these bills.  Philanthropic contributions to hospitals sustained the ability to offer discounts.  Also. in the late 1940s,  Congress passed the Hill Burton Act that provided funds to hospitals to assist them in  the uncompensated care of the uninsured for this same reason.  These and more provided the more affordable options for the uninsured back then that are missing in today's marketplace. They are forgotten facts of history by many in Congress and, probably, the President as well.

 

The marketplace changed for a variety of reasons, not the least of which was that insurance companies began to compete with each other. Their customers were employers who were encouraged to establish their own self-insurance plans to cut their costs.  Why should employers share risks with all the elderly and sick in the entire community when they can set premiums based on the experience of a much smaller healthier group, only those covered in their own health plan?   This was called experience rating and it replaced community rating. It did cut costs, at least for a time.  Employers were  also offered ever expanding covered benefits until virtually all medical services were now paid by insurance. These were marketing strategies and they worked because they appealed to a human failing in all consumers, namely, to get something for nothing. When someone gets something for nothing, someone always pays.  So, when employees began to use all those benefits or when one developed a critical illness, employers were faced with higher premium.  Doctors were also offered something for nothing and they, too, paid. Insurance companies lured doctors on board as vendors by offering them as many patients as they could handle if they only discounted their services. They could always make up the discounts by volume. What resulted is our present marketplace.

 

In it, employers are always shopping around for cheaper insurances or expecting employees to share more of their health costs. If you have insurance and need to see a doctor, you will probably wait in the crowded waiting room  of a doctor who struggles to make ends meet by seeing more and more patients because of ever increasing discounts, now called allowable reimbursements. If you do not have insurance and need to see a doctor, you will wait too, but, unlike the bye gone days,  you will not pay the same price. People with insurance get the discount; you pay in full. Make no mistake of this, the economics that set the full price of an item always adjusts the full price upward to offset the cost of discounts and sale prices. This applies not just to retail but to all marketplaces including health care. When insurance benefits, such as doctor visits, hospitalizations, prescription drugs or anything else,  are paid at a discount, the uninsured always pays the full price, the full price is always higher to offset discounts and the uninsured are the only ones who pay it.   

 

This is unlike the way business is done in any other marketplace in the United States.  Imagine if that marketplace was the housing market or the mortgage market and some people, for totally arbitrary reasons, were made to pay more than everyone else. This is fundamentally immoral. Yet, it is essentially no different when an uninsured person pays more money for the same services and medications than an insurance company pays just because it represents a class of people who have insurance.  

 

Whether President Obama undersands it this way or just uses "a moral imperative" as a convenient political sound bite remains to be seen.  However,  this is the reason why providing more affordable options to the uninsured is truly a moral imperative.  The old marketplace  fulfilled the moral imperative of  more affordable options  for the uninsured and avoided the discrimination that exists today.  This present marketplace, however, was so top heavy  in favor of insurance that you needed insurance just to be treated fairly. There were indeed more affordable options possible.  Reset the marketplace to its default position of 50 years ago was one. Provide insurance to everyone was another.  Of course there was a third option, probably the best; do both.