A City of Two Tales - - Which One Prevails?

BOSTON - - In yesterday's Kaiser Daily Health Policy Report two columnists offered conflicting assessments of the state of Massachusetts.

In the first, Austin Frakt of Boston University's School of Public Health trumpeted the happy news that "the individual mandate requiring state residents to buy health insurance is working." He hopes that will give national reform advocates some confidence.

In the second, Grace-Marie Turner of the Galen Institute says "[i]f Massachusetts is a harbinger - - and all evidence indicates it is - - the new federal health overhaul legislation is headed for serious trouble."

You might be inclined to say, as if to children, "You can't both be right." But I think they are, though not to the same end.

Frakt's argument is quickly exposed as a farcical case of bootstrapping. He first asks "what does it mean for the mandate to 'work'?" He points out that the purpose of the individual mandate is to prevent adverse selection (which is true). And then answers his initial question by saying "the individual mandate is working because it is preventing a destabilizing level of adverse selection."

Adverse selection is when someone waits to buy insurance until they need it, and then drops it when they don't. When the government orders health insurers to issue policies to all buyers whenever and wherever they appear, people will stop buying insurance when they don't need it. (Which is, by the way, an entirely rational economic decision.) Frakt's solution, therefore, is for the government to further order people to buy health insurance even when they don't need it, thereby "solving" the problem which the government itself created to begin with.

That's a twisted definition of a "working" law if ever I saw one.

Turner, in stark contrast, looks at the big picture. Adverse selection is indeed occurring, she says (and as even Frakt admits), and it adds a point or so to premiums. Increased coverage has fueled increased demand for care, she points out, which is pushing up costs. Decreased availability of primary care has led to subsequent increased use of emergency facilities as a substitute, she says, pushing up costs even further. Because of the purchase mandate, providers have found their bargaining positions with insurers much improved, pushing up costs.

All of these cost increases translate (rather predictably, actually) into higher premiums. She sites a study from Stanford which found that since Massachusett's health insurance reforms were initiated, "premiums for private employer-sponsored health insurance in Massachusetts increased by an additional six percent in aggregate compared to the nation as a whole." And, she adds, "[i]t's even worse for smaller firms: Their health insurance costs grew 14 percent more than in the country as a whole from 2006 to 2008." Smaller firms have begun dropping coverage, relying instead on publicly-funded insurance for their employees.

I've seen no analysis that explains how or why federal reform should be different.

So yes, Frakt is right that a purchase mandate "works" to prevent adverse selection from completely destabilizing the market. Imagine for a moment you are on a plane, plummeting to the ground. As the oxygen masks deploy you put yours on and find that indeed it is "working." Take such "confidence" from that as you will.