Unterreiner: Obamacare lacks essential features

July 19, 2012, 1:01 a.m.

Unterreiner: Obamacare lacks essential featuresWith the vast majority of the Affordable Care Act upheld by the Supreme Court, Obamacare — or what Paul Begala justly called “a policy conceived by the Heritage Foundation, midwifed by Newt Gingrich, raised by Mitt Romney, and then adopted in adulthood by Barack Obama” — is set to become the law of the land.

That is largely a positive development: for the tens of millions of previously uninsured Americans who will now have access to a physician, for health insurance companies granted millions of new customers and for an America whose care outcomes have persistently ranked last among developed-world nations.

But more can be done. To curb skyrocketing costs — already twice as high as those in other developed countries — policymakers should remove damaging restrictions on incentivizing healthy behavior by health care consumers and allow insurance companies to price-discriminate based on lifestyle choices.

Health insurance is in this regard a uniquely restricted market. Car insurance companies, for instance, are allowed (as they should be) to charge unsafe drivers more for car insurance. You cause a crash, your premiums go up. Life insurance companies, meanwhile, are allowed to charge people who smoke and older, unhealthier customers more for end-of-life insurance policies.

This all makes intuitive sense. There is no reason why people who drive safely or don’t smoke should be forced to subsidize the poor choices of other people by paying equal prices for these kinds of insurance. And they’re not.

Health insurance, however, is different. As Jon Stewart noted in a segment last November, national lawmakers struck down Pennsylvania Rep. Kathleen Dahlkemper’s HR 3472, which would have “given people a financial incentive to make health improvements” by “allowing health insurance companies to raise or lower premiums based on blood pressure, smoking status, cholesterol levels, body weight, or blood glucose control.”

Many health insurance companies have proposed offering lower prices to people who join gyms, lose weight, join a running club or meet a certain set of medically determined health standards — all activities that have been shown to improve health, lower the incidence of chronic disease and reduce the need for expensive after-the-fact care (the carrot). Others have proposed charging smokers, overeaters and the sedentary more, both to cover company costs and to provide negative incentives to improve personal health (the stick).

Under current law, however, many of these options are off the table. That should change, on both grounds of efficiency and grounds of fairness.

First, a market in which insurance companies are allowed to price-discriminate would reduce health care costs by incentivizing behaviors proven to reduce the incidence of disease, much as road safety is improved by incentivizing drivers not to crash. (Our current health care market is more akin to a world in which everyone pays the same flat rate to fix everyone else’s cars when they crash, regardless of our own driving quality — a world that would be neither efficient nor fair.) In an America far unhealthier and more obese than most European countries, and an America that spends outlandishly on health care while achieving discouragingly poor outcomes, such cost-cutting would go a long way.

Second, regardless of overall market efficiency, it is unjust to force consumers who consciously take care of themselves to subsidize the poor health choices of other consumers by paying the same rate for far less expected care. Genetic or congenital problems, of course, are a different matter and should be covered by the state (or by private insurance operating under a mandate from the state).

All of these changes should also be coupled with healthy eating programs and food vouchers for kids who have limited access to high-quality meals, a reduction in cuts to physical education programs in schools and incentives for employers to offer employees exercise options before, during or after work. Not everyone currently has the same opportunity to stay healthy, and we should strive to create a level playing field for all.

James Madison famously observed in “Federalist No. 51” that “if men were angels, no government would be necessary” — in other words, that no higher power is required to govern the decisions of perfect men. Quite nearly the same could be said of health care: perfectly healthy citizens need no doctors.

No extension of coverage — although it is a huge step in the right direction — can be fiscally sustainable in a society that is permanently sick, overweight and sedentary. What we need now is a system that incentivizes preventative, healthy choices — a system that encourages us to become the gym-class versions of James Madison’s angels.

Email Miles your views on Obamacare at milesu1 “at” stanford “dot” edu.

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