Consider these two scenarios.

What if the Supreme Court:

1). Strikes down the requirement that everyone buy insurance, or pay a penalty (a.k.a. “the individual mandate”), but leaves in place the rule that insurers are required to insure everyone — including those who are suffering from a preexisting condition?

or 2). Throws out both the individual mandate and the provision which says that insurers cannot either deny coverage , or charge higher premiums, if someone is already sick?

Begin with the first scenario: you are not forced to buy insurance, but when you get sick, insurers will be forced to cover you, charging the same rates they charge healthy people in your community (a.k.a. “community rating”).

What would happen?

History suggests that some insurers would simply get out of the business, and those that stayed would lift premiums to unaffordable heights. The Center for American Progress reports on the results in eight states that passed “community rating laws,” without imposing a mandate that everyone purchase coverage:

Kentucky: Forty insurers left Kentucky’s market by some estimates, and only two remained before the law was repealed.

Maine: Thirteen of Maine’s 18 major insurance carriers stopped issuing new individual policies. Many also doubled their premiums.

New Hampshire: New Hampshire’s insurance law left it with nearly no carriers in its individual insurance market.The state enacted an emergency tax to compensate insurers for the costs of the law, which was repealed in 2002

New Jersey: Premiums rose as much as 350 percent in New Jersey after its pre-existing conditions law took effect. Even HMO plans, which tend to resist premium increases, nearly doubled in price]

New York: The percentage of nonelderly New Yorkers without insurance grew 21 percent, with premiums increasing as much as 40 percent per year.

Vermont: Vermont fared better than other states with similar laws, but its premiums spiked an average of 16 percent in two years.

Washington: Non-managed care options disappeared entirely from Washington’s individual market. Eventually, entire counties had no private individual insurance options at all.

In other words, some insures either fled or stopped selling new policies, while those who stayed hiked premiums to reflect the cost of caring for an insurance pool filled with sick or disabled patients. (Without a mandate, many healthy patients are inclined to stay out of the pool until they fall ill.)]

Keep in mind that, even with an individual mandate, the insurance industry, as we know it, is not likely to survive another decade. Not long ago, Aetna CEO Mark Bertolini startled an audience at a Las Vegas conference by declaring that, for all purposes, the industry is a dinosaur on the verge of extinction.

And he wasn’t just poor-mouthing, says one of the industry’s sharpest and most knowledgeable critics, Wendell Potter, a former insurance executive turned whistle-blower. Is it “Time to sing, ‘Ding dong the witch is dead’”? asks Potter. “Not quite, but the day when most Americans get their coverage from what we think of as an insurance company is close at hand. It won’t be long before most of us get coverage through either a state or federal government-run plan or a local nonprofit company. The big investor-owned corporations like Aetna and the companies I used to work for, Cigna and Humana, know that the days of making a killing off of basic medical insurance policies are over. While Bertolini was by no means predicting that Aetna and its competitors were about to close their doors and get the hell out of our lives, he most certainly sounded the death knell for the standard business model insurers have followed for many years — actually insuring people.”

“’The system doesn’t work. It’s broke today,’ Bertolini said. ‘The end of insurance companies, the way we’ve run the business in the past, is here.”

A combination of Wall Street’s demands for big profits combined with the spiraling cost care has caused insurers to raise premiums to a point that insurance has become all but unaffordable for more and more individuals and small companies. Large employers are self-insuring and paying insurance companies only to administer their plans. Insurers know that if they keep on lifting premiums, they will only lose more customers. Meanwhile, the underlying cost of drugs, procedures, hospital care and doctors’ visits continues to climb.

In a recent New York Times Op-ed Ezekiel Emanuel and Jeffrey Liebman, both former advisers to the Obama administration, agreed that the demise of the industry is drawing near: “By 2020,” they write, “the American health insurance industry will be extinct. Insurance companies will be replaced by accountable care organizations — groups of doctors, hospitals and other health care providers who come together to provide the full range of medical care for patients.”

And that, Bertolini, Emanuel and Liebman say, is what will happen if the health reform legislation remains intact, and the individual mandate stands. Even then, over time, the insurance industry will wither away. This suggests that if the mandate is repealed, but community rating remains the law, the industry won’t gradually disappear: it could crash and burn.

In that case, anyone who is not protected by a large, generous employer who self-insures will be hard-pressed to find affordable insurance. Presumably, the subsidies for lower-income and middle-income Americans embedded in the health reform legislation would remain, but would they be rich enough to cover the new pricing? Probably not.

A More Optimistic View –Even if the Court Nixes the Individual Mandate, There are Remedies . . .

–Let People Opt Out of Insurance. Paul Starr, author of The Social Transformation of Social Medicine, has suggested that we let individuals opt out of the new insurance system, without a penalty, by signing a form on their tax return acknowledging that they would then be ineligible for federal health insurance subsidies for a fixed period — say, five years. http://www.nytimes.com/2010/03/04/opinion/04starr.html “During that time, if they had second thoughts and decided to buy health insurance, they would have no guarantee that they could find a policy or that it would cover pre-existing conditions. In other words, they would face a market much like the one that exists now,” he writes. “And while that’s hardly a desirable position to be in, they would have made the decision themselves, and the option to step outside the system would relieve Republican concerns about government mandates.”

I greatly admire Starr. If you want to understand what went wrong with our health care system, read his book. But if we tried his solution, what would happen to the children of those who decided to opt out? In our society, we would not turn our backs on them, even if their parents could not afford to buy insurance when they needed it. The children would receive care. Presumably, if the parents were in a car accident, or diagnosed with cancer, they, too, would be hospitalized and cared for, even if they couldn’t scrape together to money to purchase insurance. In other words, you and I would wind up covering them, and “free-ridership” would be alive and well.
Moreover, we need the premiums from the healthy, younger Americans who would be most likely to sign the opt-out clause. Without their dollars we won’t have the funds that we need to subsidize the care of sicker, poorer, and older Americans. To fund universal coverage, we need those premium dollars today, not twenty years from how. Eventually, (perhaps sooner rather than later, depending on the accidents of fate), the young and healthy will become sicker and older, and will find themselves on the receiving end of the subsidies. At some point, we all die, and getting off this planet tends to be expensive. In effect, healthy Americans would be setting aside money to pay for their future care. This is how insurance works.

This idea is appealing: carrots instead of sticks. It sounds like an easy way to persuade healthy people to jump into the pool. .As economist Mark Paul explained to Ezra Klein in a 2011 interview: “My fix would be to simply say raise everyone’s taxes by what a health insurance policy would cost — Congress definitely has the power to do that — and then tell people that if they obtain insurance, they’ll get a tax break of the same amount. So instead of a penalty, it’s a perfectly legal tax break.” http://voices.washingtonpost.com/ezra-klein/2011/02/an_interview_with_mark_pauly_t.html

Pauly, Klein explains, can be seen as the “father of the individual mandate.” Back in 1991, “he was the lead author of a Health Affairs paper attempting to persuade President George H.W. Bush and his administration to adopt a universal health-care proposal that would keep the government from eventually taking over the sector. ‘Our view is that excessive government intervention will make matters worse,’ wrote Pauly and his co-authors. ‘Our strategy, therefore, is to design a scheme that limits governmental rules and incentives to the extent necessary to achieve the objectives.’ At the heart of that strategy was the individual mandate,” Klein adds, “which would go on to be promoted by congressional Republicans, the Heritage Foundation, and Massachusetts Gov. Mitt Romney before being adopted by Democrats and becoming a bete noire of conservatives.”

It sounds like a perfectly reasonable proposal.

But here’s the catch. In order to generate the revenues needed to pay for the credit, Congress would have to raise taxes, or cut services. Given the stalemate in Washington, do you see legislators crossing the aisle to agree to a compromise that would do one or both? Even after the election in the fall, when no doubt voters will throw out some of the die-hards, it seems unlikely that liberals and conservatives will join hands. I hope I am wrong, but I suspect it will take at least two to four years before we have a working Congress.

In part 2 of this post, I will consider what will happen if both the individual mandate and the rule requiring insurers to take all applicants disappear.

For some of us, this is not the worst-case scenario. Premiums would not rise as rapidly. And some suggest, we could insist that the uninsured pay for their own care at point of service. In that way we could eliminate the “free rider” problem.
Meanwhile, reform would continue to move forward in ways that could lift the quality and lower the cost of health care in America. Some of the very best ideas in the Patient Protection and Affordable Care Act would remain in place. Those who believe in reform should not despair. .

I agree. But millions would remain uninsured. They be the big losers. And, in the end, all of us would wind up paying for their care, even if what they received was too little, too late, and exorbitantly expensive.

Finally, in part 2, I will ask: if the Court decides that the Affordable Care Act is unconstitutional, why not move directly to a single-payer system? While some question whether the constitution can force Americans to buy a product sold by private sector companies, we know that it is constitutional to ask everyone to pay a tax to support government health care. We call it Medicare.

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54 Responses for “What If the Supreme Court …”

  1. DeterminedMD says:

    Are you afraid to ask right now what if that they throw out the whole PPACA legislation and tell the politicians to go back and redraft legislation that takes into consideration what both sides of the political aisle offer?

    What, would that make you irrelevant to the conversation at that point?

    I’m really honestly curious, if you got your universal health care option put into motion, could you face a person able to access dialysis, or be on novel anticancer drugs, or hey, the parents of a child born with a congenital defect that will require years of corrective care, and tell any and all of these patients/family they would only be able to get the standards of care set by that IPAB group who have to watch the costs?

    Not that such a scenario shouldn’t happen with what is now, but, you want to implement something that will have greater consequences than what is in place prior to PPACA.

    Yeah, gotta break this presentation down into 2 parts. Why what is wrong to have to consider should be reconsidered, and then how we could go from bad to worse, but the party will prevail in the end. Can’t wait to read part 2!

  2. BobbyG says:

    “And some suggest, we could insist that the uninsured pay for their own care at point of service. In that way we could eliminate the “free rider” problem.”
    __

    Scalia raised precisely that argument. And, Ron Paul, recall, got wild GOP “debate” applause for arguing that the gravely ill or injured be allowed to die curbside at the ER show they show up unable to pay.

  3. John Ballard says:

    Maggie, I’m impressed with Paul Starr’s suggestion. It seems like as good a method as any to allow ordinary people to take their chances with health care insurance. It reminds me of how my wife and I, now living in a house we bought new about seven years ago, did what lots of people do and say they shouldn’t (like losing weight or stopping the use of tobacco), we postponed getting termite protection. Well, you know the rest of the story. One unseasonably warm and sunny day a couple of weeks ago they swarmed, that happy little colony at the edge of our garage slab, so now we have those little holes drilled where they put in the chemicals and our house is encircled by bait stations.

    I think I’ve made a point. Those bait stations are the home owners equivalent of insurance, but the holes in the slab and damaged studs behind the walls, are the equivalent of disease or injury. Fortunately we didn’t suffer fire or hurricane damage, the equivalent of cancer. But that’s why we carry insurance against those events. I suppose this is an argument in favor of high-deductible health insurance policies.

    In case you have the time to look at it, I just posted a comment in another thread, inspired by a self-confessed Social Darwinist. The last day or two have been reflective times for me and my ideas are still evolving.

    http://thehealthcareblog.com/blog/2012/03/30/the-what-ifs/comment-page-1/#comment-196905

  4. John Ballard says:

    Your mention of the Washington state example where “entire counties had no private individual insurance options at all” made me wonder — what if the mandate to purchase is upheld and no one offers the product? Period. In light of your examples, that is not a far-fetched possibility.

    In that event would Congress then tell the insurance industry players they were obliged to furnish health care insurance anyway? I can hear the screams just thinking about it. Complaints about furnishing complimentary contraception would seem like a spring rain.

  5. Maggie Mahar says:

    Determined MD-

    Hank Aaron has already done a very good job addressing what would happen if Congress repealed the entire law. Please see his post.

    • DeterminedMD says:

      Sorry, this reference does not ring any bells for me outside the name Hank Aaron is a former baseball player who hit a lot of home runs. You however, have not even gotten to the warning track with any of your posts at this site at least. Come on, Ms Mahar, a little candor for the masses, if you have any intestinal fortitude? This legislation may have some good intent, but it has bad as well. Good legislation, pardon the term, does not do the public well batting 500 at best. In baseball, hitting 3 out of ten may get you consideration to the hall of fame, but, getting half of what the public needs shouldn’t get you reconsideration for another term in office.

      And Democrats aren’t even half the voting public these days. In fact, as I last see the polls, Independents may not be a majority, but, we are probably the sizeable majority of voters in this country. You want to win us over as a voting block, try thinking what is best for the majority of the citizens of this country, not the majority of partisan incompetents who only think about themselves and their cronies.

      Umm, didn’t the election of 2006 show the Republicans that they were irrelevant at that point? It only took your party four years later to learn the same lesson? If my peers as independents are thinking like I am, we are going to continue to vote for the party not in power every 2 years to screw up your party plans until your real one party system of Republocrats either start acting as representatives, or, start looking for other type of work besides being politicians.

      Oh, and a message to anyone who blindly supports incumbents come November, if there is a god, he/she will not be voting incumbent if the world is to really change, and have hope.

      God bless and have a nice evening!

  6. Maggie Mahar says:

    John–
    The difference between your story and what would happen if people were able to opt out of health insurance is that the rest of us don’t have to
    pay for the little holes that now encircle your property. And if you had been hit by a fire or hurrican and hadn’t purchased home i nsurance, we wouldn’t have to rebuild your home.

    But if your child was diagnosed was cancer, if your wife or daughter unexpectedly became pregnant, or you were in an auto accident, we wouldn’t let any of you die on the sidewalk outside the hospital. We would feel obliged to pay for your care–even though it probably wouldn’t be the best care.

    • John Ballard says:

      Good point. It’s too bad there is so much animus against federalism. One straightforward remedy would be to handle high-cost medical claims in the same way that high-risk flood insurance is covered. Most people don’t know it but that program is not underwritten by the companies that sell it but by the federal government.
      (Again, I hear the screams… Ron Paul supporters and Libertarians, calm down, please.)

      I’m sure someone in the insurance business is more informed that me, but I think that’s how the people along rivers that continue to flood from time to time continue to rebuild their destroyed homes, knowing that future flooding is not only possible but probable.

      I can imagine a “national high-cost medical insurance” available for anyone faced with expenses past some threshold, supported by a Medicare or SS type surtax on income, which would enable the insurance industry to offer more competitive rates for garden-variety policies.

      Just thinking out loud…

      Better rates might also result if that “defensive medicine” part could somehow be channeled into the liability pools instead of insurance for health care. It would also help physicians who are pretty sure of a diagnosis go ahead and flag costs for future tests as “Liability Protection Items” that would be charged back to medical in the event their dx proved wrong.

      • steve says:

        I am not aware of any animus towards federalism in health care. The problem is that most states have not addressed health care, or have done so unsuccessfully, as illustrated above.

        Steve

        • John Ballard says:

          Federalism for politicians is the new third rail of politics. Conservatives and states rights advocates have succeeded in equating it with Socialism and as a result Progressives are too frightened to bring it up. If you aren’t aware of any animus toward federalism now you will be be between now and November.

          Generally you’re right. Ordinary people really don’t worry about how laws or taxes originate as long as they have enough left to buy an occasional lottery ticket or eat fast food.

          • steve says:

            Could be. I dont generally read or correspond with the nutty left or right. Among those who write more seriously on health care, I think I can safely say that they wish the states had been making more of an effort to find what could work.

            Steve

      • Nate Ogden says:

        basically the government loses billions every year to pay people to rebuild in areas prone to flooding. Not uncommon for people to collect multiple times. The reason the government backs it is because it loses so much money.

        Also very regressive. The average value of the property replaced trends heavily to the rich. The poor basically pay for rich people to have ocean from mansions.

        Originally Medicare was suppose to be just such a plan, wont get into why it didn’t happen that way.

        Catastrophic reinsurance was part of PPACA for pre 65 retirees. Plan comes with many problems, fraud being one of them. Once claims get into reinsurance all spending restraint disappears.

        Reinsurance is a highly efficient and functioning market, that is not where our problems are. We need to fix the cost of care being insured. That accounts for 85%+ of spending. Saving 10% of the remaining 15% saves 1.5%. Saving 10% of claim payments saves 8.5%. Anything that doesn’t focus on provider payments is wasting time.

        This weekend I have been preparing for a meeting to decide if we want to go to war with a hospital. They argue they are the cheapest hospital in the area but still bill us 250-300% of cost. They want paid 200% of cost. That is where the problem is.Solve this and insurance instantly becomes affordable.

        • John Ballard says:

          The average value of the property replaced trends heavily to the rich. The poor basically pay for rich people to have ocean from mansions.

          Interesting.
          And true.
          Refreshing! You been reading from the OWS library?
          ~~~~~~~~~~~~~~~~~~~
          I’ve heard of reinsurance but don’t know what it really is. It sounds suspiciously like miniature credit default swaps. CDSs + securitized mortgages + derivatives = Meltdown of 2008.
          Scary stuff.
          Please tell me reinsurance is not like that. (Readers Digest version only if possible.)

          • Nate Ogden says:

            Simplest way of explaining it is insurance for insurance companies.

            Fully insured carriers use it to protect themselves from large claims, in this case it is also referred to a pooling charge. $70,000 or so is a common pooling point. It also helps stabilize a pool. If you have a $10,000,000 pool of business a million dollar claims alone would be 10% loss ratio. By reinsuring the risk and pooling claims over 70K then only the first 70K counts against the pool.

            In relation to this discussion it is important to remember 60% of group insured are in self funded plans. If your Wal Mart you can take 100% of the risk. They don’t always do that but that would be a discussion for the RD Special Edition. Smaller self funded plans protect themselves by buying reinsurance. A 500 life employer might cede risk over $250,000 while a 100 life employer would over 75K. Smaller groups can do all the way down to a $5000 limit.

            The Patient Protection and Affordable Care Act (PPACA) of 2010
            created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health
            benefits to retirees who are over age 55 and not yet eligible for the Medicare program. The program provides an 80 percent subsidy for retiree claims of between $15,000 and $90,000. Congress appropriated $5 billion for the program, which is effective June 1, 2010,

            The PPACA program reimbursed 85% of employers cost between 15K and 90K, they reinsured the employers.

            Reinsurance specific to healthcare is a highly competitive market with very low margins. While a state might have 3-4 fully insured carriers for groups with over 100 employees there would be 100 reinsurers. This is one reason self funded plans are so much more efficient then fully insured, there is very little “insurance” profit. There is also considerably less premium. The pooling charge at 70K can be around 10% of premium. And its expected that loss ratio is 80%. That means 2% of premium is going to insurance expense. It is important to remember self funded plans have other expenses so the 2% is not the net admin cost. Total admin of self funded is very low though.

          • Nate Ogden says:

            if you were a large self funded group without reinsurance your fixed cost would be around $40 PEPM. Assuming 2.6 members per employee the PMPM admin would be $15.38, the rest would all go to claims. Annually your looking at $190 out of $3500 going to admin. That is roughly 5.4% for admin and 94.6% going to claims.

          • John Ballard says:

            I think I got the gist of it. I had to look up PEPM (per employee per month). Thanks.

            When I read terms like “100 life employer” or 500 life employer” I guess it means the number of employees times the maximum coverage up to the point where someone dies. Kinda the health insurance equivalent of totaling out an automobile after an accident, right? (Although I heard last week a reference to “total replacement value” which is different from the depreciated amount of a car. No such thin]g, I’m sure, for people who die.)

            So how does all this puzzle together, if at all, with workers compensation and a company’s general liability insurance for someone who actually dies on the job? My chef and I were once victims of an armed robbery. Thankfully no one was hurt but I always wondered what if…??? In such a case would the health insurance life coverage get canceled by other insurance or would both pay the estate? (Estate! Ha! What an exaggerated word for what I’m leaving behind.)

          • Nate Ogden says:

            Sorry I forget to use common lingo sometimes.

            Correct PEPM is per employee per month
            PMPM is per member per month.

            This is important when comparing private insurance to Medicare. A 100 life employer refers to a company with 100 employees. Since those 100 employees cover family members the actual number of belly buttons on the plan is higher. An acceptable average is 2.6 which means every employee has 1.6 dependents.

            Number of employees is important in insurance as laws vary based upon that number. Employers with less then 20 lives, meaning 20 employees not 20 people covered, are secondary to Medicare for example. Medicare is primary for disability for groups with less then 100 employees. PPACA penalties apply to employers with less then 50 employees.

            This creates some unintended consequences as employers will not hire or will even lay someone off to stay under a certain limit.

            As you add more employee your risk gets more predictable. At 10,000 lives you have a stable pool and could do without reinsurance. At 10 employees you would not and thus would purchase a low reinsurance point.

            Worker comp for the most part is a completely separate risk. For decades people have tried to create a functioning 24 hour policy, one that covered by work illness/injury and non work. It has never worked. The nature of the risk and relationship to the claimant are just to different. When your hurt at work you expect to be made whole. When your sick outside of work its expected you share in the cost. Ideally it would be nice if they could be better integrated to prevent fraud, redundancy, etc but it just has not worked on a large scale. There has been some limited success but very little.

            If you had been killed at work, was the chef that bad?, your life insurance would have paid 99% of the time and your estate would also have been compensated by your employer or their insurance for wrongful death. The exception to that are some limitations in life insurance policies. I.e. killed in war or some high risk occupations like police or fireman. That is why those union contracts usually include death benefits but it is possible to buy policies that cover them.

            Your last comment is interesting, there is a lot of discussion rather it is good to leave an estate behind or not. You need buried and a non working spouse needs cared for but other then that should we leave benefits behind? In my short personal experience those that inherit money seldom do anything wise with it. My personal opinion is to spend it before you die.

          • John Ballard says:

            Insurance is a can of worms. It makes it seem much easier to plan and serve two thousand meals a day for years on end.

            Did you mean to say “PPACA penalties apply to employers with less then 50 employees”? I thought penalties will apply to those with more than fifty employees, and even then if at least one is certifiably eligible for a federal subsidy (under 400% of FPL, I think) to purchase insurance.

            (As for my chef, he was a treasure, but he got transferred to another unit. Unfortunately he was morbidly obese and died a few years later, not from work-related causes I’m sure, unless working in the food business counts. His obesity was hormone related, the result of walking barefoot in some toxic chemical as a youngster. )

          • Nate Ogden says:

            in this case less = more, sorry about that. If you have 50 employees or more. Which is a mightmare to figure out. I was trying to help a confectionaire figure out where they fall. Around the holidays, 4-5 times a year they have 250+ employees, the rest of the year 40. We had to start counting days and hours worked.

            From my business perspective every time they pass a law like this it is a new revenue stream, not good for employers but good for business. There are companies now doing penality analysis for $400+ per pop. They look to see what the penalities would be compared to cost of the companies insurance plan. Pewrsonally I miss the old simple days where all we cared about was processing claims and reducing cost.

            And fighting with providers, if you think liberals get me fired up see me on the wrong end of a 20 x cost hospital bill.

  7. Maggie Mahar says:

    John–

    The is that the average American family has just $3,500 in savings. 25% have no savings. (This is largely because joint median income is relatively low and the half of families who earn less are barely scraping by This assumes, of course, that they are employed..) I’ll be writing about this in part 2 of the post.

    So people don’t just need insurance to cover expsenses past a high threshold– they can’t afford 1 day in the hospital.

    Most people just don’t realize how poor the lower-middle class is. Their wages have stagnated for so long, while expenses (particuarly the cost of health care, food, and education ) have risen.

  8. Maggie Mahar says:

    John–

    Sorry, my reply should have begun “The problem is that the “

  9. Nate Ogden says:

    “most knowledgeable critics, Wendell Potter, a former insurance executive”

    Please stop the lies Maggie.

    Vice President of corporate communications, i.e, PR Hack. He doesn’t know anything about insurance except sending our press releases. Perfect example of how big of an idiot he is;

    “but the day when most Americans get their coverage from what we think of as an insurance company is close at hand.”

    13% get it from Medicare. 18% uninsured. 12% other government programs. roughly 34% self funded plans. Only 23% of the population get their insurance from an insurance company. The moron doesn’t even know basic math.

    “the days of making a killing off of basic medical insurance policies are over.”

    5% profit margins, 86th most profitable industry. And health insurance isn’t the lucrative part of the business. More lies from the PR hack.

    “In that case, anyone who is not protected by a large, generous employer who self-insures”

    More stupid statements from someone that doesn’t know the industry. Most of my clients are under 50 employees. Are you now calling employers with 15+ employees large?

    The entire premiss of this article is BS. 80% of people don’t get their insurance from an insurance company. 15% could get insurance self funded or through another channel tomorrow if they needed to. If every fully insured insurance company in America disappeared tomorrow almost no one would notice.

    Put it in perspective, Maggie wants you to believe that this would effect the market when the market has already removed these companies from the market.

    Why are groups self funded? It is cheaper, more efficient, and leads to better results to be self funded. If you believe the 60% of the market that has found this to be true then getting rid of the fully insured carriers would be a good thing. Move everyone self funded and we would save billions.

    Why don’t more small groups self fund? Because Democrats have prevented them. AHP, COBRA, MEWA regs. Far from fearing the demise of the carrier the market can’t wait for it.

    • steve says:

      When we explored this, it was going to cost more. We have lots of young women of child bearing age. We would need to re-insure. In a small group, our admin costs would have been relatively high.

      Steve

      • Nate Ogden says:

        this is where it gets tricky;

        stop loss traditionally has been an historically underwritten risk, they look at past claims experience and base rates on that. Fully insured ir prospectivly underwritten, they rate based more on what they think will happen next year.

        It can be very hard to make that initial move. the carrier is looking for claims experience and the group has none. Fixed cost is usaully attractive but the claims liability is more then fully insured premium. Carrier is looking for the employer to take the risk first year instead of them. Groups hardly ever hit that claims target but it scares them from going self funded.

        In self funded there are two types of coverage.

        Specific protects any individual from haveing claims over a certain amount, say $20,000 or $200,000.

        Aggregate protects the groups from all employees haveing 20K in claims. They set an attachment point, say $234,000. If the group’s claims exceed that point the carrier pays.

        When you add fixed cost to attachment point that is the exmployers maximum liability. Only 3% of self funded groups hit that annually.

        What we suggest groups do is instead of going straight to a reinsurance carrier start with a high deductible from a fully insured carrier. Self fund back to your normal deductible but capture all the claims data. Then the next year you can go to your carrier with claims data and get more manageable rates.

        With all of the small group interest in self funded they are comming out with products to make it easier. Aggregate only or Spaggregate is helpful to make that initial jump.

        Good cash flow is also important. Your going to have a bad year on average once every 5 years. Profitable companies that can weather the ups and downs do best.

      • Nate Ogden says:

        Where you at can have a huge impact when it comes to pregnancies. I see some that still only cost a few thousands to some of your teaching and big names can get over 20K for a normal delivery with no complications.

        If we can limit patients to certain hospitals the cost of high percentage of women of child baring age drops immensely.

  10. Nate Ogden says:

    A former health insurance insider turned whistleblower says that he was not only surprised at how “easy” it was to manipulate members of the news media over the years, but also reveals that he routinely “wined and dined” reporters from major news outlets – including the New York Times and the Wall Street Journal – in return for favorable coverage.

    Potter went further, revealing that he lunched with reporters at major media outlets for years – including journalists at the New York Times and the Wall Street Journal – as well as those from local and regional media, in most cases picking up the tab, which he says directly resulted in positive coverage of the companies he represented.

    How many times did he take you out to eat Maggie? It would explain alot of your writing.

  11. John Ballard says:

    Okay everybody. Break time.
    Go take a few minutes to read this.

    http://onhealthtech.blogspot.com/2012/04/hypothetical-tofu-at-broccoli-court.html

    Margalit Gur-Arlie is the next JK Rawling.

  12. DeterminedMD says:

    Sorry, perhaps this is rude, but, this broccoli thing deserves the coming pun:

    Is Ms Mahar a plant for the Democrats? It would be inappropriate to call her a vegetable. It is amazing to watch the Democrats start to circle their wagons and start just shooting figuratively at anything that moves that could damage their alleged prized efforts 2 years ago, interestingly, before the public voted them out of office as a majority?

    You know, if I was part of a wonderful legislative effort to improve the country, I would want people to know what I did. And yet, no Democrat used that legislation to sell themselves for reelection.

    Deeds, not words, or in this case, the deeds were in fact NO WORDS, were very telling. But, let’s be honest, a dumbed down public isn’t paying attention as long as government can distract and minimize problems.

    Hmm, you think $4 or $5 a gallon gas will do Obama well in November? Here’s a point to think about, when people have to think about filling their tank, or, paying their monthly health insurance premium? We know how inept the public is about preventative care, so, will they realize that scrimping on their health coverage will help them get to the doctor, or, the hospital if urgency calls?

    Yeah, Ms Mahar really thinks that far ahead. Or her handlers do it for her!

  13. Maggie Mahar says:

    Someimtimes a blog thread can be shut down by just two or three people who are ranting, often in a personal way, taking over the thread.

    Others just don’t want to engage with their anger.

    I undrerstand this.

    But I hope that readers who are interrested in the issues will ignore the toxic comments and weigh in with whatever they way to say.

  14. Dr. Mike says:

    True, toxic comments are not helpful, but I am actually quite curious why insurers are so often defended on this blog. Why is it that so many here are livid about criticism of legislation designed to enrich the insurers? I can think of at least half a dozen ways to provide for the health care of those without insurance, and NONE of them require anything more from the insurance companies than possibly a major medical policy. We’ve spent four years off on this tangent when we should have been debating how to set up a health care system for the poor – one that adds very little to the profits of insurers.

  15. DeterminedMD says:

    Alright, so the comments are viewed as toxic. Isn’t pure partisan rhetoric equally offensive when the tone is basically, “this legislation is golden, who the hell are you people to challenge it and prevent it from being implemented.”

    And that is not directed solely at Democrats, but the system at hand. Maybe it is time for the extremist Left and Right to realize there is a substantial amount of voters who don’t have a party allegiance. Health care needs to be fixed, that has been said in my comments since day 1 commenting here. It won’t benefit the population as the legislation stands now.

    And arguing that every issue that comes up can be fixed gets old. It should have been “fixed” for over 90% of it as it was crafted and seen not applicable.

    But, we all know what Nancy P really said 2 years ago.

  16. Maggie Mahar says:

    On Wendell Potter : Iin the health insurance industry (as in Pharma and many other U.S. industries) being VP of corporate communication is a top postiion. Marketing is extremely important to the industry, and Potter was in on all of the meetings with top exectuives discussing corporate strategy.. He knew what was going on.

    Below, from TIME magainze on Potter

    The former head of corporate communications for health-insurance giant Cigna, Potter turned against his old colleagues in June to testify before a congressional committee about what he viewed as the health-insurance industry’s “duplicitous” behavior in the current health-reform debate. In his testimony, Potter outlined specific techniques insurers employ to “dump the sick” and protect stock price at all costs. His testimony was logical, specific and convincing . . .”

    Read more: http://www.time.com/time/politics/article/0,8599,1920893,00.html#ixzz1qtlJbJok

    • Nate Ogden says:

      pitching corporate strategy to the media is not maker him familiar with the nuts and bolts of the insurance industry. He knew how to pitch what he was given, that doesn’t mean he had any understanding of how it got there.

      From your Liberal time link this gem;

      “An old acquaintance helped usher Potter out of obscurity. Avram Goldstein was once a reporter for Bloomberg News ”

      Interesting, old friend of yours? Seems the lefty media has gone out of their way to make Potter into an expert even though he has zero qualification. That would explain why you shower him with adjetives;

      “one of the industry’s sharpest and most knowledgeable critics,”

      Quit impressive credentials for someone that never worked in the real industry, only handling press releases.

      Lets go straight to the source, from Wendell’s website;

      “the federal courts over the years have interpreted the law to apply to all employee benefits, including health care benefits.”

      100% wrong, ERISA always covered health insurance, complete ignorance of ERISA. If you read his writings he has no understanding or factual base of benefits or benefit law. He is a PR hack pushing a political agenda, the one thing he was trained in.

      “130 million Americans enrolled in employer-sponsored ERISA-protected plans cannot sue their insurance companies”

      Plans are not insurers. Wednell doesn’t understand the basic difference between an ERISA plan and an insurance company. There is no insurance company in ERISA plans, benefits are provided by the plan, since there is no insurance company there is no insurance company to sue.

  17. Maggie Mahar says:

    Dr. Mke–

    Thanks for your comment.

    I’m really not a defender of the heatlh insurfance industry. I basically agree with Wendell Potter (see my comment on Potter above.)

    I think we all agree that for years, health insurers have shunnded the sick, cherry-picked healthy patients, and tried to avoid paying legitimate claims.

    There are some non-profits that are very good– The Health Care Cooperative in the state of Washington, Kaiser Permanent in Northn California and Colorado, Gesinger . .. . But the for-profits have tended to put profits ahead of people.

    My only point is that, in recent years, they just haven’t been that profitable
    because the underlying cost of health care for hospital stays, drugs, devices, surgeries have kept on spiraling.

    We do far more surgeries than any other country in the world, and as Dr. Atul Gawande has observed, the number has skyrocketed in the past decade. Yet , he points out, there is no evidence that we are healthier as a result. (As you know, mortalities from heart disease have leveled off, not because of surgeries, but becuase of better use of low-cost medications as well as changes in diet and exercise.

    For the past decade, for-profit insurers have been trying to pass the rising cost of heatlhcare off to customers in the form of higher premiums.
    But this has caused them to lose business. Many individuals and small businesses just can no afford dthe premiums.

    Meanwhile, most large corporations have begun to self-insure, using insurance companies only to administer their plans. But the insurance companies don’t get the premiums– they just get paid for administration, which is not terribly profitable. They have become a “back office” for hte nation’s largest employers.

    This is why their profit margins are now so low. Wall Street analysts
    will tell you that the industry is in real trouble. Recent.ly the CEO of Aetna admitted that the industry, as we know it, is likely to become extinct.

    I think that’s true. Ten years from now, I suspect we’ll have some non-profit insurers, and a public option. What were once for-profit insurers are likely to hook up with accountable care organizations (groups of doctors and hospitals) and join them in a business that is both the provider and the insurer. (This is the Geisinger model). IN that case both the provider and the insurers have the same goal: to keep the patients as healthy as possible. This has worked very well at Gesinger

    • DeterminedMD says:

      Well, my interpretation of this comment is that you do not see a future for FOR profit enterprise as insurers. We agree on something, that random chance 5% moment has arrived.

      But, you have to extend it to eliminating FOR profit in all elements of health care to drive out the antisocial/narcissistic participants that just drag the profession down. Yes, that includes a percentage of doctors as much as any other part of health care, but it has to include all. Even the role of government that tries to profit as well.

      But, we diverge at the end when you throw in your quest for public option. Then the financial agenda takes center stage again, eliminating any respect for the individuality of health care needs. Oh well, enjoyed the moment.

    • Nate Ogden says:

      “I think we all agree that for years, health insurers have shunnded the sick, cherry-picked healthy patients,”

      No people that actually know the business do not agree. And every time your challenged on these BS claims you never once back them up.

      How do insurers shun the sick? HIPAA and small group refrom laws make this impossible. The sick that can be shuned are in the individual market. Are you making this sweeping statement about insurers based on the smallest sliver of the market?

      Back your BS up or stop making irgnorant claims.

      How do insurers cherry pick healthy patients? Again this can only possibly apply to the individual market, there is no truth in the group market which is 10 times bigger then the individual.

      In the individual market this only happens to people who wait till they are sick to buy. If your only ready insured they can’t single you out at all.

      ” But the for-profits have tended to put profits ahead of people.”

      Who? Name names and tell us how they do this. Your just slinging lines and can’t back any of it up.

      “For the past decade, for-profit insurers have been trying to pass the rising cost of heatlhcare off to customers in the form of higher premiums.”

      Are you claiming non profit insurers don’t pass on the rising cost of healthcare? This statement is pure stupidty, all insurers pass on increased risk. What is different in the way for profit insurers pass on risk compared to non profit? Again back up any of this.

      “But this has caused them to lose business.”

      Then why hasn’t kaiser and other non profits picked up all this business and grown?

      “most large corporations have begun to self-insure,”

      More ignorance, large groups have always been self funded, this hasn’t just started, it has been this way for 30 years. You make up everything you say.

      You have no comprehension of how the American health insurance system works. Every thing you said is made up BS.

      • DeterminedMD says:

        Sorry Nate, I have to agree with the premise that insurers do their best to cherry pick. You lose me in arguing otherwise.

        • Nate Ogden says:

          How? People make this claim all the time but no one ever comes up with an explanation of how they do it.

          On the other hand you ahve peopel such as myself that on a daily bases place cases full of sick people. We call them max loaded groups and they are written every single day.

          Cherry picking, which is not a fair way to frame it to start with has been gone for over a decade, it does not happen but in the rarest of cases. I have done three renewal in the past 60 days with pending transplants. I have a 5/1 case that just got in a 250K transplant claim, the claim wont be paid by 5/1 so we are getting a renewal that covers the known claim.

          • DeterminedMD says:

            Well, all I can say is I hear colleagues and patients describe situations that support my assessment. Maybe some insurers are responsible, but let’s be honest, not all are.

            Quite the thread tonight with Ms Mahar’s latest post, eh?

          • Nate Ogden says:

            I would love to hear specifics because the majority of the time its not the insurance company’s fault. It is easy for people to blame the insurance company seeking sympathy.

            I can’t count the number of people that have come to me looking for insurance because they were about to have expenses. And these are people that could have afforded insurance all along.

            People rather by a biiger car, go out to eat more, or spend their money on immediate satisfation then invest in their health or long term financial security.

            When something happens though they don’t want to take responsibility for the bad decisions they made.

            Even under these circumstances we can usually get them coverage but it is at the expense of those that have done the right thing. It is nbot just health insurance, as American’s our saving rate is pathetic even though we are the richest country in the world. Are we going to blame the IRA custodians for us not saving?

            We need to stop blaming others and start taking responsibility for ourselves. We need to live more frugal lives and support ourselves. Passing on 16 trillion in debt to our future generations is pathetic, something we should all be ashamed of.

    • Nate Ogden says:

      “Meanwhile, most large corporations have begun to self-insure, ”

      http://aspe.hhs.gov/health/reports/2011/LGHPstudy/index.shtml

      Percentage of large groups that self fund

      1999 66.2%
      2002 77.5%
      2004 83.4%
      2009 82.1%

      in 1990 according to NYT

      “58 percent for those with 1,000 to 4,999, and up to 82 percent for companies with more than 40,000 employees. ”

      Just starting to Maggie? Just another one of your lies.

      • John Ballard says:

        Nate, I can understand why you find the term “cherry picking” offensive.I don’t think it means what you think. It doesn’t mean that specific individuals are selected or denied insurance, but that insurance by its very nature IS ALREADY a deselection product.

        In the same way that words like politician/ statesman…wingnut/ extremist…challenged/ retarded…etc. carry different messages for different people, one person’s deselection is someone else’s cherry-picking.

        The reason for open enrollment periods, suicide exclusions for life policies, arson exceptions for fire insurance is simple. Those rules create boundaries against what what some call “gaming the system” or adverse selection (same phenomenon as the above examples).

        Looking at the big picture, your excellent explanations of group insurance illustrate the point as well as the for-profit/ non-profit differences. Self-insured companies can quietly deselect (or cherry-pick) new hires at the HR level without a trace of documentary evidence. Just being able to perform a job eliminates far more candidates with expensive medical issues than healthy ones. Self-insurance then makes perfect sense.

        And as you know, TPAs operate at razor-thin margins. But they still accept the accounts for a lot of good reasons, including good PR, brand recognition, volume negotiations with providers, etc.

        The reason for PBGC is not that Congress woke up one morning and decided to create a safety net for beneficiaries of pension plans but in response to an out of control rash of bankruptcies/LBOs that were leaving retirees out of benefits for which they had worked a lifetime. By the same token, the reasons behind HIPAA, COBRA and other federal regulations do not simply spring into existence spontaneously but are crafted (normally with stiff resistance from those being regulated) in response to problems that have not been addressed either at the local/state level or the private sector.

        Just my opinion anyway.
        Hope that helps.

        • Nate Ogden says:

          Thank you, I would agree that insurance by its nature is selective, it has to be to protect the system from people gaming it.

          I would still take issue with people targeting for profit insurers as cherry picking as Medicare does the same thing, if you don’t sign up when your suppose to there are consiquences.

          I think it is a disengenious and misleading argument to make and the majority of the time those that make it are not making it honestly.

          If I accomplish anything on here it would be that people read comments like yours and have a factual understanding of what really is and ideally how and why. If we spent more time discussing the truths and facts we could take politicis out of it and have some meaningful discussions.

  18. Johnny says:

    The insurance companies gotta be doing a better job with their plans. We need cheaper and more reliable plans right now, the current ones are way too expensive and a lot of them aren’t able to protect you when an emergency actually happens.

    • John Ballard says:

      The insurance companies are not in a position to carve away the non-healthcare dollars embedded in every bill from hospitals, clinics, doctors and pharmacies. The medical-industrial complex has only one revenue stream — charges to patients.

      I’m posting my laundry list again here and will continue to do so until someone besides me decides to shift the discussion to actual costs for professional services and actual medical expenses.

      If Medicare and other medical expenses are to be lowered the answer lies not with rationing or tweaking the insurance industry, but with the reduction of the numerous non-medical expenses sucking the system for other purposes. Here are a few more expenses, all of which have but one revenue stream — medical
      bills.

      § TV ads — some of the most expensive air time for some of the most costly productions in the ad industry.

      § Mammoth executive bonuses and golden parachutes for both health care administrators and insurance companies

      § Facilities with manicured landscaping, marble floors, lived plants, flat-screen TVs in every room, and concierge food service

      § Elaborate accounting arrangements by which large so-called “not
      for profit” health care systems, often augmented by equally large,
      embedded insurance companies (BCBS comes to mind) launder bills mostly for the benefit of very profitable clinics, specialty practices and
      device manufacturers.

      § ”Free scooters” advertised for Medicare beneficiaries. Sometimes comes with a free recipe book or lighted magnifier “just for making the
      call!”

      § Catered meals and other treats for hungry office staffs, compliments of your favorite drug or other supplies sales representative.

      § And speaking of sales, don’t forget the sales bonuses for high
      performers. The only people in America with no limit to how much they
      might earn are not in medicine or other specialties, but in sales.
      (Investment bankers are in the running, of course, but they are in fact
      limited by how much capital and/or credit they have. Enterprising sales
      people have only transportation, cosmetics and a few other expenses.

      § Don’t let’s leave out some red meat for the tort reform crowd —
      legal and accounting services, and a grey area often called “defensive
      medicine.”

      With the exception of a dedicated group of community volunteers who provide a few ancillary goods and services, every dime of all that has but two sources:

      1.) Medical bills
      2.) Government grants for teaching hospitals and research by NIH. (taxes)

      What am I missing?
      *
      *
      *
      *
      *
      *
      * Yes, of course. I almost forgot — MEDICAL CARE!

      ~~~~~~~~~~~~~~~~~

      Don’t you love watching those ED ads where the whole landscape goes tumescent?
      That’s a really great special effect, huh?
      Makes you all horny just watching.

      Production expenses for those advertisements, special effects, prime-time broadcast air time and profits for the agency that were paid to put them all together…. all that money has only one source, medical bills. The money has to come from someplace and that is the only source of money feeding the whole medical-industrial complex.

      The insurance people manage risk. And they do a helluva good job. If they don’t they cannot stay in business. But they are no more responsible for the costs than weather forecasters are responsible for the weather.

  19. lhf says:

    These are huge problems to overcome, these and unnecessary tests and procedures. Two very good books on the latter problem are Overdiagnosis and Rethinking Aging. You’ve probably read them.

    You left out things like gym memberships covered by Medicare Advantage, for example.

    • John Ballard says:

      Thanks.

      No, I haven’t read them, but in my post retirement work for eight-plus years in the so-called “senior care” sector I have watched and lived them. It has made me an evangelist for advance directives and palliative/hospice care.

      My observation is that the problem lies more with family members in denial than the people running up the bills. It’s not always the case, but more often than not all that keeps old people hanging on is that those closest to them refuse them permission to leave.

  20. Habibi says:

    There are a handful of intriguing points at some point in this posting but I don

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