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POLICY: Individual insurance, sigh, with UPDATE

The NY Times had a pretty decent article on what a pain in the ass the individual insurance "market" is and it also reminded me of one reason why the eHealthinsurance study last week was so flawed.  That study compared apples to oranges when it looked at rates for 30 year olds in New York versus California. To wit:

In some ways, Mr. Forst was lucky because he lives in New York. It is one of the few states with guaranteed-issue laws, which basically ensure that all residents can buy coverage. In New York, the law means that if you have been turned down by the big national companies, any H.M.O. operating in the state would be obligated to sell you a policy. New York also has community pricing, meaning that everyone who applies from the same part of the state pays the same premium for the same plan, regardless of age or health. So it is easy to see why insurance tends to be more expensive in New York – at least for the young and healthy – than in other states. But the flip side is that some people living in other states cannot buy insurance.

Of course the other side of that is that individual insurance in New York is so expensive that many uninsured who could afford the cheap California policies can’t buy it. (And don’t forget employer group insurance is not covered by state laws because of the wacky world of ERISA). So the free marketers (like my commenter Greg Eric Novack) say, let them buy a California policy. (This is the basis of the AHP movement that our Dear Leader is so keen on). That would then immediately lead to the remaining healthy New Yorkers getting out of their state-regulated policies and buying cheap ones from out of state, with the result that those remaining in the New York plans — who couldn’t buy those out of state policies because they’re old or sick or both and the AHP’s wouldn’t be forced to sell to them — would be unable to afford their premiums and the plans would go belly-up.

So is community rating like New York’s a good idea?  Well only if you enforce it on everyone, including groups and the uninsured — otherwise known as universal insurance. But it is a risk pool of sorts and the efforts of the so-called "free-market" lobby are helping to destroy what’s left of it, when what we need is everyone into it.

Meanwhile over at Signal Health Tom Hilliard spent the time that I didn’t in my post on the subject to really deconstruct the McKinsey study on CDHPs.  And he comes to the same conclusion I did about whether it can be trusted.

UPDATE: Brian Klepper tells me that I’m being too tough on eHealthinsurance.com and should be thankful for baby steps.

I think you’re dwelling a little too much on the obvious by complaining that the eHealthInsurance study is flawed. Of course the costs are significantly different in states that have or do not have guarantee issue. And of course the market dynamics are completely fouled up by the games that every insurer plays in trying to limit exposure.Maybe I don’t get it, but I see the real value of the eHealthInsurance study in the fact that it shows clearly what the rates are for a particular type of individual. Typically, we don’t have this knowledge. You’re bellyaching because the underlying forces aren’t balanced, but that’s only a nuance to the analyst; the purchaser doesn’t have this luxury. And until we’re able to SEE the damned rates for what they are, controlled for who they target, we can’t do anything to course correct.That’s why its useful.

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12 replies »

  1. “large, self insured employers cannot exclude individual sick employees, and SBHPs should not be allowed to either.”
    Employer plans that fall under existing small group laws (as few as 2 lives in some cases) are prohibited from excluding coverage to sick employees.
    Of course the flip side is, the carrier has to take you AND cover your pre-ex condition, but everyone else in the group will pay extra (as much as 70%) so you can be covered.
    As for those who support legislation that requires individual health insurance carriers to cover anyone, regardless of health, just look at the models that already exist. States such as NY, NH, VT, MA & ME all have passed such laws. The effect is to drive up rates to the point that only the sick (who are also wealthy) buy coverage. Rates for individual health insurance in those state are almost 3x the cost of similar coverage in neighboring states where carriers operate with less government intervention.

  2. //subsidize someone who doesn’t care about his or her health, is obese, smokes, and never exercises?//
    Oh dear, this person sounds suicidal. Perhaps we should look at the conditions that would lead a person to the point where they no longer care. Are they exhausted by two jobs and overwhelming debt? Have they suffered a string of personal tragedies without their community to help them, while the community is whining about now having to pay their health care costs? Are they unemployed and eating cheap unhealthy food while hesitating to go outside for exercise because they might end up spending money? Or is their employer exploiting their exempt status as an employee to pressure them to work 80 hours a week plus respond to a night pager, so they need a quick fix where-ever they can get it? And let’s not forget the temptation people have to prey on the weak – the stress of that can turn obesity into an actual health problem in a minute. I’ve now lost a (small) piece of my eyesight because of that.
    The idea that the people who have already been wronged by this society should be further stigmatized as burdens on health care is AN ATROCITY!

  3. Continuing my thoughts on SBHP– large, self insured employers cannot exclude individual sick employees, and SBHPs should not be allowed to either. What there needs to be is an active promotion of good health– and have there be tangible benefits (rebates, promotions, etc.). I would reference people to my interview with Jeff Hanson of Bridges to Excellence on July 10th (available at the http://www.ericnovack.com website under “archives” shortly).
    Also, the proponents of national/universal care imply that we have a “free market” currently. We do not- 50% of all healthcare dollars come from the government, and almost all reimbursement is tied to a percentage of the Medicare fee schedule.

  4. 1. Matt- thanks for the mention (and spelling Novack correctly, even if my first name is Eric).
    2. Should a healthy, personally responsible, don’t eat at McDonalds every day person be forced to subsidize someone who doesn’t care about his or her health, is obese, smokes, and never exercises? Imagine if car insurance were the same– insurers need to offer policies at the same prices to all drivers in the state regardless of driving record, history of accidents, and what kind of car they are driving? Would you want to subsidize those people? It would siginificantly enlarge the “risk pool”…
    3. Insight into Small Business Health Plans, as they are now called, comes from who is opposing the legislation. While those in favor of national/ mandated universal insurance are against, more telling is the robust opposition of major insurers– who are trying to vigorously protect their bottom line and maximize the number of lives they cover. SBHP are not a panacea, nor should they be passed in a form that allows selective exclusion. more later.

  5. I never said self funded ERISA plans were regulated by the states. What I said was group insurance plans do comply with ERISA even if they are fully insured.
    Small employers can (and do) self fund but not with the same frequency as larger employers. Some stop loss carriers will offer spec & agg on 10 life groups although most have set 25 or even 50 lives as their minimum.
    And yes, a self funded plan does bypass state regs . . . but I already stated such.

  6. I don’t think Bank of America is good at all. In fact, I think that Citizen’s Bank is going to do very well, because it’s based in New England and is much more attuned to the local customer base.
    I don’t think it’s a good thing. I just know that everything is a mess for my sister, including the fact that the administrating HMO is BCBS of Georgia. So many hassles.

  7. //Bank of America//
    I’ve never understood how Bank of America is good with ERISA. They funded vast parts of their retirement options with their own stock, which should have been illegal. :-/
    BofA is almost as questionable on data security as Kaiser – outright surreal for such a big bank. I think I’ve mentioned that I used to know a guy who sent fake Key Indicator data up to the Division President every morning because the automated routine was broken and no one knew how to fix it (price of constant re-alignment and turnover).

  8. Bob–
    If a company self-insures, regardless of size, it is regulated under federal ERISA statute and not state statute. It doesn’t matter what law a state passes; it simply doesn’t apply.
    As a general rule, small companies don’t self-insure because it’s too risky–IBM can tolerate the financial implications of an employee with cancer, but a 10-person company probably cannot. Also, they don’t get the same benefits of ecnomies of scale, etc–it’s harder to write a policy for 10 people as opposed to 10,000.
    But states can’t regulate self-insured companies. It’s federally pre-empted through ERISA. Just one of the many, many, many bizarre and counterintuitive things one runs across in the American healthcare system…

  9. Massachusetts has community rating where the rate is set by age and zip code but not health status. Does New York’s community pricing really charge everyone the same rate?
    Oh the wacky world of ERISA. My sister works for Bank of America, a self-funded plan if ever there was one. I won’t refer to her coverage as insurance. I call it an employer provided health benefit.
    Bob, I think that even a small firm could get around state laws if they chose to self-insure. Stop loss insurance policies don’t count as health insurance for ERISA purposes and would, I think, fall outside of the regulation of state health insurance mandates.
    I think that most small employers wouldn’t think that it was worth the trouble, but I kind of wondered whether a firm run by Scientologists, having decided that it didn’t want to offer mental health coverage, wouldn’t decide to self-fund for this reason. (It’s a stretch, I’ll admit, but Federal mental health parity was allowed to lapse.)

  10. Not all group insurance plans are bound simply by ERISA. Many states have enacted small group laws that apply to employer groups as small as 2 employees. These laws enhance what ERISA requires.
    Even if a group is large enough to escape small group laws (usually at 50 employees), if the plan is fully insured the plan must still comply with state mandates for certain types of coverage.
    As for your comment on AHP’s bringing parity to the table, not so sure that will happen. Unless the states are required to relinquish total control over insurance contracts, the “guaranteed issue” requirements of NY would still apply to a carrier domiciled in (say) CA who wants to write coverage in NY.
    The idea of AHP’s has been kicked around for some time and not sure it will ever come to fruition. For the most part the federal government has been content to lay off and allow the states to regulate as they see fit. The exception would be self funded plans that are totally the purview of ERISA.
    I have yet to see anything conclusive about AHP’s or community rating that will result in an overall improvement over the current free market structure. Everytime the government gets involved in these matters, at either the state or federal level, the situation gets worse, not better.
    As for the summation on Signal Health on the McKinsey report, let’s just say that folks usually find exactly what they expect when they attempt to justify their position . . .

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