POLICY: My last word at TPM–competition within social insurance

So the book club at TPM is drawing to a close. Here’s my first piece trying to explain that social insurance whether voucher/competition-based or fee-schedule-based is pretty similar compared to what we have now. In fact it’s a Distinction without a Difference. But that just seemed to confuse everyone, so I tried again with a larger explanation with a longer title called Social insurance is the key–but it can handle competition, just not the type you’re used to!

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  1. Peter,
    I don’t think it would be hard to develop a consensus defining what a healthcare voucher would cover. It would most likely be either the standard option Blue Cross plan offered by the Federal Employee Health Benefits Plan or comprehensive HMO coverage like Kaiser. The value of the voucher would probably vary regionally to reflect differences in labor, real estate and other input costs (but not regional differences in healthcare utilization). If healthcare costs continue to rise faster than inflation and GDP, fiscal constraints will be a reality no matter what taxpayer funded system we adopt.
    I think you fears about the insurance lobby starving the vouchers in favor of supplemental insurance are unwarranted. It hasn’t happened with standard Medicare (though Medicare is not a voucher system) while millions of people have purchased Medicare supplemental policies for years.
    I’m not sure I understand your point about low income people accessing the same services I do. I’ve been an inpatient in NYC academic medical centers and shared rooms with patients on Medicaid. I don’t see why that should be an issue for me or anyone else. If someone wants to pay a hefty premium for a private room out of their own resources, that’s OK too.
    I prefer choices to one size fits all even if it costs somewhat more. It’s more consistent with our culture, and it’s nice to know that we can take our business elsewhere if we’re not satisfied with our current health plan or insurance company.

  2. “I would prefer a voucher, a reasonable number of insurance companies and plan designs (HMO, PPO, etc.) to choose from, and the ability to buy additional coverage if I want to.”
    Barry, when you provide a voucher system you then need to define what that voucher buys. In order to give insurance companies a product to sell above what the voucher offers you need to craft the benefits of the voucher very basic to push patients to private plans. Politically, this will be where insurance will craft the voucher system to their own ends. Once this system is in place money will flow away from the basic voucher system (threatening its financing) and to extra coverage plans. You then create a two or more tiered system with the basic system struggling with under funding and reduced resources and choices that the extra insurance system has attracted away. I don’t think you would appreciate the basic voucher holders using the same resources as you want to use with the extra you pay for. I wonder how hard it will be to see specialists with this system in place?

  3. The difference between for-profits and non-profits is one of degree on the dimensions that matter. Sure, they pay more taxes. They tend to spend less of their premium revenue on medical expenses, but it’s certainly less than a 5% difference and it only happens because the market and the laws permit it. They don’t have to.
    I agree that for-profits should be given a chance to show that they can meet higher standards, rather than be outlawed outright. I don’t yet know what I think is the best system of managed competition: setting the stage for a “fair” contest among health plans which also promotes true improvements in outcomes is extremely tricky.

  4. jd,
    I don’t have any problem with Enthoven’s managed competition concept. What I want to avoid at all costs is a national single payer, one size fits all system that we would be stuck with no matter how expensive, unresponsive and inefficient it proved to be. I would prefer a voucher, a reasonable number of insurance companies and plan designs (HMO, PPO, etc.) to choose from, and the ability to buy additional coverage if I want to. I also do not think profit and investors are the dirty words that many others (including most on this blog) make them out to be.
    At the end of the day, insurers, whether for profit or not for profit, need to please enough customers enough of the time to stay in business. The problem from a consumer’s perspective, is that in today’s world, the customer is usually the employer and not the patient. The employer is interested in keeping premiums as low as possible and they push insurers in that direction. If the patient were the customer with the power to take his or her business elsewhere when the annual renewal period arrives, there would be more interest in consumer and patient satisfaction.
    Also, to fairly compare the net cost of health insurance between for profits and not for profits, I think the for profits should get credit for the taxes they pay which not for profits don’t pay. After all, those taxes help to finance Medicaid and the portion of Medicare that is not financed by payroll taxes and beneficiary premiums. Moreover, we do not need non-profits or the government to provide auto or homeowner or any other type of insurance. I think the for profit insurers should be able to do a perfectly reasonable job of providing health insurance as well at a competitive cost.

  5. That discussion in TPM was simply excellent. If only Maggie and Matt had the ears of the political elite.
    It is certainly true that utilization is the second half of the equation to reduce costs, and one that doesn’t get nearly the attention it deserves.
    As someone who works for a non-profit insurer, I have to say that I don’t think for-profits have admin costs 3-4% lower than non-profits. The average might be a point or two lower as a percent of premium, but there is so much variation among plans that the average is not that meaningful. Aetna, for example, has an AER higher than any BCBS plan that I am aware of.
    I think the problem with for-profits is that in their quest for profits they cut corners more….but the cuts impact MERs probably more than AERs, and they yield lower member satisfaction and lower quality scores (HEDIS, etc.).
    While it’s true that non-profit HMOs do make a profit (probably around 3% average over the decades), this profit does not go to investors and very little of it goes to pay bonuses of executives. It mostly goes to increase reserves (thus increasing investment income and reducing the need for premium increases) or it gets reinvested in IT upgrades, etc.
    I’m with Matt (and Enthoven) on this: private or quasi-public non-profits would work as well or better than a nationalized system. At least we should give them a shot rather than get rid of them in haste to create a single-payer nationalized system. And to be clear: not all non-profit HMOs are cut from the same cloth. Integrated delivery systems make more sense than mere network-model HMOs, as a rule.
    I would go further to say that BCBS plans and other insurers should now be actively trying to forge unions with hospital systems and large provider groups.
    Finally, any payer that is operating under budget constraints will have an incentive to restrict care. It isn’t just HMOs, but also government-run systems. There are differences, but the pressure to restrict care can be intense in both cases, or it can be relatively weak in both cases. It all depends on the politics and/or what the market will bear at the moment.

  6. Arguments about how best to achieve universal coverage, along with community rating, risk pooling, risk adjustments, etc. are all about healthcare financing. I think at least as much effort needs to go into how to safely reduce healthcare utilization.
    With respect to the supposedly cost-effective care being provided by Intermountain and Mayo, I wonder how much credit should go to those delivery models and how much relates to the probably much healthier than average lifestyles lived by the populations they serve.
    As for the issues of for profit insurers vs non-profits, the view I keep hearing is that the for profits’ administrative costs are 3 to 4 percentage points (of revenues) lower than those of, at least, the non-profit and mutual (owned by policyholders) Blues. The Blues maintain overall competitiveness based on their ability to negotiate comparatively low reimbursement rates, which, in turn, are attributable to their historically high market share in most of their territories. They also do not pay taxes, though they do earn profits, at least in most years.
    In the case of Kaiser and the HMO model generally, there will always be an incentive to skimp on care, especially for the very expensive cases (like organ transplants).
    Finally, if we ever went to full taxpayer financing of health insurance and even assuming we are able to achieve a one time, non-trivial savings in administrative costs, what happens when future fiscal constraints hold increases in payments to health plans below the actual trend increase in the cost of providing care?