Dan Weintraub who’s an interesting (and rare) right-wing journalist working in health care wrote a pretty dumb opinion piece in the Sacramento Bee last week saying that regulating health insurers was the wrong idea and wouldn’t work—because of course most of the money they get in goes out the door to the health care system—so it’s the wrong place to look. In the specific instance of rate regulation only, he may be somewhat right—but of course there’s a whole lot of regulation of insurers that could make a huge difference to that underlying health care system.
I was going to rip him a new one, but THCB regular Matt Quinn did it for me and the Bee printed his letter on it on Sunday.
"Regulating insurers won’t cut health costs," June 10: Daniel Weintraub correctly argues that current proposals to regulate health plan profitability will not materially impact overall health care costs. Imposing rules mandating spending on medical care or requiring permission to raise rates could perversely impact the quality and affordability of care. However, he misses a couple of key ways that regulators could impact the affordability and access challenges plaguing health coverage.
Mandating both guaranteed issue (requiring insurers to cover all comers) and community rating (prohibiting insurers from factoring in age, sex, previous medical conditions, or other factors in setting rates) sets a level playing field for insurers to compete on delivering value to their customers. Guaranteed issue and community rating require each other and are both necessary for reform efforts to work. Since the managed care backlash in the 1990s, insurers have largely given up on holding down health care costs and today compete primarily on underwriting — skimming healthy people and shedding sick or otherwise unprofitable ones. Some have even been caught underwriting retroactively or canceling coverage for members who incur medical bills. Mandating both guaranteed issue and community rating forces insurers to compete on their ability to deliver quality, cost-effective care for a population — and not on their skill in underwriting.
Although Matt misses one extra thing need to make guaranteed issue and community rating work—compulsory participation in the system by all (universal coverage) and cross-subsidization to those who can’t afford to buy in from the wealthier taxpayers. The good news is that the Democrats running Arnie’s reform efforts know about that.
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Here’s a perfect example: my own. I recently moved from a job with incredibly good coverage (very small deductible, self-referal to specialists, etc) to one with less-certain coverage prospects. You know what I did on the way out: colonoscopy, even though my doctor didn’t think it necessary. That’s $4000. I also got lots of dental work, most of which was covered, but not all of which was necessary.
If you account dosen’t have enough to cover the full costs, either because you haven’t accumulated much or because the costs of treatment are very high, the solution would be to borrow against future contributions, much as people are allowed to borrow against 401(k)’s by employers. So, let’s say your treatment cost $70,000 and you only had $40,000. In this case, you would simply have a negative in your account which could eventually turn positive again as you and/or your employer contributed over time.
If the costs were impossibly large or you were too old or sick to make enough future contributions, then you would kick into the chronic disease fund.
“Eventually, these accounts would be large enough to cover most or all of the costs of a catastrophic illness.”
What do you envision as, “large enough”. What happens when you haven’t been able to accumulate enough in time for the big one? Who and how do you accumulate for the kids?
“…then the low-risk individual has every incentive to overuse.”
Overuse, how? Gee, I haven’t used all my premiums yet, maybe I’ll just have a kidney removed to use them up. Have you considered burning your house down because you haven’t had a claim in ten years?
If comprehensive (ie, lavish and low-deductible) care becomes mandatory and expensive, then the low-risk individual has every incentive to overuse. People support incentives which create energy conservation. Why not HC conservation?
The best solution would involve a portable account to which a combination of employer and employee would contribute (tax-free). Unused savings would accumulate and grow (tax-free). The account would “roll-over” as people changed jobs or exited the workforce. Eventually, these accounts would be large enough to cover most or all of the costs of a catastrophic illness (ie, MI, stroke, cancer treatment). Insurers would be paid a small annual fee from these accounts to act as bargaining agents and bulk purchasers.
The accounts of low-income, unemployed, or disabled individuals would receive the equivalent of an earned-income tax credit.
In effect, this is a sort of self-insurance.
When individuals with money still in their accounts died, the remaining funds would be taxed at a relatively low rate, say 25%. The remainder would pass to heirs, and the taxed portion would fund a chronic disease account which provided for relatively limited number of people who’s accounts did not fully cover the costs.
“Since the managed care backlash in the 1990s, insurers have largely given up on holding down health care costs and today compete primarily on underwriting…”
Why would anyone think that the way to getting healthcare costs under control would involve the private insurance industry. Community rating, universal coverage, benchmark bids, risk-adjusted payments just won’t cut it. We’ve seen the MA plan proposed rates jump from the teaser rate of $200-$300/mth to $800/mth. No one in the industry wants to really give up anything, it’s all smoke and mirrors.
Mr. Carol is on target: risk-adjusted payments to insurers are essential for avoiding insurance market failure. As for community rating of the premium contributions paid by subscribers, I can live with this as long as they are income-adjusted. For those readers who are interested in understanding why these features are essential, see my comments on this topic which were posted on this blog in December 2006.
Skeptic
“If you look at states with guaranteed issue or community ratings…”
That’s why you need both guaranteed issue AND community rating…AND, as Matthew correctly adds, universal participation (by both patients and insurers).
I can imagine that plans that are accustomed to cherry-picking members and passing on medical cost increases to customers might struggle mightily under the new rules, but that’s kind of the point: unless regulators (and for that matter large purchasers) reframe how the game is played, then the status quo will continue.
Guaranteed issue and community rating sound nice in principle, but in implementation strip innovation and affordability out of the system.
If you look at states with guaranteed issue or community ratings, you see the number of participating insurers go way down and prices (unsurprisingly) go way up. Spending more money on premiums for comprehensive care isn’t the way to fix the healthcare system–it just reduces accountability for all the service-level flaws underneath.
What would be interesting would be a guaranteed issue product focusing on long-term catastrophic care, potentially tied to life insurance.
While there hasn’t been a strong case for tying everyday retail care to the insurance system (and it appears pretty wasteful given administration), there is a huge gap in linking longer-term healthcare risks with a system incented to reduce them. Community rating would probably be a bad idea…but having something that engaged the currently healthy and had strong incentives to keep them that way would be very interesting…
While I support community rating and guaranteed issue in conjunction with mandatory participation, I think there should also be a mechanism for adjusting total payments to each insurer for the riskiness of the insured population that it winds up with. While I’m sure that individual risk scoring still has lots of room for improvement, a United executive tells me that Medicare actually does a pretty good job of this with its Medicare Advantage (MA) program. Insurers bid in each county based on a so-called benchmark which is defined as an overall population risk score of 1.0. They receive more money than their benchmark bid if their actual population has a risk score above 1.0 and less if the score is below 1.0. With appropriate risk scoring that is perceived by insurers as credible, fair and reasonable, there should, in theory, be much less incentive to try to avoid insuring the less than healthy.