If the Administration wants to make good on President Obama’s election night promise to work across the aisle to solve the nation’s problems, a good place to start would be how it implements a key provision of Obamacare – namely, the Republican idea buried in Section 1334.
The Affordable Care Act is a bulging sketchbook of ideas – some old, some new, some borrowed, some not-so-blue – for improving Americans’ access to health insurance. Obamacare’s cheerleaders and naysayers alike will probably be shocked to learn that one of those ideas, both old and borrowed, was formulated more than a dozen years ago by advocates of market-based health reform. Once the cornerstone of President George W. Bush’s and presidential candidate John McCain’s health policy platforms, the “Association Health Plan” – or AHP – lives on today in Obamacare.
This time around, AHPs are called “Multi-State Plans.” As before, they seek to let consumers, the self-employed, and small businesses from across the country band together into groups to buy a health plan from insurers competing across the country. These old-new plans were and are a powerful idea that could shake up local insurance markets, catalyze competition, and significantly reduce costs – if implemented by the Obama Administration as designed by their Republican architects. The original AHPs – also known for a time as “health marts” – were to be vehicles for giving individuals and the smallest groups access to a full range of insurance options, with the same purchasing freedom and bargaining power of large groups and self-insured employers. They also represent the most feasible way to consummate a perennially popular bipartisan idea for health insurance market reform: model private purchasing by consumers and small groups after the highly successful federal employees health benefits program.
With critical mass, these old-new plans would consolidate the large, chaotic mess at the long end of the insurance market – the tens of millions of individuals, self-employed folks, family businesses, and small groups suffering from the highest costs, lowest medical coverage ratios, and least affordable premiums. Why? Because this end of the market isn’t much of market at all, but hundreds of local markets with limited choices and 50 different sets of rules and regulatory processes.
AHPs were designed to liberate those with no market power from this murky archipelago of inefficiency, giving them the same economic benefits reaped by the roughly 60 percent of covered Americans whose employers self-insure their health benefits – just like the federal government does for its employees. The consolidated revenue and profit opportunities would increase competition, pricing discipline, and service innovation among insurers, drive efficiencies across hundreds of fragmented health insurance markets, and eliminate enormous amounts of regulatory clutter and administrative waste.
Such could be the power of the Multi-State Plans included in Obamacare – the old AHPs – if the Administration implements them in a way that maximizes the marketplace levers of a Republican solution to a marketplace problem. Allowing the plans to compete and operate uniformly across state lines would break up the rigged, rigid oligopolies that hamper choice and innovation in local insurance markets – a chronic market failure that has put affordable coverage beyond the reach of many individuals and small businesses for decades.
How did this old Republican idea become a new Democratic one? Is it a begrudging acknowledgement of the idea’s power? Or just dumb luck that the Obama Administration reinvented a Republican wheel?
AHPs were formulated by pro-market advocates in Congress as early as 1999, and would anchor the Bush Administration’s health reform policy platform from start to finish. Unfortunately, health reform was pushed to the back burner, along with everything else on Washington’s to-do list, by the events of 9/11. Though legislation authorizing AHPs passed the House in the mid-2000s, it remained on the back burner until it was pushed off the stove entirely by the political ascendancy of the Medicare drug benefit, which consumed Washington health policymakers for the remainder of the Bush presidency.
Enter stage left, President Obama’s health care reform plan. When drafts of the Affordable Care Act emerged in 2009, the politics of health reform went, in one news cycle, from dormant to hateful. The Republicans and, supposedly, all their reform ideas, left the building in protest to the coming cramdown. What passed Congress in 2010 was derided as “Obamacare,” and there was nothing in the legislative colossus a Republican could like. Unless of course you read the actual law. Because there they are, buried in section 1334, those AHPs – with one important distinction, discussed in a moment – repackaged as the “Multi-State Plan.”
The survival of this Republican idea is one among many examples of the great political paradox of what we now call, with fading derision, “Obamacare.” Notwithstanding all the partisan howling about a “government takeover of health care,” many of Obamacare’s moving parts are in fact market-enabling mechanisms, not the totalitarian phantasmagoria imagined by its political opponents. If the Administration implements Multi-State Plans in ways consistent with the design and regulatory principles of AHPs – with minimal regulatory burden and maximum consumer market power – it will go a long way to achieving true health insurance market reform. They could even turn out to a powerful driver of cost containment – something noticeably absent from Obamacare. Market-catalyzing reforms built into the AHP model more than a decade ago could well turn the Multi-State Plans into the sleeper economic hit of the whole plan.
There would also be a political side-benefit. Republicans used to believe these plans would have this kind of power; now would be the time to find out. Consummating in tact one of their bigger ideas for health reform would help garner some support for Obamacare from the other side of the aisle.
There is an important difference between the original AHP model and Obamacare’s Multi-State Plan – and a related implementation decision facing the Administration as we speak. The AHPs did not involve pre-defined health benefit packages; rather, they allowed for any odd-sized or shaped plans to emerge within the national market, from “mini-med” plans with caps on payouts to catastrophic-only plans with huge deductibles. With its overriding goal of universal access and coverage, Obamacare locks down this moving part, defining “essential health benefits” to be included in state-level plans – based on local standards – and requiring all plans to fully cover preventive care.
Multi-State Plans will include preventive care, but for the rest of the benefits package, they could follow either local or national standards, pending forthcoming rules from HHS. They could default into just more local plans, governed and regulated locally, limiting their power to change anything. Or they could follow the true AHP model and reap the economies of scale and purchasing power of a national standard – the way it works for self-insured employers and federal employees – and for true consumer insurance (e.g., auto and homeowners) markets. The latter path would unleash the two main economic advantages of AHPs: the power of group buying where none exists today; and the power to buy across stateliness from dozens of insurers, many of whom will be operating in streamlined, lighter touch, less punitive regulatory environments. Entire states will no doubt want to encourage this kind of clean industry development as a useful economic growth opportunity, the w! ay Delaware did years ago for corporate administration and Vermont did for captive insurance companies.
The obstacles to getting from here to there, as with everything related to Obamacare, are not practical but political. Though the Multi-State Plans will be marketplace vehicles, offered by current health insurance companies, they will appear to the uninformed or paranoid like the stealth government-takeover plan – the public option in drag, the Google that really is the front for the NSA. There is already howling against the plans by Tea Party ideologues who cannot fathom any good use of Obamacare – just as the same plans have been criticized as regulation-evading rogues by liberals who cannot fathom any good use of market forces in health care. The political symmetry of such criticisms point to the Multi-State Plans as a rare chance for calmer, bipartisan voices to prevail.
If the recent election signaled that it was time to cool some of the partisan fury eating at the soul of the nation, this provision of Obamacare is the perfect opportunity to start trying. The Multi-State Plan is still just an idea, not a living program – except for the version of it that has always worked well for federal employees, with broad bipartisan support.
The similarities between the AHPs, architected by Republicans, and the Multi-State Plans in Obamacare, legislated by Democrats, is less coincidence than confirmation of their potential power to reform the insurance market. Best of all, they give us a real and immediate opportunity to put pragmatism ahead of politics, and get on with the work of making our health care system work better for everybody.
J.D. Kleinke is a Resident Fellow of the American Enterprise Institute, former health care executive, and author of three books on the health care system, most recently Catching Babies.
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What is so disheartening & heartbreaking is to hear a medical professional deny you care knowingly & being fully aware that this decision will kill you and or cause you to continue to suffer, just because you cannot afford to pay or have insurance. Even those with insurance have dealt with troubling unfair actions having being denied medical care dealing with lengthy amount of waits for correct care, quality care and in time care. Having lost loved ones & friends by being denied medical care, which would have saved their lives, all because of not being able to pay and all because not having the right type of very expensive insurance is appalling. These systems have been created to make certain people very rich. It is not about seeing that you are covered so you have options to get the care somewhere and have options to get medical correct care it is about their job security and making them rich. I was hurt on duty left me with ongoing medical needs. Because of corruption perpetrators were not held accountable. Now disabled not able to work cannot afford to pay outright for any medical care. Who can afford with the unfair cost, practices, & ill willed actions, not too many people. Medical care cost have sky rocketed to enormous excessive prices. There are even millionaires that cannot afford the care, because of the corrupt cost of procedures. They talk about having everyone having insurance with the health care reform that is not going to guarantee that people will get the medical care that they need. This will promote insurance companies to make money. There should be no one in this country being denied any medical care, period. They say we have medical facilities that will give treatment. No they do not! They send some student in to say, “Oh I’m sorry we cannot give that care,” or “Oh I’m sorry we really don’t think you need that.” But if I had very costly expensive insurance where they can get a whole bunch of money their tune would change. This type of unfair, hateful actions, & corrupt systems is causing people to be disabled, destroying their lives, causing them to lose everything, & causing them to be brought down to where they are devastated for the rest of their lives. All for the sake for some corporations, some insurance & some medical professionals to be so rich and capitalize! Just went to a doctor that denied care that said, “I don’t want to be an a _ _ hole, but you cannot afford to pay for medical treatment so you need to accept this is just the way of your life now and accept that you have to suffer for the rest of your life. Sorry about your luck!” When I first went in the office he could have let me know from the get go that he was not going to care and give treatment. He had to get me to come back on a special appointment just to tell me how he didn’t believe how I got hurt, talked degrading & down to me, and made above & beyond the point how he wasn’t going to render medical care. Doctor’s taking advantage of our elderly giving shots & treatments that wasn’t necessary costing $5,000. People are fully aware what is wrong why people are getting hurt not getting medical care & treatment that is needed. It needs to change and not replaced with another corrupt system making organized crime groups rich while causing those that they are supposed to be helping suffer & die.
While I have always had a very strong free market bias, I’m skeptical of this concept for a couple of reasons. First, the main driver of the cost of any health insurance policy is medical claims costs. If the law defines an essential benefits package and there will be four different actuarial value levels – 60%, 70%, 80% and 90%, I don’t see much room for product differentiation. Utilization and prices per service, test, procedure and drug will combine to drive medical claims costs. Insurers covering individuals and small groups today presumably pay the same price per service, test, or procedure in a given state as they do for members of large groups, whether they’re self-funded ASO customers or fully insured.
Second, the main reason that individual and small group policies are more expensive than large group policies today is because the associated administrative costs are much higher. Administrative costs can be 30%-40% of premiums for individual policies after brokerage commissions, underwriting and marketing expenses, etc. but only in the mid to high single digits for large groups with the small group administrative costs in the 15%-20% range.
As for medical costs specifically, these can vary by state based on a combination of medical input costs and how conservative or aggressive physician practice patterns are. If people who live in high costs states like NJ, NY and MA flock to, say, Utah to buy lower cost policies but the insurance company has to pay claims based on Northeastern medical prices and practice patterns, the Utah insurance cost advantage will erode over time as more of their members come from high cost states. What am I missing here?
Tell me how these newly possible “groups” will give the same “affordable” rates as self funded and employer provided plans that have the strength of tax free subsidized coverage?
What mechanism will allow unrelated/unassociated individuals across the country to coalesce into a common insured unit?
The arms race needs to stop. Or maybe a better metaphor would be gold-rush or land-grab.
Which/whatever, the AHP/MSP/EIEIO approach is indeed a BIG step in ending the arms race that healthcare spending has become in the last 60+ years. It’s not the full, nuke-style deterrent, but it’s a start.
The rabble-rouser that lives inside my head also thinks that fully severing access to health insurance from employment might just be the nuke-deterrent needed. But that’s a big bite, I know. It is a bite we’ll have to take, though, at some point.
JD’s got to be smart enough to know that in all the “job-killer” rhetoric flung in the last episode of Silly Season, the *real* job-killer is expecting business to foot the national healthcare bill via federally mandated employer health plans …
Nice. Selling across state lines, as usually described, is a great way to make docs rich. This plan, if implemented as described, might actually help to lower costs.
Copy that….but limited upside, no? Just play out the best use case of MSPs, or AHPs on steroids, i.e., we band together, extracting best pricing aka most favored nations’ rates, then what? The borg is already cost prohibitive via a multiple yet to be calculated based on typical family income and liquid assets. Just about everyone of us are 2 paychecks or one major illness away from bankruptcy.
Lets assume the best case is we approach trend for major wholesale purchasers of healthcare, i.e., CALPERS, FEHBP, et al. Then what? How have these employers continued to underwrite and offer health benefits to their covered lives? Premiums rise albeit as lower single digit rates via aggressive benefit plan rewrites (i.e., ‘reductions’ plus cost shifting), increased co-payments, coinsurance, reductions in dependent coverage, caps, limitations, etc…
If this is the best we can do, than why bother? This will not tame or restrain the ‘rapacious appetite’ of the healthcare borg. What am I missing JD?
The answer? Cap the payment pipeline, period. $2.7 trillion is more than adequate. Forget trend as a basis for efficacy of intervention. Let integrated delivery systems, or risk bearing providers extract marginal players, mentor the reorganization of volume driven medicine into physician led business units and watch managed competition ruthlessly play out.If waste, fraud and abuse accounts on the low end of 20% of healthcare spend, and more likely in the 40% range, why tinker at the margins?
No more niche market exploitation business models tolerated. Either you contribute directly to a sustainable healthcare ecosystem, or you do not gain entry into the market. Triple aim, or go home.
There, rant over….thoughts?
The problem Gregg is that “integrated delivery systems, or risk bearing providers” are the ones with the “rapacious appetite”, and putting them in charge of reorganization, i.e. driving out the “niche players”, may not work as intended. Clash of the Titans rarely benefits foot soldiers…
Margalit, copy that. your argument seems to be the concern of DOJ and FTC as well, see: http://acowatch.wordpress.com/2012/12/03/aco-another-compromised-organization-or-a-coordinated-orchestra/
Yet, hard to see as principal downside or ‘unintended consequence’ of law. When hospitals are cost centers, vs traditional revenue cash clows, the capital budgets and associated operating strategies seem to fall in line. Efficiency, right care, right place, right source a much higher priority than ‘shake and bake’ production incentives.
‘Integrated’ as in IDNs must mean ‘at risk’ globally via full PMPM or percent of premium budgets, not just service line coordination or vertical consolidation. Still may be a semantic delta?
“Notwithstanding all the partisan howling about a “government takeover of health care,” many of Obamacare’s moving parts are in fact market-enabling mechanisms, not the totalitarian phantasmagoria imagined by its political opponents.”
Yep, down in those not-“2,700″ pages of detail (906 to be precise, with 2” margins).
Let the angry naysaying bumper-sticker shouting ensue. JD makes far too much sense.