Individual Coverage an Endangered Species?

I know I said I wouldn’t be posting anything for awhile, but recent articles could be indications that private market individual medical insurance could be a candidate for the endangered species list. Which is a shame because individual coverage offers consumers some major advantages over the alternative. Fortunately, some of the threats to the future of this market may hold the seeds of a brighter future.

Take for instance, the intent of Congressman Henry Waxman, Chair of the House Oversight and Government Reform Committee that “the individual market demanded more scrutiny, especially of cancellation practices,” as reported by Lisa Girion in the Los Angeles Times. The fact is, the way carriers handled their rescission powers have hurt innocent members, undermined their own credibility and battered whatever good will they might have possessed.

What’s ironic is that carriers rarely invoke their rescission rights. Consequently, whatever carriers gained in using it to fight fraud has been more than offset by the political damage they’ve taken.

Which brings us to Congressman Waxman’s hearings. Congressman Waxman is one of the House’s brightest members. He is passionate and committed to fighting injustice. His hearing will be thorough and, considering the political context of these things, fair. All sides will be heard and, with luck, some good might come of it. But it certainly will be a grilling causing strong insurance executives to sweat and bring weak ones to the verge of nervous breakdowns. Taking the oath before the Committee is not anything a CEO looks forward to: just ask all those former tobacco CEOs Congressman Waxman humbled a few years ago.

The real danger, however, is not the reputations of a few CEOs, but what “reforms” might emerge from the hearings. A lot of people simply don’t like individual coverage. They believe the carriers have too great an advantage in the transaction. To them, baring a government takeover of the health insurance system, the only other option is having the government micro manage the market.

Yet government micromanagement will inevitably lead a blander market of vanilla coverage and reduced choice. That’s what’s happened when states have intervened to create purchasing pools for consumers. While the pools have generally failed to lower the the cost of coverage, they have succeeded in limiting consumer choice.

Yet it’s the flexibility of the individual market that is one of its greatest strengths (along with its availability being independent of one’s job). Choice in the individual market makes it easier to find a solution for consumers’ unique needs. And those needs do differ. Ask a 22 year old fresh out-of-college and a recently retired 60 year old what they need from their health insurance. It will quickly become clear health insurance is not a product where one size fits all.

Increased flexibility brings the potential to lower costs, making coverage more accessible for more consumers. In short, there’s a lot of benefits to the individual market. It would be a shame if mistakes carriers made involving recessions results in over regulating the market. That’s could happen soon in California. Along with several rescission bills, legislation to regulate the kind of plan designs carriers can offer is moving forward. SB 1522, authored by incoming President Pro Tem Senator Darrell Steinberg is currently on the Assembly Appropriation Committee’s Suspense File. Which means it’s ready to be passed if the Legislature ever resolves the budget impasse.

I’ve written previously about problems with the bill’s specifics. Beyond those, the legislation also is symbolic of lawmakers’ desire and willingness to insert themselves into the market at a very granular level. It’s not a long leap from defining what policies must be offered to regulating their price, distribution and implementation.

So where’s the silver lining in all this? Individual coverage rules and regulations vary widely from state-to-state. This means consumer protections vary widely across state boundaries. It also reduces competition in some states. Senator John McCain and others propose to address this by allowing policies approved in one state to be sold in any state. This approach, however, would result in a disastrous dash by carriers to file their products in the states with the most lenient rules and the laxest enforcement.

Congressman Waxman’s hearings, however, could lead to a different solution: national standards establishing a credible structure to enable policies to be sold nationally. These structure would, ideally, bring increased credibility to the individual market without diminishing consumer choice.

OK, it’s a long shot. And it may only replace the spectre of over-regulation by state lawmakers with the danger of over-regulation by federal lawmakers.

But, hey, I only claimed it was the lining. But sometimes that’s all endangered species can hope for.

On Hiatus

For those paying attention (and my thanks to all of you who do) it’s clear there hasn’t been much activity on the ol’ blog of late. After writing over 300 posts in this and my other blog, I’m taking a bit of a break for the summer. However, it’s only a hiatus, I’m not abanding the blogs. So I look forward to resuming our conversation in the Fall. There will be a lot to talk about.
Alan