The Endangered Individual Health Insurance Market

And then there were none? The individual health insurance marketplace is endangered and policymakers need to start thinking about a fix now, before we pass the point of no return.

Health plans aren’t officially withdrawing from the individual and family market segment, but actual formal withdrawals are rare. What we are witnessing, however, may be the start of a stampede of virtual exits.

From a carrier perspective, the individual and family health insurance market has never been easy. This market is far more susceptible to adverse selection than is group coverage. The Affordable Care Act’s requirement guaranee issue coverage only makes adverse selection more likely, although, to be fair, the individual mandate mitigates this risk to some extent. Then again, the penalty enforcing the individual mandate is simply inadequate to have the desired effect.

Add to this higher costs to administer individual policies relative to group coverage and the greater volatility of the insured pool. Stability is a challenge as people move in-and-out of the individual market as they find or lose jobs with employer provided coverage. In short, competing in the individual market is not for the faint of heart, which is why many more carriers offer group coverage than individual policies. Those carriers in the individual market tend to be very good at it. They have to be to survive.

Come 2014, when most of the ACA’s provisions took effect, these carriers suddenly found their expertise less helpful. The changes were so substantial historical experience could give limited guidance. There were simply too many unanswered questions. How would guarantee issue impact the risk profile of consumers buying their own coverage? Would the individual mandate be effective? How would competitors price their products? Would physicians and providers raise prices in light of increased demand for services? The list goes on.

Actuaries are great at forecasting results when given large amounts of data concerning long-term trends. Enter a horde of unknowns, however, and their science rapidly veers towards mere educated guesses. The drafters of the ACA anticipated this situation and established three critical mechanisms to help carriers get through the transition to a new world: the risk adjustment, reinsurance and risk corridor programs.

Risk corridors are especially important in this context as they limit carriers’ losses—and gains. Carriers experiencing claims less than 97% of a specified target pay into a fund administered by Health and Human Services; health plans with claims greater than 103% of this target receive funds. You can think of risk corridors as market-wide shock absorbers helping carriers make it down an unknown, bumpy road without shaking themselves apart.

You can think of them as shock absorbers. Senator Marco Rubio apparently cannot. Instead, Senator Rubio views risk corridors as “taxpayer-funded bailouts of insurance companies.”

In 2014 Senator Rubio led a successful effort to insert a rider into the budget bill preventing HHS from transferring money from other accounts to bolster the risk corridors program if the dollars paid in by profitable carriers were insufficient to meet the needs of unprofitable carriers. This provision was retained in the budget agreement Congress reached with the Obama Administration late last year. Senator Rubio in effect removed the springs from the shock absorber. The result is that HHS could only reimburse carriers seeking reimbursement under the risk corridors program just 12.6% of what they were due based on their 2014 experience. This was a significant factor in the half the health co-operatives set up under the ACA shuttering.

Meanwhile individual health insurers have taken a financial beating. In 2015 United Healthcare lost $475 million on its individual policies. Anthem, Aetna, Humana and others have all reported substantial losses in this market segment. The carriers point to the Affordable Care Act as a direct cause of these financial set-backs. Supporters of the health care reform law push back on that assertion, however. For example, Peter Lee, executive director of California’s state-run exchange, argues carriers’ faulty pricing and weak networks are to blame. Whatever the cause, the losses are real and substantial. The health plans are taking steps to staunch the bleeding.

One step several carriers are considering is to leave the health insurance exchanges. Another is to exit the individual market altogether; not formally, but for virtually. Formal market withdrawals by health plans are rare. The regulatory burden is heavy and insurers are usually barred from reentering the market for a number of years (five years in California, for example).

There’s more than one way to leave a market, however. A method carriers sometimes employ is to continue offering policies, but make it very hard to buy them. Since so many consumers rely on the expertise of professional agents to find the right health plans, a carrier can prevent sales by making it difficult or unprofitable for agents to do their job. Slash commissions to zero and agents lose money on each sale.

While I haven’t seen documentation yet, I’m hearing of an increasing number of carriers eliminating agent commissions and others removing agent support staff from the field. (Several carriers have eliminated field support in California. If you know of other insurers making a similar move or ending commissions please provide documentation in the comments section).

So what can be done? In a presidential election year not much legislatively. Republicans will want to use an imploding individual market to justify their calls repealing the ACA altogether. Senator Bernie Sanders will cite this situation as yet another reason we need “Medicare for all.” Former Secretary of State Hillary Clinton, however, has an incentive to raise the alarm. She wants to build on the ACA. Having it implode just before the November presidential election won’t help her campaign. She needs to get in front of this issue now to demonstrate she understands the issue and concerns, begin mapping out the solution and inoculate herself from whatever happens later this year.

Congress should get in front of the situation now, too. Hearings on the implosion of the individual market and discussions on how to deal with it would lay the groundwork for meaningful legislative action in 2017. State regulators must take notice of the endangered individual market as well. They have a responsibility to assure competitive markets. They need to examine the levers at their disposal to find creative approaches to keep existing and attract new carriers into the individual market.

If the individual market is reduced to one or two carriers in a region, no one wins. Competition and choice are consumers’ friends. Monopolies are not. And when consumers (also known as voters) lose, so do politicians. Which means smart lawmakers will start addressing this issue now.

The individual health insurance market may be an endangered species, but it’s not extinct … yet. There’s still time to act. Just not a lot of time.

Health Care Reform Absent from Democratic Debate

Two hours of policy-heavy dialogue and, unless I missed it, not one of the five Democratic candidates for President uttered the words “Obamacare,” “Affordable Care Act” or “health care reform.” True, Senator Bernie Sanders brought up “Medicare for all” and declared that health care coverage is a right of citizenship. However, there was no mention of his remarks by the other candidates, former Senator Lincoln Chafee, former Secretary of State Hillary Clinton, former Governor Martin O’Malley, and former Senator Jim Webb.

Update: October 14, 2015: Oops. There was a brief discussion of allowing undocumented immigrants eligible for coverage under the ACA. The focus of this segment was immigration and the candidates mention of health care was incidental. I don’t think this undermines the point of this post, but they did mention it. My bad.

Ignoring health care reform is a s pretty amazing development when you think about it. Health care reform was a big part of the Democratic presidential primary campaign in 2008. The passage of the Patient Protection and Affordable Care Act in 2010 turned American politics upside down adding copious amounts of fuel to the Tea Party movement. Yet, in the CNN/Facebook debate from Las Vegas … not a word.

I’m not saying CNN should have made health care reform the primary topic of Tuesday night’s Democratic debate. However, a short simple question soliciting short simple answers would have, I believe, highlighted some differences among the candidates. At the very least it would have contrasted the Democrats running for president from the Republicans seeking the office.

My hoped for question: “What changes to the Affordable Care Act, if any, would you seek if elected President?”

We know Senator Sanders’ response: he’d scrap the Affordable Care Act for a single payer system. Would any of the others join him? Maybe. Would any of them defend the health care reform law as is? Possibly. Quizzing the candidates on legalizing marijuana was of interest to some, no doubt, but, in my mind at least, finding out what they’d change in the ACA is both a more important and fascinating topic.Of course, given the topic of this blog, I am a bit biased.

Jeb Bush Reveals Health Care Reform Plan

Ironically, this is the day former Republican presidential candidate, Governor Jeb Bush, detailed his health care reform proposal. Calling the ACA a “monstrosity,” Governor Bush said the government should help Americans obtain catastrophic coverage (albeit with a preventive care component) to protect them from financial ruin, but not force individuals to buy and businesses to offer comprehensive coverage.He would require carriers to cover insured’s pre-existing conditions for individuals who maintain continuous coverage.

Under Governor Bush’s proposal, individuals without employer coverage would receive tax credits allowing them to buy coverage against “high cost medical events.” Governor Bush also called for raising the contributions limits allowed on health savings accounts.

Significantly, Governor Bush recognizes that the ACA can’t simply be repealed without serious adverse impacts on what he calls “the 17 million Americans entangled in Obamacare.” He calls for a transition plan to help them move from the ACA to the Governor’s system.

Governor Bush’s health care reform plan also calls for restoring state regulation of insurance markets, promotion of health information technology adoption, wellness rewards and innovation in care delivery models. An interesting, and maybe wishful, provision of his proposal is “an app on your smart phone that calls your doctor to your front door, just as it does for a car to come pick you up.”

Maybe Next Time

Health care reform in general and the Affordable Care Act will no doubt be a big part of the general election. Governor Bush has laid out one approach for Republicans. It would be nice to learn a bit more about what Democrats would do. CBS hosts the next one on November 14th. Maybe the issue will come up then.

Is requesting one straightforward health care reform question asking for too much?

 

Health Care Reform the 2016 Where’s Waldo

At this time in 2011, six months before the Iowa caucuses, health care reform was a big deal. Republicans couldn’t see a live microphone without calling for its repeal. And one would think that the official name of what was commonly referred to as “Obamacare” was “the President’s signature issue” in his first term. Flash forward four years and health care reform is now the “Where’s Waldo” issue of 2016: it’s there somewhere, but darn well hidden.

True, every candidate on the GOP wants to repeal the Patient Protection and Affordable Care Act. They are all happy to haul out the old tropes about how the ACA is a job killing, anti-free market, mess and a government overreach. Many will be happy to explain how it’s all unconstitutional.

Meanwhile, every candidate on the Democratic side is defending the ACA, although some more enthusiastically than, well, at least one. Candidate Bernie Sanders has promised to introduce “Medicare for all” legislation (a euphemism for single payer) soon and would seek a single payer solution were he to become president. Yet even on the Democratic side, the topic of the ACA is pretty well hidden in their campaigns.

In fact, a quick survey of campaign web sites shows a remarkable lack of emphasis on health care reform by presidential candidates. On the Democratic side, health care reform doesn’t make the issues list on the campaign web sites of former Governor Martin O’Malley or Senator Bernie Sanders. Defending the Affordable Care Act is the ninth issue addressed by former Secretary of State Hillary Clinton’s web site.

On the Republican side Donald Trump is too busy bullying his opponents and the press to mention any issues other than immigration on his site. Health care reform makes Dr. Ben Carson list of issues, but he devotes just 98 words to the topic — and the only alternative he mentions is his support of health savings accounts. Former Governor Jeb Bush’s site is nearly issues free (there’s a white paper on his tax reform plan in the “news” section, but there is no “issues” tab). I couldn’t find anything about health care reform on the site. Then, I couldn’t find the issue (or any issues) on Carly Fiorina‘s or Senator Ted Cruz‘s sites, either.

Governor Scott Walker announces his intent to repeal Obamacare on his first day in office. And although I couldn’t find it on his web site, to his credit Governor Walker has offered a plan to replace the ACA. Senator Marco Rubio gets around to discussing health care reform on his web site after first mentioning 17 other issues while on Governor John Kasich‘s site it comes in at #3.

Given all that’s going on the world, it’s not surprising health care reform isn’t a driving issue. Which is remarkable. Health care reform arguably gave birth to the Tea Party movement. It cost Democrats the majority in the House in 2010 and helped chip away at their Senate majority until that was lost, too. In short, health care reform moved elections.

Now, not so much. The ACA is a part of America’s landscape now. Too many people are insured under the law to repeal it. Too much physical, digital and process infrastructure has been built out. Too many stakeholders are vested in the ACA continuing and opponents of the reforms have no coherent program to replace it.

This isn’t a bad thing. Because it opens up a real possibility that, once there’s a new President and Congress in 2017, they can accomplish something important: fixing the Affordable Care Act. The law has lots of flaws, but the debate since it’s passage has too often been an all-or-nothing affair: dump it or defend it. Yes, there’s been some tweaking around the edges of the legislation, but not the comprehensive review and modification that’s needed.

Finding Waldo can be hard. Finding a way forward to improve the ACA will be harder still. If little kids can find Waldo, perhaps there’s hope that what passes for adults in Congress can find common ground to improve the ACA. That’s still a long shot, but perhaps a bit more possible now than just a year or two ago.

States and Health Care Reform

Health insurance has long been a state affair in the USA. Insurance companies were even exempt from many aspects of federal anti-trust law to better enable state regulators to oversee their activities. Yes, there were federal laws that standardized certain aspects of the business—think HIPAA and COBRA. Think about Medicaid, Medicare and SCHIP while you’re at it. But when it came to health insurance regulation the states reigned supreme.

Enter Congress and President Barack Obama stage left. With the passage of the Patient Protection and Affordable Care Act the federal role in shaping and regulating health insurance shifted significantly to Washington, DC. The Secretary of the Department of Health and Human Services is now arguably the most important health insurance regulator in the country. The Department of Labor and Internal Revenue Service will also play significant roles in determining the future of the nation’s health insurance market and the choices (or lack of choices) Americans have to meet their health care coverage needs. No wonder critics of the PPACA condemn the law as a “federal takeover.”

That the nexus of health plan oversight has shifted to the federal government is beyond argument. The new health care reform law touches everything from how medical plans are designed, priced, offered, maintained and purchased. To conclude that state insurance regulators are shunted to the sideline, however, dangerously overstates the case. In fact, the PPACA invests tremendous flexibility in the states, allowing them to implement the federal requirements in what will likely be very divergent ways.

Rebecca Vesely, writing in Business Insurance, makes this clear in her article describing how two states, Vermont and Florida, are taking strikingly different paths in addressing health care reform. Vermont has taken the first step toward creating a single payer system by 2017. Legislation to set up a five member board to move the state in this direction has already been enacted. And while many details need to be worked out (funding, to name one) and Vermont will need to obtain a waiver from the Centers for Medicare and Medicaid Services to put the package together, the state is further down the road to single payer than any other.

Then there’s Florida where the move is in the opposite direction. That state is seeking to shift virtually all of its Medicaid population from government coverage into private plans starting in July 2012. These private managed care plans would be offered through large health care networks with health plan profits above five percent shared with the state. Whether this approach will achieve the $1.1 billion in first year savings promised by the Governor or not, it has brought new participants into the Medicaid marketplace such as Blue Cross and Blue Shield of Florida.

The Business Insurance article includes a prediction by Boston University law professor Kevin Outterson that the Obama administration will sign off on the waivers Vermont and Florida need to move forward.

What the starkly different approaches to reigning in skyrocketing health care costs being taken by Florida and Vermont demonstrates is the broad flexibility states retain in shaping their own health care destiny. Yes, federal waivers are required, but that would be the case even if the PPACA had never passed—Medicaid is a federal program after all. The CMS web site lists 451 state waivers or demonstration projects in place today. The concept of allowing experimentations and exceptions is ingrained in the Medicaid program just as they are in the Patient Protection and Affordable Care Act. There’s nothing wrong with this any more than having shock absorbers on a car is an indictment of an automobile’s chassis or tires.

The marked variation in approaches being taken by Vermont and Florida are extreme examples of what we’ll see as states implement exchanges and other aspects of the Patient Protection and Affordable Care Act. Of course, whether this is good news or bad news depends a great deal on the state in which you live and work. States that are heavily tilted toward one party or the other (I’m looking at you California and Wisconsin) could make some of their residents yearn for the federal government to step in and keep things in perspective. Given the way the PPACA preserves state powers, however, they are going to be disappointed.

How New Health Care Reforms Make Single Payer Less Likely

There are those who view the Patient Protection and Affordable Care Act, the health care reform legislation signed into law by President Barack Obama, as the first step toward a complete government takeover of America’s health care system. While I don’t agree with their arguments, they do have a case to make. That is:

  • because the reforms fail to restrain the out-of-control growth of medical costs, insurance premiums will continue to rise
  • because the reforms place constraints on health insurance companies, the private sector will be squeezed between increases in the underlying cost of care and their ability to charge adequate premiums to cover those costs
  • meanwhile the government-run health insurance exchanges, to be operational by 2014, which is also when Medicaid is set to dramatically expand, increases the percentage of health care coverage provided or made accessible by governments

Throw in a few other provisions (elements of the reform some say will undermine Medicare Advantage, the new taxes imposed on health insurance carriers and others), season to taste with paranoia and the belief that the recently passed health care reforms is merely the first steps down a path leading to a single payer system gains significant heft.

Given this scenario, one might expect folks on the left to be gleeful with the reforms. Many liberals publicly and fervently support a government-run health plan that would completely remove private health insurance companies from the marketplace. If they believed what emerged from Washington moved that goal closer, you’d expect them to celebrate, at least a little.

If so, the folks at Consumer Watchdog failed to get the memo. This group, led by Jerry Flanagan, considers health insurance companies to be the manifestation of evil in our plane of reality. OK, I’m paraphrasing here, but you get the idea. They are unabashed advocates of a single payer system for California and the nation.

On April 8th, wrote a letter to President Obama, Secretary of Health and Human Services Kathleen Sebelius, and members of Congress identifying what it calls loopholes in the newly enacted health care reform bill. (Consumer Watchdog Letter on Health Care Reform Loopholes). Among the group’s concerns is that the minimum benefit requirements to be proposed by HHS will preempt stronger minimum benefit standards at the state level, that its approach to Medicare Advantage could “push traditional Medicare into an economic death spiral,” that the law fails to attack recent price hikes by pharmaceutical companies, and that carriers will continue to be permitted to rescind coverage for intentional misrepresentation, without creating new regulatory oversight to ensure that exception is not abused by health plans.

Most interesting, however, is Consumer Watchdog’s fear that the new health care reform bill will prevent states from adopting a single payer system at least until 2017. Under the heading “States Rights to Innovate,” the letter states, “Under the current law, states must wait until 2017 for waivers from the federal government to use federal Medicaid, Medicare, tax subsidies
and other funds to support state alternatives to the private insurance market, whether that
be by adopting a state single-payer model or a state ‘public option.’”

Since states can’t divert funds from existing public programs to new government programs, the new health care reform law blocks initiatives to create single payer systems at the state level. In fact, the new reforms block states from creating a health plan to compete with private carriers (unless it can do so without federal funds, tax subsidies and the like).

I suppose what this proves is there is a balance in the universe. The same legislation some fear will inevitably lead to a single payer system is the same legislation that prevents states from creating a single payer system.

Of course some will argue that this simply delays the coming of a single payer system to 2017. However, think about the recent reform package. The Patient Protection and Affordable Care Act. It was passed by the slimmest of margins and only after intense debate and adroit legislative maneuvering. It’s passage was possible only because Democrats occupy the White House and have substantial majorities in both chambers of Congress. Yet the legislation has no public option and is built around private health insurance. Nonetheless it is criticized as “socialism” by some and a “government takeover” by others.

Does anyone realistically believe the country is going to move further to the left in future elections? That’s one of the reasons the Administration pushed so hard to pass health care reform in 2009. The party occupying the White House nearly always loses seats in mid-term elections. They knew the Democratic majorities resulting from the 2006 and 2008 elections were the high watermark for Democrats in Congress. Long before the tea party started brewing the Administration understood the 2010 elections would reduce their working majorities in Congress. Why would anyone think future Congresses would be even more liberal than this one?

That’s why Consumer Watchdog is concerned about the new health care reform package. It prevents them from moving forward with a state public option or single payer system until 2017. And by then, given the pendulum that is American politics, the odds of a government takeover of health care is likely to be slimmer than it is today.

Why Liberals Will Be Disappointed By The Health Care Reform Summit

Americans’ views of the upcoming bipartisan health care reform summit will differ greatly: their ideologies and existing opinions concerning health care reform will color how they view what unfolds at Blair House on February 25th. Those in the center and right will hear talk of new government agencies and programs, new federal rules and the regulations, and wonder why those on the left are so disappointed. Isn’t what President Barack Obama proposing an unprecedented incursion by the federal government into health care? What more could the left want?

What liberals want is a single payer system. Often couched as Medicare for All, liberals hoped last year the new Administration would move forward with a complete remake of America’s health care system. Not they had much basis for such wishful thinking. Candidate Barack Obama made it clear that he would not be pushing for a single payer system if elected. After the election he made clear the private carriers would be a central part of the country’s health care system (single payer advocates would do away with health insurance companies).

In short, a single payer was off the table pretty early. But that doesn’t mean it was forgotten. I was watching Senator Bernie Sanders call for Medicare for All on one of the news stations earlier this week.

As we approach the Amidst the accusations that President Barack Obama is refusing to compromise on his health care reform package, it’s worthwhile  intention to lead a government takeover of health care in the United States Dr. Quinten Young, national coordinator of Physicians for a National Health Program, attacked both the House and Senate health care reform bills as “disastrous.” In a Huffington Blog posting, Dr. Young called on President Obama to “lay out the facts to the American people and provide energetic leadership for this eminently rational proposal.”

Not going to happen. Consider the current status of Medicare’s finances. Representative Paul Ryan, writing in Newsweek magazine this week, notes Medicare “is short $38 trillion of what it promises to provide your parents, you and your kids. In five years, the hole will grow to $52 trillion. Your family’s share: $458,000.” It’s also worth noting that the single payer bill recently passed by the California State Senate (and likely to be passed by the State Assembly then vetoed by Governor Arnold Schwarzenegger) has a price tag of roughly $200 billion. As noted: it’s not going to happen.

Which explains why liberals are so dismayed when President Obama’s health care reform plan fails to include a government-run health plan to compete with private carriers. Unlike moderates and conservatives who see this (to varying degrees) as a compromise, liberals view the lack of a public option as the elimination of a compromise they already agreed to. They want a single payer system. They were willing to accept a public option. Now that’s off the table, too?

People feel passionate about health care. The issue is personal, political and policy all wrapped into a complex mix of laws, regulations and history. Which is why many observers believe the bipartisan summit will be little more than political theater (I disagree for reasons I’ll put in another post later today). And people will naturally interpret what happens tomorrow based on their own view of health care reform policy and politics. The perspective for liberals seeking a single payer system will be that of an ever shrinking loaf, leaving them with little to celebrate – in their view.

As noted, however, the left’s disappointment is unsurprising, and the fault of their own misinterpretation of election night 2008. Democrats increased their majorities in both chambers of Congress. Democrats won the White House. Progressives interpreted these results as the triumphs of liberalism. They were not. They were triumphs of the Democratic Party – a party that includes moderates and conservatives. Just as all Labradors are dogs, but not all dogs are Labradors, most liberals are Democrats, but not all Democrats are liberal.

No one knows for sure what will emerge from the health care reform summit. But a safe guess is that liberals will be further disappointed.

Liberal’s Approach to Health Care Reform Made Abortion Controversy Inevitable

Democrats paid a heavy toll to keep health care reform moving forward. They were forced to accept substantial and virtually unprecedented limits on abortion coverage in order to get the Affordable Health Care for America Act through the House of Representatives. This result should awaken them to the need to rethink their approach, but it assumes they learned the key lesson: where government goes, ideology follows.

Speaker Nancy Pelosi needed 218 votes to make history: passage by the House of the Affordable Health Care for America Act. Liberals got her most of the way there, but to get across the finish line Speaker Pelosi needed support from moderates and conservatives. This meant cutting a deal with the pro-life caucus. The result: HR 3962 prohibits the government-run medical plan and coverage offered through the health insurance exchanges the bill would create from covering elective abortion procedures. Liberals are furious, but to pass health care reform they had to accept this restriction as part of the package.

This post is not about the politics or morality of abortions. Readers of this blog are on both sides of this issue. This blog is about health care reform and what happened to HR 3962 concerning abortion highlights one of the greatest pitfalls in Democrats approach to reform. If they continue down the road they are on, increasing the amount of America’s health care system government directly controls and manages, the party is guaranteeing that similar defeats on similar public policy issues is all but a certainty. The issue today is abortion. In the future it could be access to birth control. Or making coverage available to domestic partners. The fact is, government-run health care does not and cannot exist in a vacuum. Politics and ideology inevitably come along for the ride.

The final health care reform bill may loosen the prohibition on abortion coverage contained in the House bill. But if the restrictions are diminished, it will be because Democrats led by Speaker Pelosi and Senate Majority Leader Harry Reid are in control of Congress and President Barack Obama occupies the Oval Office.

For now.

Eventually conservatives will be in power again. No party or ideology dominates America’s politics forever. And a conservative government will not hesitate to use the tools given to it by Democrats to push forward their agenda merely because those tools were created by liberals. 

No one should be surprised about this political reality. In a post back in August 2007 I warned single payer advocates that a government takeover of health insurance would open the door to ideology meddling by conservatives. And in August of this year I reminded liberals that while Democrats are ascendant today, politics, like a pendulum, eventually changes direction. “In 2001 the President was George W. Bush, the Senate Majority Leader was Trent Lott and the House Speaker was Dennis Hastert (just two years earlier it had been Newt Gingrich). Their view of how a public health plan should work – what it covers and who it benefits – varies considerably from the Obama/Reid/Pelosi view. Yet the greater the role liberals give the government over health care, the more control over issues like abortion conservatives like Bush/Lott/Hastert will have when they take power again – and eventually, they will.”  And I’m hardly the only observer to state this reality.

So Democrats face a critical choice. They can pursue their health care reform goals care by increasing government’s direct participation in the market or by looking to the regulations the government imposes on the market.  One opens the door wide to groups of lawmakers holding health care reform hostage to unrelated public policy issues; the other narrows this opening.

For example, lawmakers want to prohibit carriers from denying consumers coverage because of their current or previous health conditions. Creating a health insurance exchange is one method of achieving this goal, but it is not the only way. And alternatives limit the opportunity for ideological meddling in Americans’ lives.

Yes, a public plan would increase competition in the market (a primary justification for a government-run plan), but so would health insurance co-operatives. And as non-government entities, co-operatives would be less susceptible to partisan interference.

By focusing on their goals and being careful of their methodology for achieving them, Democrats can have their health care reform and limit the price they’ll pay on other issues. Or they can continue down a road in which accepting limits on abortion coverage is merely the first of many heavy and painful tolls they will pay.

Health Care Reform: Getting Ready for Crunch Time

For health care reform, the next few weeks will be critical. Congressional committees are poised to pass legislation (to put this in perspective, this never happened during the Clinton Administration’s reform efforts in 1993-94). President Obama and his aides will become even more engaged concerning the legislative language they would like to see Congress enact. Senate moderates will begin taking sides on critical issues. In short, this is when it all starts coming together. In the next few weeks, it will become clear if Washington will enact health care reform and, if so, what it will look like.

Events will move quickly, so I’m clearing out some short items that have been lingering in my “to blog” folder for awhile. They are a random assortment of items unlikely to become stand-alone posts. Taken as a whole, however, I hope they provide some useful background to the history about to unfold.

  1. Health care reform ideas are flying around the Capital in ever increasing numbers. Keeping track of them all can be a challenge. Good thing there’s the Kaiser Family Foundation’s health care reform proposal comparison tool. It makes comparing the entire plan or just particular issues across the various proposals simple.
  2. One of the plans we have yet to see details on will be presented in the next few days in the Senate Finance Committee. They are working hard to construct a legitimately bi-partisan proposal, which means it has the greatest likelihood of foreshadowing the legislation likely to emerge from Congress. To get an early taste of the coming debate in that committee, check out the dialogue between Senator Charles Grassley and Senator Charles Schumer on CBS’ “Face the Nation.”
  3. I’m a fan of the FiveThirtyEight.com blog. The site applies rigorous math to political topics. Very rigorous math: it’s prediction of election outcomes during the presidential primaries and the general election were eerily accurate. The site has a left-leaning bias on some topics, but overall, its posts are more nerdish than ideological. Recently it did an interesting analysis on how campaign contributions may derail a public option plan. Of course, whether Senators vote a certain way because of the contributions they receive or they receive contributions because of the way they vote is an open issue (which, to his credit, the author acknowledges). But the issue of causality does not change his conclusion: unless the several stars fall into place, a public option is unlikely to be part of the final health care reform package.
  4. Need more evidence a government-run health plan is losing momentum? As noted last week, Democrats on the Senate Health, Education, Labor and Pensions Committee feel the need to dress their public plan proposal in moderate clothing. Then there’s White House Chief of Staff Rahm Emanuel making clear today the Administration is willing to accept legislation without a public plan. According to the Wall Street Journal Mr. Emanuel says “’The goal is to have a means and a mechanism to keep the private insurers honest. The goal is non-negotiable; the path is’ negotiable.”  Mr. Emanuel goes on to say creating a public plan only if the private market proves incapable of offering competition would be one acceptable solution.
  5. Is a government-run plan even needed for health care reform to be meaningful? Uwe Reinhardt, an economics professor at Princeton, uses the German health care system as evidence it is not. This is not to say that the German system is an appropriate model for the United States, but it does undermine the argument that health care reform will only work if the government is both referee and player.
  6. All the health care reform attention is focused on what’s happening in Washington. Some folks think this is a mistake. Instead, the federal government should simply enable states to pass their own reform plans. This would allow solutions to reflect local values and enable the best ideas to emerge over time. I disagree. States lack the levers of power necessary to reform something as complex and critical as health care reform. In a post from 2007 I cited an article by Ezra Klein describing the many failed state health care reform efforts. That doesn’t mean, however, that every health care decision needs to be made at the national level. Meaningful structural change — and the financing required to implement it – requires the federal government. Implementing those changes can be managed and administered at the regional, state or even local level.
  7. The status quo is on life support. Health care costs are rising faster than either general inflation or wages. (To see for yourself, check out Tom’s Inflation Calculator). We have the opportunity today to enact responsible, meaningful reform. Without such intervention, the current system will eventually deteriorate until unwise and extreme proposals make sense. Fortunately, what’s likely to emerge from the current debate will be determined by moderates. This doesn’t mean the reforms won’t be flawed, but it does mean that there’s a chance for responsible reform sooner rather than later.
  8. The advocates of a single payer system know that the status quo is unsustainable. It is why some of them will oppose whatever moderate reforms emerge from the current health care reform debate. They are like a doctor who sees surgery as the solution to every ailment. If the patient takes medication, and it works, they don’t get to cut. Similarly, if reasonable changes increase access to affordable, quality health care coverage and reduces overall spending, the need for a single payer solution vanishes.
  9. Meanwhile, back at FiveThirtyEight, Nate Silver crunches some poll result numbers and points out that moderates are disappointed with President Obama’s handling of health care reform. Whether these results show President Obama needs to get more specific in describing his health care reforms (as Mr. Silver concludes) or whether he needs to focus more on pushing the right health care reform, is something to ponder.

Both Edges of Public Health Insurance Are Sharp

One of the more devisive issues emerging in the current health care reform debate concerns whether or not a government-run plan should compete with private carriers for individual and small group customers. President Barack Obama and Democrats in Congress have spoken forcefully in favor of this approach. Republicans have argued just as strongly against it. The role of government — should it be solely a regulator or serve as both regulator and competitor — is high on the list of issues most likely to frustrate a bipartisan solution.

I’ve written previously about the dangers of the hybrid approach, how it is likely to lead to a tilted playing field that benefits the public entry to the detriment and potential destruction of private offerings. But there are other points of view, several of them. For example, Princeton Professor Uwe Reinhardt, posting on the New York Time’s Economix articulates several reasons why the public might embrace a government competitor.

Professor Reinhardt notes that recent behavior by private health insurers has shaken public confidence in the industry. He also cites the double whammy of families facing lay0ffs in the current economic downturn and, as a result of our current employer-centric system, losing their subsidized coverage at the same time.

The long-term confidence elderly Americans have put in government-run Medicare plans, even over those of competing private health plans offering richer benefits.

But his strongest arguments in favor of a “Medicare for all,” public insurance program is its ability to beat down rising health care costs. “The providers of health care and health care products, to whom ‘national health care spending’ represents ‘national health care incomes,’ fear the market power that a public health plan might bring to the demand (payment)side of the health sector,” he writes.

Using its buying power, Professor Reinhardt expresses hope the public plan “might significantly bend down the lush, currently projected, long-run growth path of America’s health spending .”  Of course, it’s driving down the cost for enrollees in the public program at the expense of those in private plans that is of great concern to those who want to maintain a competitive system.

It’s the two-edged nature of a hybrid system that is most troublesome — and dangerous. As many of those who have commented on my previous post note, the key to meaningful health care reform is to focus on bringing down costs. Well, as Professor Reinhardt points out, Medicare-for-all can do that. But if the price of that cost control is the destruction of private insurance, why not just turn to a single-payer system in the first place? Well, of course, there’s huge problems with that approach, too, including the danger of runaway taxes.

Is there a middle ground?  Professor Reinhardt claims that an “all-American compromise that could give most sides in this fray much (but not all) of what they ask for” is possible and he promises to outline that compromise in a future post. Until he or someone else does, the debate over which side of the sword we want to face as a nation will, rightfully, be front and center.

A Hybrid Health Care System: Good Politics; Unrealistic Policy

When it comes to topics as complex as health care reform, the legislative dance generally involves two steps.  The first focuses on educating decision makers. It’s a sincere effort to learn the facts, understand the options and identify the trade-offs. Yes, there’s a political element to this phase, but there’s more often a genuine desire to learn about the issue.

The second step in the dance is when the actual language is drafted. This is the phase in which partisanship dominates, where the goal is to win, not educate. Yes, compromises will emerge, and hopefully they’ll be informed by the educational phase that went before, but this is when decisions get made. Which means it’s when political muscle matters more than the ability to educate.

We’re still in the educational step — for now. But the step is coming soon and outlines of the political phase are becoming clear. As I’ve written before, one of the key issues will be whether there should be a government-run health plan competing with private carriers for consumer’s premium.   Proponents see this hybrid approach as a way to drive down costs while keeping private health plans honest. Opponents see it as a big step to government takeover of the health insurance industry.

The Lewin Group published a study today that bolsters the argument of opponents. Entitled “The Cost and Coverage Impacts of a Public Plan: Alternative Design Options” the report attempts to quantify the impact a federal offering would have on private competitors (and on the income of providers). And that impact is substantial. The study assumes health plan offers coverage comparable to the Blue Cross Blue Shield Standard Option within the Federal Employee Health Benefit Plan (meeting President Barack Obama’s promise to offer all American’s access to the same coverage as members of Congress).  If this government competitor sets doctor and hospital reimbursement at the same level as is used by Medicare, the Lewin Group predicts over 131 million Americans would enroll — approximately 119 million of them shifting from private plans.

If the government alternative is made available only to individuals, the self-employed and small businesses the impact is significantly less, but still substantial.  The study estimates 42.9 million Americans would enroll in the government offering — 32 million of them moving from private plans.

While several factors were taken into account by the study’s authors, John Sheils and Randy Haught, the most impactful driver was cost. The theory is that the federal-plan would impose Medicare reimbursement rates on doctors, hospitals and other medical care providers. This gives the public plan a 30-to-40 percent premium advantage over comparable coverage offered by private carriers. The reason: as noted by in the study “payment levels for hospital services under Medicare are equal to only about 71 percent of what is paid by private health plans for the same service.” Indeed, this reimbursement rate covers “only between 92 percent and 95 percent of the cost of the services provided by the hospitals.” 

When it comes to doctors, the Medicare reimbursement rates are about 81 percent of that paid by private carriers.  The study assumes the public plan would have a further pricing advantage due to lower administrative costs resulting from there being no need to earn “insurer profit and insurance agent and broker commissions and fees.” But the big savings comes from the reduced claims costs.

Today, hospitals and other providers make up for the shortfall in revenue received for services to Medicare patients by increasing the fees charged to their insured patients. While this hidden tax raises the costs of premiums, it impacts on private carriers is somewhat equal. Since the Medicare population is distinct from the commercial market, the playing field remains level.

If the government were to step onto the field as a player, however, the dynamic changes. Now a competitor gains the pricing advantage — and that advantage would grow over time. As the public plan attracts more members, providers will see an increasingly negative impact on their income. The severity of the impact depends greatly on whether the public plan is open to all employers or only small businesses, the self-employed and individuals. If everyone has access to the public plan, the ability to shift costs to privately insured patients is greatly reduced. Under the latter scenario, providers could more than make up for the government’s underpayment by charging higher rates to large group insureds while also benefiting from a reduction in the number of uninsureds.

The likelihood, however, is that all Americans will have access to the public plan. President Obama has clearly linked health care reform to his economic recovery efforts. Large companies (think the auto firms) need the relief offered by the availability of a public plan — especially a public plan offering a 30-to-40 percent premium advantage.

The spiral would kick in rather quickly. As the public plan attracts more members, rates charged by private plans would go higher driving even more insureds to the government offering. Eventually, the only health plan standing would be the government’s.

Some might claim that the public plan would be unable — or unwilling — to use Medicare reimbursement rates. But why? The entire purpose of the government coverage is to drive down costs. Voluntarily paying providers more than Medicare would run counter to the governing agency’s mission.

There’s some caveats to this bleak scenario. It’s a good idea to be skeptical of all studies that estimate the future impact of unknown legislation. I’m not questioning the authors motivation or scientific rigor, but studies like this are, ultimately, educated guesses based on assumptions that may not come to pass and whose unintended consequences cannot, by definition, be anticipated.

Nonetheless, the study does raise the likelihood that the coming debate over whether there should be a public alternative available in the private market is the wrong topic. The Lewin Group Study underscores how difficult it will be for the government to maintain a level playing field while it competes on that field. And once the playing field begins to tilt in its favor, the result is inevitable: eventually the public plan will be the only player on the field.

So the debate is really whether Americans want a private health care system or a public system for all. There is no middle ground. The hybrid approach won’t last — eventually it will become a public system. So while the hybrid approach is attractive politically, it’s a false choice from a policy perspective.

There’s a legitimate debate to be had over whether the government should replace private carriers. That’s the debate lawmakers should have — especially while we’re still in the educational phase of the legislative dance. Calling for a mixed system sounds nice, but it’s not really an option. And health care reform is too important to debate fantasies.