Health Care Reform Compromise: Unsolicited Advice Part I

As noted in my previous post, there’s rumor of a compromise on health care reform swirling around Sacramento. One element of the purported package is to require carriers to accept all applicants regardless of their health condition (something called “guarantee issue”). Assembly Speaker Fabian Nunez and Senate Pro Tem President Don Perata are willing to enact guarantee issue without a corresponding mandate that all Californians buy coverage (a “buyer’s mandate”). This position is shocking in light of the experience of other states that have done something similar. Those states have all experienced substantially higher insurance premiums and an erosion of competition in the marketplace (for example, see this earlier post on the topic).

Meanwhile, the Governor’s staff claims they will agree to legislation only if it includes an “enforceable” buyer’s mandate. Of course, what’s enforceable is open to debate. And while the staff is extremely bright, the fact is that what looks good on paper often disappoints in reality. (For example, only about 75 percent of drivers comply with the “enforceable” mandate to have auto insurance or post a bond.) Nonetheless, the Governor is likely to hold out for guarantee issue with a program aimed at achieving a buyer’s mandate.

No one asked for my opinion, but here’s how to get guarantee issue right: prove the buyer’s mandate is working before implementing guarantee issue.

We already have a program in place to insure the “uninsurable.” It’s called the Major Risk Medical Insurance Plan (“MRMIP”). At times it’s been plagued by long waiting lists. And coverage through MRMIP isn’t cheap. So create subsidies for low- and middle-income Californians. Then implement a buyer’s mandate. If an individual is turned down for coverage, the subsidy can be applied to the MRMIP coverage. At the same time, expand the number of Californians eligible for existing state programs like MediCaid and Healthy Families. And spend the time and creativity necessary to create an effective outreach program for those programs (today as many as one million Californians eligible for the programs fail to enroll). 

These efforts, along with a package of incentives and penalties to encourage enrollment in health insurance, should dramatically increase the number of insured in the state. Once the state can document 90 percent compliance with the buyer’s mandate then carriers should be required to guarantee issue coverage. This means the need for the MRMIP program will go away, freeing up more money for subsidies or other important health programs.

Even after this 90 percent threshold is reached, there will be some folks who fail to meet the requirement to purchase coverage (by defintion, 10 percent, initially). If these individuals are permitted to buy coverage on their way to the doctor’s office or hospital, without a penalty, the result will be higher premiums for those who have played by the rules. So carriers should be permitted to apply pre-existing condition exclusions and premium adjustments for a limited time. The amount of time these penalties, and the amount of the premium adjustment, should be proportional to how long the individual has gone without coverage. If these individuals qualify for a state subsidy they should still receive it.

The guarantee issue and the buyer’s mandate provisions could be approved by the Legislature by a majority vote. The funding for premium subsidies and expansion of MRMIP would be part of the funding intiative. The implementation of the guarantee issue and buyer’s mandate provisions would be contingent on passage of the initiative. In this way, the resources and the legal framework must both be in place before the state can honestly claim to be on the road to true universal coverage.

This proposed compromise isn’t new. It’s actually a part of the California Association of Health Underwriter’s Healthy Solutions health care reform proposal and I first suggested it in a post back in March.

Like all compromises, this version of guarantee issue won’t please everyone. It will be called a cop-out by opponents who think carriers are being let off too easy. However, failing to demonstrate an enforceable buyer’s mandate will only lead to disasters of New York and New Jersey proportions. Other critics will claim the 90 percent threshold is unreachable. Yet nearly 80 percent of Californians are already insured by public or private programs. An effective outreach program could bring a million more people into public programs. Premium subsidies will help millions more obtain coverage. The fact is, the 90 percent target is well within our reach.

This compromise offers lawmakers to go beyond promising universal coverage. It allows them to actually achieve it. To me, that’s a compromise worth making. 

CAHU Launches Effort to Delay Vote on AB 8 Until It’s Fixed

The California Association of Health Underwriters (CAHU) launched Operation Drumbeat yesterday, August 16th. It’s goal is to get key Legislators to urge their Leadership to delay a vote on Assembly Bill 8 (Nunez) until it can be fixed.

The concern is one that I’ve written about in previous posts: that the Legislature will rush through a health care reform bill that will generate many devastating unintended consequences. As currently drafted, the unintended consequences include higher health insurance premiums, more uninsured among the self-employed, higher taxes on businesses and place a damper on the state’s economy. It does some good, too, but on balance, it’s would do more harm than good.

Yet there is tremendous pressure on Legislative Leaders and the Governor to pass a bill quickly (as described in yet another previous post). To counteract this pressure, CAHU is asking its members, their clients, friends and colleagues to contact key legislators, to explain to them how important it is to get health care reform right, and to ask them to put off a vote on AB 8 until it can be thoroughly reviewed, debated and amended. The hope is that it will be amended to something more akin to CAHU’s Healthy Solutions plan.

Why Operatation Drumbeat? Because CAHU will be initiating new messages to these key lawmakers at least once a week until the current legislative session ends on September 14th.

To promote it’s own health care reform package and to facilitate Operation Drumbeat, CAHU launched its a new website yesterday: (I posted the link yesterday before the site was ready. My apologies to those who visited the site before the links were all in place). 

If you haven’t done so already, I strongly urge you to send your own message to these key legislators. It takes only a fe minutes to use the Operation Drumbeat communication tool, but the impact can be great. After all, everyone in this debate wants to pass the right reforms. If that requires more time, it will be time well spent.

Full Disclosure: As CAHU’s Vice President for Public Affairs, I’m responsible for Operation Drumbeat.

Making Guarantee Issue Work

Yesterday’s post discussed how requiring individual health insurance carriers to issue coverage to all applicants (called “guarantee issue”) was so dangerous if done wrong.  So how can it be done right?

CAHU’s Healthy Solutions health care reform plan has a common sense approach (full disclosure: I helped write it). To oversimplify the proposal, it puts the horse before the cart: before the state creates a mandate to sell, it first must demonstrate it can enforce a mandate to buy.

CAHU calls for guarantee issue in the individual insurance marketplace once 90% of the state’s population has obtained basic health care coverage either through state programs, from their employer, or on their own. CAHU would expand the existing the state’s Major Risk Medical Insurance Program (“MRMIP”) to serve as an insurer of last resort until the threshold is reached. But once the state demonstrates its ability to enforce the mandate to buy, carriers would be obliged to accept everyone applying for coverage.

This doesn’t completely inoculate the system from adverse selection (people waiting until after they need insurance to obtain it). After all, 10% of the state — roughly 3.5 million consumers — would still be uninsured. CAHU’s Healthy Solutions plan is one of the few, if not the only proposal which mitigates the negative impact this population could have on the overall premiums. CAHU enables carriers to increase the rates and exclude preexisting conditions for these late-applicants. The amount of increase and the duration of the exclusion varies with how long the applicant has been uninsured.

Previously Uninsured for:                      Rating Band                  Preexisting Exclusion Period:

More than 24 months:                         +/- 30% for 3 years                36 months
19-to-24 months:                                +/- 25% for 3 years                24 months
13-18 months:                                    +/- 20% for 3 years                18 months   
12 months or less:                               +/- 20% for 2 years                Equal to number of months uninsured

An interesting aspect of the CAHU Healthy Solution health care reform plan is the “right of return” it provides late-applicants. It doesn’t punish people who stayed outside the system until they needed the coverage forever. Just for a time commensurate with their dereliction. Once they’ve done their time, their premiums are reduced and preexisting conditions are covered. The result is a guarantee issue system which can actually work.  

Require Carriers to Sell Coverage to All Who Apply. But Do It Wisely, Please.

 A lot of health care reform proposals require health insurance carriers to accept all applicants, regardless of their current health condition (a practice known as “guarantee issue”). Some would even allow folks to sign up for coverage while they’re in the hospital waiting room. This makes no sense.

Insurance is about spreading risk among a large population. If people could wait to buy auto insurance until after they’ve had an accident, how many would buy coverage before a crash? No one. Which is why, if not done right, guarantee issue leads to something called “adverse selection.” Just ask the residents of New York and New Jersey.

Several health care reform proposals include guarantee issue provisions. Governor Arnold Schwarzenegger’s plan is one of them. But at least he calls for a mandate to buy coverage, too.

The problem is mandates to buy don’t work all that well. In California, 25% of drivers fail to buy required auto insurance. Other states with mandatory auto insurance laws experience roughly the same levels of non-compliance (give or take 5%). That’s why you can still buy uninsured motorist covered in most of these states. But when it comes to health insurance, achieving only 75% compliance in a guarantee issue environment would lead to disaster (again, see New York and New Jersey).

So the key is to first prove that the mandate to buy is working before requiring a mandate to sell. That’s what CAHU’s Healthy Solutions health care reform plan does. And in tomorrow’s post I’ll describe how.

CAHU’s Healthy Solutions: Workable Health Care Reform

I’ve devoted several posts to criticizing other health care reform proposals. It’s easy to do. There are no perfect answers, only difficult choices. But as Governor Arnold Schwarzenegger said when he introduced his reform proposal, the status quo can no longer be everyone’s second choice. It’s incumbent upon everyone involved in the heatlh care reform debate to offer their solutions and then to work with others toward a package that is workable. As one of my political mentors, Cathy O’Neill, put it: “the issue is not whether a proposal is perfect, it’s whether it makes things better.”

I’ve had the priviledge of late to help the California of Health Underwriters (CAHU) develop their reform proposal. Called Healthy Solutions, it’s a comprehensive reform package that, if implemented, would lead to universal coverage in a responsible, affordable manner. Here’s the proposal: CAHU’s Healthy Solutions

One of things we did with Healthy Solutions is not only lay out our own reform package, but to articulate the elements against which all proposals could and should be measured. These “requirements for reform” are what CAHU believes needs to be the result of new laws:

  • We believe any reform package must ensure that all Californians have basic health care coverage.
  • We believe reform must neither bankrupt families nor the state
  • We believe reform must provide the state’s diverse population with equally diverse health care choices.
  • We believe reform must promote ongoing and long-term innovation and experimentation that enable the state’s health care system to adapt over time to the evolving needs of its citizens.
  • We believe reform must address and constrain skyrocketing medical care costs.
  • We believe reform must provide consumers access to meaningful information and expert advice and counseling from licensed professionals.

There’s a lot to Healthy Solutions and in future posts I’ll expand on several of it’s provisions. For now, I hope you’ll take a moment to review it and let me know what you think.