When Public Policy Meets Reality

A short (less humorous) version of an old joke goes: an engineer, a priest and an economist are stranded on a desert island with just a can of beans. They’ll starve if they can’t open the can. The engineer proposes a solution involving situating the can among rocks in such a way as to heat the can to the point of exploding. The priest suggests praying for divine intervention. The economist’s approach: “assume a can opener.”

Replace “economist” with “public policy expert” and you get a nice metaphor for why any massive reform is an arena where unrealistic expectations intermingles with unintended consequence. This dynamic doesn’t mean big problems don’t require big solutions, but it does imply that the assumptions and predictions of “experts” – especially those detached from what would generally be regarded as the “real world” – are unlikely to work out as well as hoped.

The Patient Protection and Affordable Care Act is no exception to this phenomena. The health care reform law is chock full of the favorite “concepts” proposed by academics over the past few decades. Exchanges. Standardized plans. Modified community ratings. On-and-on. Some of these ideas were the favorite of Democrats; some were originally proposed by Republicans. Most all of them are based on theories about how the real world should work, with the emphasis on “should.”

A case in point. One of the better provisions of the PPACA is aimed at creating a standardized approach to presenting the benefits included – or excluded – by a medical insurance policy. Standard terms and descriptions must be used by carriers beginning in 2012 so consumers can easily make apple-to-apple comparisons between policies. The PPACA lays out the requirements of these Summary of Coverage forms (e.g., they can be no more than four pages long). Developing the template and permissible language, however, is left up to the Department of Health and Human Services in consultation with the National Association of Insurance Commissioners.

Ask most policy experts and they’ll argue that standardizing these benefits will empower consumers to make informed decisions concerning the appropriate health care coverage that best fit their needs. Some will even be willing to state that this provision is another reason why brokers will be less necessary in the future. By making it simple to understand and compare policies, the expertise brokers provide will be less necessary.

In theory.

The reality appears to be something else.

While finding that consumers considered the initial version to be appealing and well received, a study by Consumers Union showed the Summary of Benefits “could lead [consumers] to select a plan that was not in their best interest.” The reason is because of:

  • Significant participant difficulty with cost-sharing concepts (allowed amount, coinsurance, benefit limits, deductibles, etc.)
  • Significant participant difficulty with covered service definitions (understanding what was included in specific service categories, like preventive care)

In other words, while the information was presented clearly, consumers lacked the expertise to use this information effectively.

Consumers Union, which publishes Consumer Reports, used focus groups to explore the effectiveness of the draft version of the standardized summaries. One of the study’s observations is that “shopping for health insurance was an aversive task, fraught with anxiety for many respondents. They were afraid of making a costly mistake if they chose the wrong plan. Even respondents with good health insurance literacy skills lacked the confidence to choose a plan, reflecting a concern that it would expose them to potential financial liabilities.”

I made a similar point in yesterday’s post: “health insurance is complicated, expensive, rarely shopped for, very personal and extremely critical to one’s health and financial security. This is not a purchase to be made lightly. Consequently, consumers and small businesses want an expert to help them make the right choice.”  But it’s nice to have this observation borne out in independent research.

Providing information in a user-friendly, clear and understandable way is very hard. And I believe standardizing the presentation of policy information is a worthy goal.

Where I part company with some policy experts, however, is when they assume that consumers are likely to be able to use this information effectively. Some may, but many will not.

Nor is this likely to change by simply improving the form. People shop for health insurance coverage maybe once a year or three times a decade. They’re not going to get good at it. In the torrent of information we all face, for most people spending the time necessary to become savvy about the ins-and-outs of health insurance just doesn’t rank very high.

That’s one of the reasons why the academics who create what they view as a transparent and agent-free health insurance market are doomed to disappointment. In an ideal, hypothetical world you can assume full understanding of clearly set forth information – heck, you can assume a can opener on a desert island. But once that theory comes in contact with reality, consumers want, need and deserve independent expertise from qualified professionals both before and after the sale.

Assumptions are fine, but reality is what counts.

13 thoughts on “When Public Policy Meets Reality

  1. Alan,

    The title of your commentary is excellent, given the article I just read in the Desert Sun, here in Palm Springs, today’s date, Friday, January 28th, 2011.

    The head is “Three insurers agree to delay rate increases”. They are Aetna and Anthem Blue Cross, and PacifiCare. They are delaying because Insurance Department commissioner, Dave Jones, requested that they do so.

    And, should their rate increases be found to be necessary, will the State of California reimburse these companies for their losses? Probably not. Blue Shield of California told the state to “shove off” (m words). Good for them. I don’t know how these companies are treating the Agent/Broker Community, perhaps badly. Nonetheless, what right has the Insurance Commissioner to tell the companies doing business in CA that they must absorb losses until HE says they can make up those losses? Old saying, “Who died and made him God?”

    Blue Shield has already announced that they will seek and independent actuarial review, and if found to be wrong, will refund to the policyholders their premiums, plus interest. That is precisely what Dave Jones is asking them to do. So? What’s the deal? Nu? Is Davy Jones and HHS (Kathleen Sebelius, of course) simply trying to exert and emphasize their massive bureaucratic power? It would appear so.

    No, I am no fan of the companies, believing totally that they would cut off the agent community in a heartbeat if they think they can save money by delivering the product to the market without our help. The companies do not care about the agent/broker community, only the money they can gain. Nonetheless, that does not give the State of CA, or the Federal government the right to dictate to any business, whether or not they have the right to NOT go broke.

    Color me “Disgusted”. This is not the “Democratic, Representative, Free-enterprise, Capitalist System” in which I was raised, by a liberal Jewish family. This is representative, IMO, of a Socialist system, devoid of any Individual Responsible system components, that require a “business” to prove its rights to survival until they have proven, to the satisfaction of the Socialist Bureaucracy, that they have a right to exist, while they are required to die on the vine, until proven.

    Why does this picture appear to represent an Abstract Impressionism that has no form, no function, and no direction, other than that afforded to greedy bureaucrats?

  2. Alan, Thank you for your prospective on healtcare reform. As a general agent in Arizona for the past 30 years these have been times like no other we’ve experienced. Do you think the value of the health insurance agent to the public is sinking in with the policy makers? Bill Gould

  3. Alan, thanks for your wise, measured and thought-filled posts. I don’t always agree with you but you always bring good and often original perspectives to this complicated and controversial subject, health care reform.

    • Thanks for the kind words Carole. And thanks for disagreeing. I hope you’ll share your thoughts with readers when you do.

  4. Well done, Alan. The reality is that The Patient Protection and Affordable Care Act is now law even though the people did not want it, and those wanting it, assumed it would be “free”. Trying to untangle the thousands of pages of legislation will take years; but in the meantime, life goes on. People will continue to need health care services, as well as a means for financing the expense. Meanwhile, the new law requiring insurance does not and will not lower the cost of health care, but simply adds another layer of cost for the tax payer. Experienced agents know the value of their service to the insureds because our clients tell us time and time again how much they appreciate our expertise. When my clients approach the subject of health care reform and my future, and I respond that I cannot afford to stay in business if I don’t get paid, there is a lenghty silence before they exhale again. I pray that the insured consumers that, as you say, “want, need and deserve independent expertise from qualified professionals both before and after the sale” will let their voices be heard at the home, state and national level in support of independent agent commissions not being included in the MLR formula.

  5. The repeal of Obama’s health care initiative leaves my mouth gaping. Does the House not know that many American’s with pre-existing conditions, like me, can not get private medical insurance at all? We are locked out of the market. We do not need assistance we only need our right to healthcare fulfilled. The Obama health care bill empowered people like me and now the House has moved to disempower me.

    • “We do not need assistance we only need our right to healthcare fulfilled”

      No one may be denied healthcare by Federal law.

    • Well I’m glad to see this comment here Alan because I think it makes a nice springboard for my comments: For me personally the biggest disappointment about Health Reform thus far is what the taxpayer has been hoodwinked into believing by our government. To wit: Kids under 19 need health insurance and shouldn’t be denied coverage. Insurance industry make it so. Uhh okay….first the carriers leave the child only market en masse. Then the CA state legislature concocts some legislation that they believe forces the carriers back into the market… Job done. Uhhh….not so fast. The carriers come back but in the process erect nice little barriers such as the inability to get a quote online or the ability to apply online just as you would with individual adult plans…Anyone looking at a CA agent’s quote engine right now would see bupkis and presume that child only plan options simply don’t exist….Now we probably have many healthy kids who should have been insured all along going without because their parents simply don’t know such plans exist. Congrats PPACA!
      The Legislators who backed PPACA stated that there needed to be an insurance option for folks who couldn’t get coverage in the private market. Make it so. Thus PCIP was created. As we have discussed here before PCIP is an absolute failure. A horrible abomination that has failed utterly to help the huge number of people the administration itself identified as needing this important option. Ever see anyone from the Obama admin or the liberal media decrying/admitting PCIP is a train wreck?? Nope. They’ve declared victory and split.
      My point: Perception is reality Alan. Your points were uniformly excellent Alan but alas reality – I mean real honest to goodness reality as it relates to how the components of Health Reform will actually help make a positive difference in people’s lives and how the actual mechanism of all this will work doesn’t matter. The folks who have foisted this mess on the American people are declaring victory right and left and avoiding any REAL honest to goodness examination of just what they’ve broken. Don’t believe me? Just check out http://www.healthcare.gov and see for yourself: They are literally breaking their own arms patting themselves on the back for a job well done.

      Down here in the trenches I can assure you: NOTHING has changed. And in some cases it’s gotten worse. But don’t mind me I only spend every day of my life down here trying to help people get health insurance and let me tell you: There are no amount of charts and viewer-friendly cartoons that will ever help these folks discern the difference between an annual deductible and a OOP Max …. and so shall it ever be….

  6. Alan-
    When are you running for office? I cannot wait to share this with my networks!! You stated our role perfectly!

  7. This reminds me of the roll-out of the new Healthcare.gov consumer website. The regulations said it would be in place by July 1,2010, so it was going to be in place July 1st.

    Despite the fact that 1) most of the carrier, plan-specific information was not available, 2) and for the few plans that were posted,when you clicked on the price, you got a message saying the information would be available 10/1/2010, 3) information on provider networks and drug plans was not available, 4) despite instructions to provide feedback on a comments form for improving the site, no such form could be found, 5) the option for brochures was difficult to find and if you did find them, there was a very limited selection.

    But, it was live July 1, 2010.

    As someone who has spent 30+ years in the business, and licensed as an agent and now freelancing as a writer, I can’t wait to see how simple they make the language.

    • Cathy of course they couldn’t be bothered with the “important stuff” – if you spend even a few minutes at that website it reads like a campaign commercial for Barack Obama. My favorites are the little vignettes that tell a story about how this person or that person was helped by PPACA – great then by my reckoning that makes less than 12 people for whom Health Reform legislation is a winner.

      Of course it’s much easier to concoct these little vignettes than it is to really roll up your sleeves and create a useful web presence that serves the needs of its constituents.

      When I see this wreck of a website I am always reminded of the exchange between Barack Obama and a guy in the audience who said he needed insurance now and what was in the PPACA that would help his situation at present – Obama responded that “oh well 2014 is just around the corner…” In the minds of anyone who counts when it comes to PPACA – they’ve won – don’t bother us with these piddling little details like actually delivering on what PPACA “promised”…

  8. I agree with your post about the need for brokers and/or professional advisors. Now, if we can just survive the famine before “experts” realize their mistake, we’ll be fine.

    I wish they would look at the PCIP’s low enrollment as proof. Or, look at medicare.gov as proof that most seniors select brokers to assist them rather than government websites. Or look at the standardized medicare supplements as proof that it is still dizzying, and consumers need a broker.

    ‘Twould be much better for us if they would correct this error before 2014, but if they don’t, and if you can see through the temporary into the inevitable, it is inevitable that the cycle will resolve itself and brokers will be utilized (and paid properly) once again. May we survive the tempest between now and then.

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