Comprehensive health reform will not happen in the near future. There is no money. There are lots of other priorities – financial stability, huge and growing deficits, energy, wars in two countries, nuclear proliferation and tax policy. There’s just no money, and not much bandwidth. Yet the Democrats will be highly motivated to do something meaningful, pressured by campaign promises and voter demands.
There may well be a solution that enables the Democrats to deliver on their commitment without breaking the bank, while laying the groundwork for more comprehensive reform if and when that’s feasible.
Access can certainly be addressed without additional funds, with support from both parties, and while it will almost certainly incite much wailing and gnashing of teeth within the health insurance industry, they’ll get over it. It would certainly help the several hundred thousand folks who are at risk of losing their employer coverage as the country slides into recession, not to mention those currently unable to obtain meaningful, comprehensive coverage at an affordable price due to a pre-existing condition.
A modest proposal
Congress could pass and the President could sign legislation prohibiting medical underwriting in the individual market, requiring insurers to cover pre-existing conditions, mandating community rating, and establishing a basic benefits plan. There are (at least) three mechanisms available to meet these objectives.
1. The legislation could require states to work with the National Association of Insurance Commissioners to develop model language that would meet these standards. (NAIC does this for lots of insurance types and policies today)
2. The Federal law could set forth minimum standards, while allowing states to require carriers in their jurisdiction to meet higher standards.
3. A new Federal regulatory body could be set up to ensure all insurance carriers comply with the standards set forth in the legislation.
To guard against ‘cheaters’ – the folks who wait till they get sick before signing up for coverage, the law should include a provision allowing insurers to increase rates for those that do not sign up within a time certain after they become ‘eligible’ for coverage. The increase would be pegged to the length of time the individual delayed obtaining coverage (similar to the way Part D works today).
Some will contend that this will drive up premiums for the young and healthy. No argument from me. That’s the way health insurance should work: some subsidize others, with the understanding that when that ‘some’ (or when their kids break bones or they get hurt) someone else will help them out. I don’t know if the increase will be so drastic that it will drive all the young healthies to drop their coverage; my gut says there will be some disenrollment, but it will be modest. I do know that after a period of moaning and groaning, insurers would find themselves competing not on the basis of how well they select risks and decline coverage, but on cost and benefits.
Now wouldn’t that be something?
Politically, it would be pretty tough for any elected representative to come out against the proposal. Who wants to be pilloried for preventing someone from getting coverage just because they lost their job or their employer stopped offering health insurance? Answer – only the most committed of libertarians.
(bad health wonk joke – what’s a libertarian? Someone with a chronic medical condition who hasn’t tried to get insurance in the individual market)
Access would be improved, those who actually need insurance could get coverage (albeit at a price) and everyone would be financially motivated to get coverage.
No, it isn’t perfect. But it is doable.
Oct
13
If we as a country do as you suggest without an enforceable individual mandate, you almost certainly need a high-risk pool supported by broad funding sources (read government financing) to deal with the truly uninsurable risks. Simply mandating community rating and guaranteed issue has been tried in 8 states, and it doesn’t work. The broadly-funded high risk pool will definitely cost us as a society more money, but it may be at an acceptable cost for the American public to support it. Of course, any additional government funding at this point may prove problematic which probably explains why Senator Obama is now not promising health care reform until “the end of his first term (i.e., 2012) as President”.
Mickey – thanks for the note.
Couple observations – first, others have also said that the guaranteed issue program doesn’t work; I’m not sure what that means. What do you mean “it doesn’t work”?
Second, does not the financial penalty help resolve the free rider issue? Third, if government funding is ‘required’ to deal with uninsurable risks, doesn’t that lead to the slippery slope of only the Feds providing insurance? Why can’t private insurers handle these risks?
Isn’t this an implicit acknowledgement that private industry can’t be relied on to address access and coverage issues?
Paduda
I think this is an excellent idea.
I agree that we will not have the money for full-scale reform in 2009–or in 2010. Keep in mind that Obama said that he was aiming for healthcare reform by the end of his first term; before the Economic Meltdown. Today, that may not be possible.
I agree that we should start looking at what parts of health reform that we might enact without spending money. And what we might do that saves money. (For instance, authorizing Medicare to negotiate discounts on drugs and devices.)
We’re in for a long, deep depression, and very high unemployment. Insofar as we’re spending money on domestic projects we should be spending on infrastructure repair and other projects that create jobs.
Universal healthcare will not create jobs. If done right it will mean closing down some low-quality hospitals and facilities.
Meanwhile, we do need to regulate insurers and this is a very good first step.
Yes, insurers will wail and gnash their teeth. But given the state of the economy– and the growing insecurity that will come with high unemployment among the middle-class–I think voters might put enough pressure on Congress to force them to stand up to the lobbyists.
Yes insurance rates will be higher in states that currently allow insurers to underwrite –because under the new rules more sick people will be included in the pool.
But if you live in a state where insurers are allowed to underwrite–and rates are lower–keep in mind that you are enjoying low rates because sick people in your state can’t get insurance. Do you really want to profit from that?
Guaranteed issue and community rating do work in many states. In New York, for instance, insurers must insure me at the same rate as everyone else in my community–despite pre-existing conditions–as long as I had insurance shortly before applying to a new insurer. In other words, this is equivalent to an individual mandate. If I drop out of the insurance pool for a few years, then decide that I want to get pregnant and sign up for insurance, there’s no guarantee I’ll get it. .
Just one caveat: the financial penalty for those who cheat and try to wait until they are sick before signing up should be very stiff. And since we are more or less requiring everyone to sign up (with the penalty) we would have to offer subsidies for those who truly cannot afford the insurance.
Joe – We have community rating in NJ. As I understand it, fewer than 100,000 people in our state get their health insurance through the individual market because it’s so expensive. On the national level, many people who lose their health insurance coverage because they lose their job cannot afford to pay for it under COBRA rules. So, they have access to insurance, but they can’t pay. I suspect that a large segment of the middle and lower middle of the income distribution would not be able to afford health insurance under community rating.
As for your proposal to penalize people who wait to sign up past the initial eligibility period, the Medicare approach is insufficient, in my view. The cost of delay should probably be equal to the cumulative premium that the applicant would have paid if he or she bought health insurance before the end of the initial eligibility period. Even if you limited the penalty to, say, three years of cumulative premium differential, that would only exacerbate the affordability issue.
I think ultimately we will need some combination of employer pay or play rules and taxpayer funded vouchers for the unemployed and, perhaps, those who work for very small businesses defined as 10 employees or less. To finance that, there should be a dedicated tax that is clearly transparent so everyone knows how much its costs.
An attempt to answer your questions:
1. Guaranteed issue with community rating is problematic because anti-selection makes the business unprofitable so insurers simply leave the market, in droves. There’s a great study by Milliman which confirms this. 2. No, the financial penalty helps but it is not enough by itself. You will still have a disproportionate number of people who will elect to stay outside of the system. 3. Private insurers do need to step up to the table and particpate in a high risk pool, up to a certain uninsurable level. The carriers will definitely lose money on their high risk pool. But there needs to be a second boradly-financed pool for the very highest risks. Private insurance cannot be expected to underwrite the looses from this group (or else insurance costs in general just escalate to ever-more unacceptable levels). We need market rules to make health markets work. The good news is that we can devise rules to make all this work, albeit with substantial government involvement and participation. We know that the government can’t be relied on to provide accessible, high-quality, affordable health care. With careful legislation and the enforcement of reasonable market rules, we get there with a robust private health care delivery system. Any other alternative is rather unthinkable.
I like the idea of community-rating and guaranteed issue.
To protect insurers from adverse selection, though, we need to look at a waiting period, such as 2 years, before benefits begin.
Contributions made in that 2-year period will go towards the coverage staring in year 3.
In addition, to make coverage affordable, base the contributions on a percentage of income.
And, to provide equity, provide that benefits vary in direct proportion to contributions made, less claims incurred.
Don Levit