Something has been bothering me about Sen. McCain’s health reform proposal, but till yesterday I couldn’t put my virtual finger on it. Something just underneath the coverage of the details of the McCain plan’s treatment of tax rates, personal health records, chronic disease prevention, and consumerism.
And much much more important, and in retrospect, very obvious.
McCain’s plan would almost certainly increase the number of uninsured in the US – by a lot.
McCain calls for greatly expanding individual insurance at the expense of the current employer-based system.
Employers would jump at the opportunity to dump their very expensive insurance plans, perhaps increasing employees’ pay and perhaps not. Remember, more and more employers are dropping coverage these days, a trend that would likely accelerate under McCain’s plan. There’s one obvious problem – administrative expense in the individual market is much higher, and one estimate puts the added cost at an additional $20 billion; I believe that is far too modest and the added admin expense will be much higher than $20 billion.
But that problem pales in comparison with the real issue – in general, there is no medical underwriting for larger employer plans (and limited underwriting for smaller groups) – anyone is eligible, and pre-existing conditions are usually covered (albeit with some limitations in some areas for a limited period of time).
That’s not the case in the individual market – most states allow medical underwriting.
The result? Under McCain’s plan, folks with pre-existing medical conditions would not be able to get coverage for those conditions (if they could get coverage at all). McCain’s ‘plan’ will almost certainly lead to many more uninsured Americans, and many of those that could get coverage in the individual market will almost certainly not have coverage for their current, pre-existing medical conditions.
I know, the Senator’s website has some mumbojumbo about how he would work with the states, and encourage this and that, and talk with governors; meaningless words that spin his position well beyond Pluto.
McCain’s’ faith in the ‘market’ as the solution is nothing short of laughable. We know he wouldn’t get coverage in the individual market today due to his pre-existing conditions; somehow he thinks that this would change if the market is further deregulated? Not likely – the states with more regulation happen to be the ones that limit, or prohibit, medical underwriting.
It is painfully obvious that McCain knows precious little about health insurance, or private enterprise for that matter. No profit-seeking entity would ever voluntarily insure someone with MS, or heart disease, or asthma, or Crohn’s disease, or melanoma, or hypertension, or high cholesterol, or any of the other medical conditions that are all too common in the US. At least not at a premium anyone other than a top McCain donor could afford.
And this guy is running for President? What a country.
May
20
You write: “McCain’s’ faith in the ‘market’ as the solution is nothing short of laughable. We know he wouldn’t get coverage in the individual market today due to his pre-existing conditions; somehow he thinks that this would change if the market is further deregulated? Not likely – the states with more regulation happen to be the ones that limit, or prohibit, medical underwriting.”
States which limit medical underwriting through regulation have higher premiums across the board while states with minimal regulation of medical underwriting have substantially cheaper insurance premiums according to: http://www.ahipresearch.org/pdfs/Individual_Insurance_Survey_Report8-26-2005.pdf and http://www.ahip.org/content/fileviewer.aspx?docid=20794&linkid=179392
How will insurers decrease adverse selection in health insurance without medical underwriting? If employer-based health insurance is becoming too expensive and failing due to excessive costs from high-risk individuals, it seems like the better solution is to move away from the employer system. The solution is to make insurance more affordable, and more regulation appears to be moving in the opposite direction from that.
Peter – thanks for the comment.
You are correct – medical underwriting does decrease the cost of insurance – for the individual who can actually obtain coverage. My point is that many individuals will not be able to obtain full coverage in an individual market that allows medical underwriting – thus the number of un- and under-insured will increase.
Adverse selection will be eliminated by regulation only. Insurers will never cover those with significant medical conditions if they can avoid doing so. In fact, adverse selection will increase, as insurers refine their abilities to compete on the basis of risk selection and claims reduction. The reason health insurance is becoming too expensive is certainly partially due to high risk individuals and the lack of incentive, intention or just the inability of health plans to actually reduce their costs.
Paduda
Actually, Peter is flat wrong when he says “States which limit medical underwriting through regulation have higher premiums across the board.”
Michigan is just one example of a state where heavy regulation does NOT raise premiums. The state has the fourth or fifth lowest individual-plan premiums, on average (depending on who’s counting), yet it has a statutory insurer of last resort, BC/BS, that must provide individual plans to all comers — guaranteed issue, in other words — and it is only allowed to community-rate. And Michigan is also a relatively high mandate state as well, so the coverage is pretty good.
What keeps the prices low is that the insurer of last resort, BC/BS, must have its rate-increase proposals signed-off on by the state legislature, the attorney general and the department of insurance. It must document why it needs rate increases. If it can’t make the case, it doesn’t get the increase.
Now, unfortunately, last year, BC/BS lost about $24 million on commercial individual policies (though this was less than a 1 percent net loss). This occurred for two reasons: 1) demand for individual policies is way, way up in Michigan because of the lousy economy, with auto companies and other employers dropping coverage, laying people off or buying people out; 2) the Blues’ last rate increase request has been held up since Oct. 2006 by a consumer lawsuit that challenged the 24- to 42-percent increases the Blues were seeking. That case was just decided last week, and the Blues lost. They will now likely settle for more modest increases.
I think it is no coincidence that Michigan has some of the lowest individual plan premiums in the country AND one of the lowest rates of uninsurance in the country (10 to 11 percent). I firmly believe it is because of the strong regulatory environment, and the robust safety net provided by the insurer of last resort, which is enshrined in Michigan statutes.
Back in the ‘old days’ of managed care (mid-80s) there was a lot of talk about ‘community rating’. The idea was that the total cost of health care for the total community would be evaluated and everyone would have their premium based on the ‘community rate’. If McCain’s plan would include the requirement that everyone’s premiums (whether covered by a large employer, small employers, or individual) be based on the same rate, then it might make some sense. (Might being the operative word).
Rick – thanks for the excellent comment and correction. Appreciate the research and insight.
Joe