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Health Care Policy

Health Care 2: Health Insurance Essentials

By September 28, 2009No Comments

We are engaged now for several months in the political and public discussion of health insurance reform and how to pay for it. As careful observers note, we are still only tangentially talking about how to reform health care delivery itself, which is a vastly more complex topic, which I intend to address soon.

In this post I will analyze the key components of the current topic — health insurance — and highlight for you the issues that truly are critical, where there is much common ground, and then try to explain in manageable detail the issues that involve who pays for what and those issues where there there are solutions if only we could agree on the politics, such as the “public options.”

Getting a Ticket to the Game

Much of the public discussion about health insurance reform has revolved around cost and who will pay what. The essence, though, is that we are engaged in a vigorous public debate about giving every citizen a ticket to the health insurance arena, which will allow at least reasonable if not box-seat access to the best of American medicine. But we are fighting with sticks and knives about who exactly will pay what and where the money will come from. The payment issue is important, but access to health care is the overriding concern for every American and is critical to our society.

Everyone Needs Entry to the Health Care Arena

Health insurance is the ticket to the American health arena. Buying your health care for cash, without an insurer at your side, will cost you two to three times as much, sometimes more. It makes no economic sense, but we have evolved the the most complex and dysfunctional health care insurance system that could be conceived, and having an insurance card is essential to access and reasonable cost for health care. If you believe that all men and women were created equal, then as night follows day, every person needs an insurance card in this country, or we will perpetuate the inequities and horror stories we are all familiar with. I see no course except to clearly state that health care is a right of each human being in this country, for the good of all. The treatment of undocumented aliens and such issues are truly minor distractions susceptible of many reasonable solutions, and are simply a distraction from the main agenda: good health care for all our people.

Group Rates, Underwriting, and Preexisting Conditions

Background: People who purchase health insurance through a large employer group all receive the same rates (single, couple, family or variations) without regard to the health of any individual who joins that group. However, because each group is “experience rated,” then small groups who employ someone with a serious, chronic disease may find their group rate rises substantially, even though the new individual is treated the same as every other member of that group and may not be denied coverage because of the so-called “pre-existing condition.” So there is substantial intergroup variation in rates.

In the non-group world, every individual is “underwritten” by the health insurer, meaning that a health history is obtained and then the annual rate is judged based on that person’s individual risk as perceived by the insurer. Individual rates are typically dramatically higher than group rates at any age. Most important, insurers may and frequently do deny individual coverage for a “preexisting condition” such as breast cancer or diabetes, even though that is precisely the medical risk that may provoke bankrupting medical expenses for that individual. Individual rates are frequently high enough to be unaffordable by the people who would like to purchase them, and who could afford group rates and may have just run out Cobra from a firm where they did have group insurance.

Common Ground: It appears we have political common ground that preexisting conditions cannot be used to deny coverage to people who want health coverage. There also are active proposals of various sorts to allow individuals to band together to form groups or to have access to approximate “group” rates through collective insurance purchasing mechanisms of some sort. While the variations being discussed are legion, allowing individuals in other than large-employer groups to gain the same purchasing leverage as those groups appears to have been agreed. But pay attention, because the details matter and this issue is not so settled as the preexisting condition exclusion.

No Common Ground: Our health insurers are many, they are profoundly inefficient and follow separate protocols on the the most basic of medical issues, requiring substantial redundant and wasteful work by medical practices of every sort in the country (I attest to this from decades of personal experience) , they are not your friend or advocate, and from an efficiency point could and should be replaced by a single-payer system.  That, of course, raises important issues of control and over-centralization (Medicare is not just a benign government entity). But if you try to dismantle the past 50 years or so of employer-based health insurance, we will certainly have other and probably unanticipated issues to deal with.

There certainly is not agreement on a single-payer transition at this point. That is why we need to focus on the process things we must do — eliminate preexisting conditions, enforce community rating, insist on common standards for billing and payment and coding (more on that in another post), define core basic policies and enforce age-cost common categories — so that every insurer plays by the same rules. In this fashion we can most likely still achieve the practical process reforms we need.

Federal Mandate Needed: Remember, of course, that the essence of the issue is that the federal government must mandate the abolition of preexisting conditions¬† as well as the other process changes noted above, because that is the only way that any individual insurer is clear that it is not at unreasonable risk, for example, if it ignores preexisting disease, because all its competing insurers are required to act in the same way. Again, that’s why we need a federal mandate on these issues.

Group Rates and Experience v. Community Rating

Our US Senate, God bless it, thinks through everything in excruciating detail, we are told, on our behalf. Much of the confusing discussion from that body in recent weeks relates to the question of how much different organized groups may be charged and how different cohort groups within a population (20 somethings v. grandparents, for an easy example) may be differentially charged within a rate spectrum applied across the community. These differences of the first sort directly relate to equity among economically or socially defined organized or employer groups and the second to the affordability of health insurance to the full age range of the population if community rates, varied by age or closely related parameters only, are applied to all citizens getting insurance.

We don’t want individual group experience rating. We want community rating, the committee of the whole if you will. Every time you pare down the whole to smaller groups, you vitiate the system of risk sharing. In life insurance, for example, if you are a women 50-55, even with underwriting your rate does not vary if you work for a software company v. a bank (though perhaps it should, given all the high-living in the banks of late). In a group, all female members 50-55 get the same life insurance rate (perhaps adjusted by smoking history). Simple. Effective. Affordable for all in that group.

Health insurance in individual groups is now even simpler, at least in Massachusetts. You get insurance as an individual, or as a couple or as a family with 1 child or perhaps another category with 2 or more children. As an individual or couple, your ages are not a factor in the premium you pay. That means that the young couple of 23 without children pays the same fee as the 55-year-old couple without children, and the individual of 22 the same as the 62-year-old. Think on that. True risk sharing. But risk sharing means the very young pay somewhat more for health insurance so that the older people have reasonable costs as well. This issue is one of the current political fights.

The Age-Rate Fight and Affordability of Insurance

In the runup to accepting community rating as the basis of health insurance pricing, the Senate is studying (or declaiming about) the issue — relative cost for health insurance as a function of age. For example, there were published discussions in the past week about what is the reasonable ratio of charges to the 50-60 population v. the 20-30 population so it will be affordable to all.

I applaud these discussions, providing they come to a rational conclusion that focuses on providing affordable health insurance to all age groups under common group policies (community rating) so that we have maximum risk sharing and thereby protect everyone from health insurance that is simply unaffordable.

The affordability issue comprises not only the reasonable or allowable health insurance differential that should be allowed across age groups, with community rating for any affiliation groups that contract for insurance, but also the mechanisms to pay the appropriate premium for those people in our society, of whatever age and whatever employment, who simply can’t afford the expense. This is the ultimate equity issue. The methods of meeting this challenge are many — tax credits, subsidies, you name it. This is the political solution required. I hope the Republicans will eventually show up for work, but resolving this issue is one of the easiest on the coming agenda. This is just health insurance, after all.

Health Insurance Essentials Summary: On to Health Care Reform

Our heritage from our Founding Fathers, think about it, requires that we assure health care for every human being in our country. Can you imagine not doing that? For this to happen, every person must have a health insurance ticket, or our country’s promise is a practical lie. There is now broad agreement to eliminate the worst (but economically understandable practices) such as preexisting conditions, as well as arbitrary withdrawal of coverage, “rescission” and other obscure but scurrilous practices.

We have yet to agree to treat all groups as equal or to allow every individual the right to join an insurance group that is on an equal economic footing with every other group (this is the essence of the “public option”, which can be achieved in various ways). And we have yet to settle politically on the intergenerational cost allocation (how much do you pay in your 30’s v. in your 50’s as an individual or couple without children, for example), which directly relates to the affordability for all issue (assuming no cost savings by better management of health care resources — the topic of my next post) as well as how to subsidize those people in our society who simply do not earn enough to afford their pro rata cost whatever that ends up being.

I hope the preceding discussion provides or clarifies a framework for thinking about the pronouncements, arguments and discussion emanating from Washington right now about health insurance reform and will help you keep a clear focus on the truly important issues being argued. Comments and disagreements are welcome. We need this discussion as a country.

My next post will move on to selected components of the health care delivery problem, namely, how to insure for everyone good access to health care of excellent quality at a reasonable cost? Getting everyone a ticket helps access, but our health care costs progressively put our country at an important economic cost disadvantage without compensating benefit in workforce health or longevity. We have to and can mange our resources much better than we have.

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