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Meter Reading: How Regulation Might Fail

Jan
18
2007

Maybe, just maybe, we’re getting serious about health care.

This week’s news says yet more unlikely allies are advocating healthcare overhaul.

The alliance between the Business Roundtable, unions and interest groups – an even more unlikely bunch of reformers than Republican Gov. Arnold Schwarzenegger and the insurance association (both already out with their own plans) – are all saying, loudly and clearly, that something must be done. It’s all leading to an odd sense of optimism – one I don’t, sadly share.

Forces outside of health care are starting to talk the talk about forcing change. Former Massachusetts governor and Republican presidential hopeful Mitt Romney’s health plan, the election of a Democratic majority in Congress, and ever- increasing costs are all forcing everyone to get those old reform plans out again. And as evidenced in this discussion even political columnists from the WaPo think that something is going to happen – although they do tend to misread the light at the end of the proverbial tunnel.

The crisis is real, of course. For instance, credit card debt is particularly bad for those who are under-insured as a new report from Demos, the public policy think tank, showed this week.

But the problem isn’t that we need action. It’s that the consensus is fragile and can easily break. This is especially true when the segment of the health care system that has seen its profits grow fastest in the past five years stands to lose the most. So lets take a look under the covers at what the largest health plan in America – the for-profit Blue Cross and Shield agglomeration called Wellpoint – seems to be saying in the debate on health care reform. It’s not pretty.

In this article, Blues Plans Support Universal Coverage Moves in States, With Some Caveats, Wellpoint’s plan for coverage for “some” is explained. It’s basically a plan to use tobacco taxes and extends the current half-assed SCHIP program – which provides health insurance for poor children – a little. They also support the insurance companies’ association plan which gets us to 95% coverage in – wait for it – ten years!

Much more interesting is their official reaction to Schwarzenegger’s plan:

Ann Kuhns, WellPoint’s western vice president for state affairs, says that the insurer is “pleased to see the governor tackling such a high-priority, important issue to our customers.”… However, the insurer is concerned about the governor’s proposal for a minimum medical loss ratio of 85%, Kuhns says. She interprets that as an attempt to manage costs, arguing that “a fixed medical cost ratio works against high-quality products. And it’s harder to meet that requirement if you are trying to offer affordable products.”

So let’s parse this out. At first blush, Wellpoint appears to be saying that their products are only high quality if they’re making a big profit. But they can’t really be saying that, can they? It makes no sense for a insurance company to argue publicly for higher medical costs. So what they’re really arguing about is profit margin. If you are charging your customers a low amount for a catastrophic high-deductible product, your mark-up on that product needs to be higher than on a standard insurance product (e.g. 20% of $100 equals 10% of $200), or else you’re going to have to make it up on volume by selling more insurance.

The plan also disagrees with the governor’s proposed guaranteed health insurance issuance provision. Kuhns says “we think it could be very destabilizing and [could] deny benefit choices.

Wellpoint of course knows all about denying benefit choices, particularly after they’ve sold policies to individuals who actually get sick. No need to rehash the entire story here, but over the course of the last year they’ve been exposed as systematically cancelling policies on the flimsiest of excuses for customers who’ve run up significantly high claims. They’ve already been fined by the state of California for this, have had to settle with a number of customers and are involved in several more ongoing lawsuits for their troubles.

But the key point that Wellpoint is arguing against is pretty obvious: any universal coverage system, even if it explicitly includes a role for the insurance plans, is going to eventually control the pricing and the type of benefits those plans offer. That will happen even if it’s only the minimalist reform idea of getting governments to provide vouchers for people to use to buy insurance, or the grander idea of insisting that all who can afford it buy into a basic plan. In the end, if the government uses taxpayers’ money or forces people to buy insurance directly, it needs to explicitly define what they’re buying. It’s no different from the minimal directive that some states require as auto insurance coverage for third-party collisions.

Because of the complications of the health care system, the “interference” by the government will actually be much greater than that for autos. Why? If it someone doesn’t regulate the type of coverage that’s on offer, health insurers will sell sham plans that don’t really offer any coverage (well, some actually already do) and the reform won’t fix the problem.

So it’s more than likely that Wellpoint is correct to be concerned that its ability to create “diverse benefit choices” and price them the way it wants to is under threat. Because It’s much more likely that the regulation will look like public utilities circa 1968: lots of charts and graphs and pricing and margins all spelled out rather nicely for everyone to see and read.

Of course while that may be a bad thing for Wellpoint and its shareholders (and other insurance companies too), it’s a necessary thing if we’re going to have rational insurance reform. The more sensible insurers realize this. Several, like Blue Shield of California, Highmark in Pennsylvania and Blue Cross Blue Shield of Minnesota have suggested that they become, in effect, regulated utilities.

But I suspect the real biggies, like Wellpoint, don’t want to go down that path. So they are starting to subtly subvert the reform coalitions in which everyone from union leaders to business owners with pretty much everyone who wants to be president (save one woman) is singing kum-by-ya. And don’t get me started on the people with the real power to stop change: the doctors, hospitals and drug companies.

So unless they all want to be public utilities, my bet is that the health care industry will still manage to beat back real reform this time around.

Share  Posted by Matt Holt at 9:46 AM | Permalink

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