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Why Healthcare Reform Won’t Work


It’s taken quite a bit of time. But the efforts by Republicans George Bush, Arnold Schwarzenegger, and Mitt Romney have finally convinced the national press that the rash of cancellations in the individual insurance market is a story worth writing. Perhaps it’s because we’re now discovering that this is a national phenomenon.

It’s somewhat older news here in California where it looks as though the state may decide that any retroactive cancellation of policies needs to be reviewed by an independent official. One Californian insurance company, Kaiser Permanente, while caught with its own hand in the cancellation cookie jar, has already proposed something similar. But it’s less likely that competitors WellPoint (Blue Cross of California’s parent), HealthNet and Blue Shield of California will be quite so thrilled.

Blue Cross of California, one of several plans being sued in California, says that it rescinds an average of 1,000 policies each year out of about 260,000 new individual enrollments — less than one-half of 1%, says spokeswoman Shannon Troughton.

WellPoint is strictly speaking right to say that less than 1% of its applications get cancelled. But it’s evident from the various testimony already leaked from depositions of Blue Cross of California’s employees that the applications of any individual policyholders submitting high claims were routinely subjected to a review looking for the slightest excuse to cancel the policy. But that’s not the heart of the matter.

The issue is that we have an individual insurance market which is designed to stay away from the care of sick people. And that’s why healthcare reforms, as they are currently proposed won’t really work.

You may believe that the point of insurance is to distribute unexpected costs amongst a large group. And you’d be right. The problem, as I’ve pointed out several times, is that health care costs are not distributed that unexpectedly. In fact any decent insurer can do a pretty good job of figuring out who is going to need expensive medical services, and can therefore avoid them.

What’s more, they’re pretty damn explicit about saying so. Here’s a gem from WellPoint’s Tonik product – an overpriced but cheap plan aimed at a market of young daredevils. I’m not making this up. The name of this particular insurance plan is the “Thrill-Seeker (T755)”, which sounds like a character from an Arnold Schwarzenegger movie if not his insurance reform plan.

Here’s what it says (Thanks to single-payer advocate Don McCanne for this ).

We believe that the cost of covering someone whose health can be predicted to require costly care should not be subsidized by someone with minimal health care needs. That’s why Blue Cross offers various levels of coverage, ensuring an overall balance of risk. To determine individual medical risk factors, all enrollments are subject to medical underwriting.

There it is in black and white: Thrill-Seekers better not hurt themselves too badly in advance of signing up. Now there are actually laws that prevent any insurance company from throwing out those within any particular insurance pool who end up requiring more than “minimal health needs.” But don’t worry; they’ve got their own tricks for that too. They simply slice the pool up into small enough pieces, and if any one piece gets too expensive because the people in it get sick, they can dump that too. Also in black and white:

Blue Cross may change or terminate coverage for all covered persons with the same plan, rating area and deductible (if applicable), including changing rates, with 30 days prior written notice.

Now, none of this would matter very much in the grand scheme of things, except that much of the rhetoric of the various Republicans offering health care plans shows that they don’t understand about this, or they just don’t care.

In order for a health insurance program to work properly, you need a lot more healthy people paying actual money into the pool than sick people making claims on it. That way, the cost of having to pay out gobs of money is distributed across lots of people. But insurance plans like the Thrill-Seeker work against that theory.

The problem of course comes down to one of money. An individual can buy an individual policy in an underwritten state like California for relatively little. That’s led many on the right to say the market can cure this problem by offering low-cost insurance products. After all a significant fraction of the uninsured are in households earning more than $50,000 a year, and presumably they can afford a couple of grand a year for insurance.

But this only works if the pool is underwritten. In other words, where individuals’ actual health is reviewed to evaluate the risks–the likelihood of needing expensive medical care–posed by each person who is insured. And this is where the Republicans’ logic breaks down. You may recall that last year Massachusetts enacted “universal health care without a tax increase”. Then-Gov. Mitt Romney assumed that he could force individuals to buy high-deductible insurance, and that it would cost them $200 a month. The problem is that in Massachusetts, California-style medical underwriting (the exclusion of non-healthy people from individual insurance products) is not allowed. So the cheapest plan insurers could come up with costs more like $380 a month. That’s rather more than uninsured low-wage workers can afford. And in fact the way things stand now a couple of hundred thousand people who already had health insurance look like they are going to have to actually purchase more at a higher cost to meet the new minimum standards.

The alternative is to let everyone buy underwritten insurance, and then you can claim that you’re covering more people. Of course that will leave those who are sick, and therefore needing more care, out of the system – and they’ll still turn up at the emergency rooms and community clinics – the places where President Bush wants to cut funding to pay for his new tax deduction for those already get health insurance. That’s why I’m prepared to say that health reform 2007 style – individual mandates or “pay or play” – is already proving to be failing, even while the ink is still wet on the proposals.

I’ve been jousting with some folks over at Cato, who mostly believe that this failure will be a good thing, and there should be no mandates and for that matter no universal insurance. Of course if you take that to its logical extension, you end up with all the healthy people with great insurance and no need to use it. And for those sickies and the rest of the unwashed masses who don’t have insurance — well, it appears that God is going to provide after all.

Hundreds of people still without health insurance in areas hard-hit by Hurricane Katrina lined up before dawn Sunday for the start of a week-long event offering free medical care. The project is a collaboration by Pat Robertson’s Operation Blessing International and Remote Area Medical, which organizes volunteer medical treatment in remote parts of the United States and the world.

I somewhat humbly submit that perhaps we can do better than leaving the future of the health care system to good old Pat Robertson. At least he’s doing something. But I suspect that he doesn’t really care much whether we reform the health care system properly – at least not in this life.

Share  Posted by Matt Holt at 7:50 PM | Permalink

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