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A Californian Crystal Ball

Jan
3
2008

Pretty much anyone interested in U.S. politics is focused today on what 32 corn farmers in the middle of the country have to say about the 20-some people currently hoping to run the world by becoming President of the United States.

And while health care concerns have figured in many of the conversations the U.S. political press has had – or overheard – with Iowa Caucus voters, it’s been a wild holiday season for California’s health care system. The impact on what type of health care reform legislation will eventually come to national attention is probably just as great.

On Christmas Eve a California appeals court unanimously decided that the way insurers have been practicing in the state for many years is illegal. The case involving retroactive cancellation of policies was one that the nice well-behaved non-profit California Blue Shield had fought in the courts while its aggressive for-profit competitor, Wellpoint’s Blue Cross unit, had settled.

Blue Shield maintained it had the right to retroactively cancel those insurance policies for which it says that policy-holders had lied on their applications. At first the series of stories, which started coming out last year and ended up making an appearance in Michael Moore’s Sicko, seemed cut and dried. People who’d received expensive care were having their insurance canceled for pre-existing conditions that they’d either clearly disclosed on their applications, or couldn’t possibly have been expected to remember. Meanwhile the behavior of the health plans was shown to be particularly cynical, with one, HealthNet, actually paying out bonuses to staff doing “recissions” based on how many expensive policy holders they kicked off their rolls.

However, over time more of the recission stories seemed to be about people who had either been extremely careless in filling out the application or had fudged the truth. But the public opinion battle was clearly lost. Now the state insurance commissioner, Republican (yes you read that right) Steve Poizner, has decided that because insurers have the right to investigate before they issue policies, they have no right to retroactively cancel them, regardless of the circumstances. It appears that the district court is more or less agreeing. Leading one attorney, William Shernoff, who settled for his clients with Blue Cross on the same type of case to say:

“What this court is saying is these cases are going to juries, and that’s going to scare the hell out of the insurance companies,” Shernoff said. “Just one or two punitive damage awards by juries will clean this up, and the appellate court is now going to let that happen.”

Note the word “punitive” in that sentence. Want to place odds on how much sympathy a jury will have with a health insurance company? Didn’t think so.

So it looks like insurance companies’ really bad behavior in the individual market is coming to an end. That, in turn, probably means the end of the current individual market here altogether. Why? Because, under the current system, health care is so expensive for sick people that insurers who don’t exclude them really struggle to provide a inexpensive product for the majority who are not sick. A healthy person in California can buy a high deductible plan for the low hundreds of dollars a month – a plan that might cost a sick person thousands a month – if it’s available.

The banning of recissions could be seen as a first step towards forcing insurers to cover everyone at a “community-rated” price. That means healthy people pay more so that sicker people can be included in the same pool.

Which is just what the bill that passed the Assembly last month and will now become a ballot measure proposes. It bans underwriting – the process of investigating someone’s health history – and forces insurers to take all-comers. This would normally cause insurers to flee the state as their risk pools filled with only sick people. But the California plan includes an individual mandate and forces medium-sized employers to pay into a state fund for those not insured, bringing in a group that may not be insured now because of the cost but which may not – assuming they’re healthy and able to work – pose a substantial risk. Funnily enough, Blue Shield is one of the insurers who thinks this might turn out better for them.

Now we’re a long way from that being a done deal. In fact the California initiative won’t be on the ballot until November, which seems a life time away to those of us facing 11 months of Presidential horse-racing. And more to the point, the always vocal if not particularly logical shock-troops of small business are starting to raise their hackles about health care.

But it’s clear that the intentions that California’s politicians and judges have are similar to those of Democratic Presidential candidates Sen. Hillary Clinton, John Edwards and even Sen. Barack Obama’s plans (although I have severe doubts that Obama cares enough to push for it).

So by all means this week watch what’s happening in Corntown USA. But pay a little attention to how the rumblings in the California health insurance market are starting to spread across the political landscape too.

Share  Posted by Matt Holt at 7:15 AM | Permalink

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