Category Archives: Insurance

Cesareans Lead to Higher Priced Insurance

Watch out!  If you have a Cesarean delivery you may find it more difficult and more expensive to find health insurance in the individual insurance market.  Go ahead and add Cesarean to the growing list of pre-existing conditions. Since the individual market is growing (18 million people) and the Cesarean rate is growing (31.1% of births or 1.2 million Cesareans a year) one could assume that many people have faced this issue.  You can read about a few women who have discovered this reality here.

No Individual Mandate, Really?

I’m resisting an individual mandate despite my left leaning ways.  Underneath it all I do not like large programs that dictate behavior. Liberty is important, but more than anything mandtaes can be impractical. How would you enforce such a thing? How much would enforcement cost?  How effective are mandates? And do we want to be punitive toward those who do not obtain insurance? These are all tough questions and questions I would direct to Hillary Clinton.

Under “My Prescription” all people would have equal access to health insurance while establishing equitable tax incentives to purchase insurance. Those people not purchasing health insurance are losing out on their tax credit and thus throwing money away. It changes the calculation.  Currently, a person looks at the $8,000 premium and walks away. No health insurance, but $8,000 in their pocket. Under “My Prescription” they look at the tax credit (let’s say $3,000), and they have the choice whether to spend $5,000 on the insurance ($8,000-$3,000 tax credit) and have health insurance or do I pay $3,000 more in taxes and not have the insurance.  That changes the game (these numbers are fictitious, but make the point) because people would now practically be paying to not have insurance. 

So do we need a mandate? I would like to give the “My Prescription” plan a chance to work without a mandate. I believe it would lower the number of uninsured tremendously.  It would eliminate the excuse that a person could not get insurance becasue of their medical history. It would make obtaining insurance very appealling, and lastly, it would have a better chance of political passage without such a mandate. If I turned out to be too optimistic in my estimates toward universal health care a mandate could be added later, but in the meantime “My Prescription” would improve quality by stimulating competition on costs and quality. It would improve incentives for public health and prevention of disease.  It would improve relationships between patient, doctor, and insurer by improving continuity of care. It would align the incentives with cost controls and quality of care. No, for now, I’m going to pass on the mandate.

Now We Build

Part of the “My Prescription” series.

But before we do let’s recap. In brief we need a new foundation. The employer based system is not working. So I am suggesting two fundamental changes: Health insurance exchanges and tax reform.

Health Exchanges will provide the pooling mechanism. They would be run by the States and would regulate the plans much like the New York Stock Exchange regulates stocks. The exchanges would have to force the plans to accept all applicants, to have a fairly standardized set of benefits, and I believe use a modified community rating. Community rating is when the premiums are based on the risk of the community as a whole, not the risk of the insured person and their specific circumstances. The modification is that insurers would charge everyone within their plan the same amount, but that each insurer can set that price (and thus compete on price).

I can hear the screams right now, “What about smokers? I don’t want to pay for them?” Neither do I, but I do want to make sure that the cancer survivor has access to good medical care. Further, competition would make smoking cessation programs financially viable. Second, I can anticipate, “You need to let the market operate unregulated.” I believe in the market, but without regulation insurers will only compete by avoiding high risk people, not on quality and price. Under this plan competition is limited in several aspects. I won’t deny it, but there is still competition. The insurer is competing on quality of care and efficiency of providing that care. And, “Won’t this make premiums more expensive?” Yes, community rating makes insurance premiums higher. Insuring sick people costs money, but I do believe that it is the morally correct choice.  Let’s see if this competition can reduce costs over time through directed competition.

So the next big thing is that we need publicly reported information about the quality of health plans, hospitals, physician groups, and physicians. There is an emerging movement already, but it needs to be a national priority. Competition only works when the consumer is an informed consumer. Let’s educate!

So we have exchanges that regulate health plans and use community rating. All people are included and all can choose their own plan. The plans are portable from job to job providing consistency of care and long-term relationships with insurers. The tax credits provide equity in the tax code, but still preserve the employer’s incentive to contribute. Employer’s continue to facilitate health insurance, but no longer sponsor it. Quality measures are reported to the public forcing health care plans, hospitals, and providers compete on quality and price while minimizing selection issues.

Next time we’ll discuss a few nuances of the tax proposals, why an individual mandate may not be necessary, and the need for either re-insurance or risk adjustment.

A Most Sincere and Irreverent Letter to John McCain

Dear John McCain,

It seems that you have only listened to half of what the health care experts have told you and then were shamed into cobbling some rhetoric to cover the glaring gaps. Let me help you.

Let’s first go over what is good about your plan. I like most of your tax reform. Tax credits are better than tax deductions. They are fairer and more progressive. However, you still may want to give a small incentive for employers to stay in the game. I would hate to lose their support, and with your plan they might just all get up and leave. If they do it seems that the small government plan you are envisioning may have to grow to fill the gap. But you have the general right idea with tax credits and $2,500 per individual and $5,000 per family is getting close to the price of insurance, but still falls short. Does everyone get this credit? Is it related to income? Does it rise with inflation, or even better yet rise with health care inflation? Just wondering. Those damn details.

Cost reduction. That’s big with you and you are right to emphasize it. We spend too much on health care – over $6,000 per person. Almost double what the next most generous country spent. And some of your ideas are fine. They are the same as your Democratic rivals (good copying skills), and will only nibble at the corners, but important nonetheless. We should invest in electronic health records, have improved coordinated care, generic drugs, re-importation of drugs (very maverick of you), smoking cessation, state flexibility to encourage creativity, increased focus on chronic conditions, tort reform, and Medicaid and Medicare reform. All good suggestions. Your two sentences on each of them really demonstrates your breadth of understanding. And again your competition beat you to the punch on almost all of these. I like the bipartisan spirit, but I was hoping that since cost reduction was your big thing you might have a new trick up your sleeve. I guess your big price reducer is increased competition. So let’s talk about that.

Your plan will cripple the employer-based health care system. Not a bad thing, but since health care accounts for 16% of our GDP and you are recommending pulling the foundation out from under it (I admit a shaky foundation) you might want to say a little more than you want to put health care decisions back in the hands of the patient. So under your plan the patient would select their health plan, right? And you are assuming that the patient has the information to sort through all of the health plans to choose what is best. Surveys on this topic show that the typical person shopping for insurance bases their decision on things that do not reflect quality. How do you plan to educate America on this? Remember for a market system to work you need an informed consumer. The quality reporting systems in America are improving, but any plan that puts the insurance decisions with the consumer better focus more on quality measurement and reporting than you do. I would suggest you expand on that a bit.

Lastly, Elizabeth Edwards. You two have been so cute fighting in your sandbox, but I would listen to her. I think you have. You realized that she is right saying your plan would leave out the sick. Maybe a person with a history of melanoma? We know that insurers compete by avoiding high-risk people. Risk avoidance is where the profits are – not quality delivery systems. That pre-existing condition thing. That age discrimination thing. Shoot foiled again, and you know it. In the last minute you threw in the line, “We will work with the States,” to make sure these people are covered. What does that mean. High risk pools, perhaps? Well, that is really expensive. Under your plan the really high cost people (up to 30% of the national health care bill) would be denied coverage by insurers (remember since they are not under an employers plan they could be denied) and potentially fall into these groups which would be subsidized heavily with tax dollars. Oops, that sounds like a big government plan. So I would suggest you rethink how you are going to pool people together. Did you know that the premise behind insurance is pooling? You have to find a way for the high-risk people to be pooled with the low risk people based on something besides health. That is what employer-based health insurance was all about.

And lastly, many States have their ways of dealing with these issues. For example New York uses community rating. Under your plan with cross-state purchasing these New York plans would all collapse because nobody who is healthy would join. So much for State flexibility.

I would suggest that you go back to the table and provide a bit more detail. Again, I like the tax credits and I am okay with leaving the employer-based model, but you have to have thought through what’s next. I look forward to your third draft.

Sincerely,

Lucas Pauls

The Second Step – Tax Reform

Part of the “My Prescription” series

Yes, I’m bored already as well, and I apologize in advance. I especially feel bad as I just read “What White People Like,” and it is much more entertaining than tax reform (and it described me well. I have several New Balance sneakers). But in order for “My Prescription” series to move forward I must talk tax reform. Here goes.

Let’s first lay out the current situation. If you receive insurance through your employer both you and your employer will not pay any taxes on the money put toward the insurance (totaling $208.6 billion). Cool!

But if you buy insurance on your own you pay for that insurance with post-taxed money. Not so cool and I would add that it seems unfair, doesn’t it?

Let’s do the numbers:

The average subsidy totals $2,778 per employer sponsored employee.

In firms where half of the employees earn less than 10.43/hour (low income) the subsidy is $2,268 per employee.

In firms where more than half make more than $23.07/hour (high income) the subsidy is $3,283 per employee, that’s 45% higher.

A different analysis in 2004 puts the subsidy for families earning over $100,000 received a tax subsidy of $2,780 where families earning between $40,000 and $50,000 received a subsidy of $1,448. And for those earning less than $10,000 the subsidy totals $102.

So the more you make the greater the handout for health insurance. And we wonder why the poor have a hard time getting insurance. Not only do they have to buy the same insurance with less income, but they get less help (if any at all) than the rich do. That’s some good policy!

So I suggest getting rid of the tax deductible insurance policy and change that in for refundable, advanceable, and assignable tax credits based on income. So the people who need more help getting insurance will get it and those that don’t need the help will get a bit less. Now I still want to encourage employers to kick in for insurance.  It seems silly to lose their help by removing their carrot, so I would still offer a tax break to employers to kick in funds, but the employees’ contribution would come from the tax credit based on income (and employer contribution), not pre-tax dollars.

This adjustment will provide a more equitable tax policy.  Add that to the tax exchanges and removing the employer from sponsorship of health insurance you now have a foundation that we can build upon.  Next time we will build.

The First Step – Health Exchanges

Part of the “My Prescription” series.

I know some out there have already decided they don’t like this plan. The decision was made as their eyes rolled over the words, “Health Exchanges.” It’s not good when you lose people in your title, but I encourage those who have turned away to stick around a bit longer.

In previous posts I have detailed why employer-based health insurance is the basis of our health care system and why I think we as a workforce have evolved past employer-based health insurance. Read here and here. If we are going to consider serious reform of our health care system we need to move away from our current foundation, and health exchanges are my recommendation for doing so. 

Employer-based health insurance was how we as a society pooled people together to spread out risk, however, we know many people are left out of these pools and portability of plans is basically non-existent. The health exchanges would facilitate pooling while allowing for complete portability of plans.  The exchanges would be run by the States (could be regional as well) and would act as clearinghouses  in which insurers would compete for workers’ business while playing under standardized rules. All insurers would be required to operate within the exchanges (possible exceptions under ERISA – too complicated to explain here). Butler equates it to the stock exchange.  Neither the stock exchange nor the health exchange sells either stock or health insurance, but both provide the venue and the rules that regulate their industries.

With the exchanges in place employers would no longer sponsor health insurance meaning that they would no longer pick the available plans or if they are a small company be limited by their small workforce. The exchange would provide the pooling and spread the risk thus allowing more people entrance to the large pool insurance world. Self-employed individuals could also use the exchange making their prices equivalent to the their employed counterparts.

Further, the exchanges allow a worker to select their health plan and then to keep their insurance as they move from one job to another within their geographic area (most likely States). Now we have portability and continuous care – a huge improvement in quality of care.

The exchanges also provide the ability for the States to create risk adjustment schemes, re-insurance schemes, and/or other tactics to provide the best care for their residents.  Each exchange could set its own rules (perhaps under broad federal rules). I will talk about these possibilities in future posts, however, my point now is that the exchanges open up possibilities that are not available now.

Under this set-up employers would no longer sponsor health insurance, but they still would facilitate it.  By facilitate I mean they could still contribute to an employees plan (some dollar amount), deduct payments from payroll and adjust taxes accordingly. Employers seem to do a good job of this administrative work, and I see no reason they should stop providing this service.  Further, employers could still use their contribution to the employees plan as a way to attract workers through fringe benefits.

Ultimately, employers would no longer be sponsors, but facilitators of health insurance.    

Second step – tax reform. Aren’t you excited?

Outdated Employer-Based Health Care

Part of the “My Prescription” series.

There was a day when a typical employee was loyal to a company for the length of a career. Or maybe there was a time when the company was loyal to the employee. I don’t know, but there was a day when an employee stayed with an employer for many years and often decades. Increasingly today’s workforce is mobile. Today a quarter of the workforce changes jobs every year. In 1983 two-thirds of men in their fifties had been with their current employer for ten or more years. In 2004 that number dropped to 50% (Department of Labor). I’m willing to speculate that this number will continue to drop as my generation approaches their fifties.

Further, the workforce is becoming increasingly independent meaning independent contractors, freelancers, etc. Over the past ten years people with these work arrangements have increased by 20% to about 11% of the workforce today.

So the workforce is mobile and mobility is good. It means entrepreneurship. It leads to creativity, advances, and growth. But I would argue that we do a poor job of supporting this independent spirit by making health insurance practically immobile. If you change jobs you change your insurance. Maybe you have to change your doctor? Maybe your prescriptions?

Let’s role-play. A talented MBA grad working for a large fortune five hundred company who feels stifled by the corporate world. He has ideas, but is scared to go out on his own. He is scared to be without insurance, and until he gets up an running he cannot afford to pay his own. What would you do? What if you have kids? Tough choice.

Another problem. Small businesses do a poor job of providing health care. Companies with a 1,000 employees provide health care to 80% of their employees. Companies with 10 or fewer employees offer insurance to less than 50% of their employees. It all has to do with increasing risk when pooling small number of people, and as long as health insurance is strictly based on ones employer, this scenario will continue.

I think it pretty clear that the employer-sponsored insurance system that we have today is eroding and is no longer capable of being the foundation of our health insurance system.