A Handout for the Private Insurance Industry
Tuesday, June 23, 2009 | 0
By Joe Paduda
Details of the Senate Finance committee's draft plan for health reform were recently obtained by Ezra Klein of the Washington Post.
Here's how Ezra characterizes the draft:
"The numbers tell the story. In [the original version that was submitted to the CBO] that plan, subsidies reached 400% of poverty. In this plan, they've been cut to 300%. In that plan, Medicaid eligibility was as high as 150% of the poverty line. In this plan, it's 133% for pregnant women and children, and 100% for childless adults. In that plan, the 'gold' coverage was 93% of a person's estimated expenses, and 'bronze' coverage was 68%. In this plan, those numbers are 90% and 65%, respectively. That means people with a low-cost plan might be covered for only 65% of what they're likely to need.
Another way of looking at the plan is that it remains a significant step forward. Subsidies to 400% of poverty would be nice, but subsidies to 300% of poverty are far beyond anything we offer now. Coverage that protects against 65% of anticipated costs is better than no coverage at all. The co-op idea isn't a public plan, but with federal seed money to start new co-ops, it's a good idea on its own merits. There's an individual mandate, state-based health insurance exchanges, and a substantial health and wellness initiative. Insurers are barred from discriminating based on health history and Medicaid is sharply expanded."
Another way of looking at the plan is that it remains a significant step forward. Subsidies to 400% of poverty would be nice, but subsidies to 300% of poverty are far beyond anything we offer now. Coverage that protects against 65% of anticipated costs is better than no coverage at all. The co-op idea isn't a public plan, but with federal seed money to start new co-ops, it's a good idea on its own merits. There's an individual mandate, state-based health insurance exchanges, and a substantial health and wellness initiative. Insurers are barred from discriminating based on health history and Medicaid is sharply expanded."
Note that this is a draft version, from one committee, from one legislative body. Senator Kennedy's committee will come forward with its own bill shortly, and the bills will have to be merged/compromised into something acceptable to the House and the president.
Rather than get into the details, which are a) in draft form and b) likely to be changed before the bill emerges from the Finance Committee, here's what is missing:
- Anything having to do with cost control.
- A public plan option.
Here's what's there.
- An individual mandate.
To say this is disappointing is to damn it with faint praise. The commercial insurance industry has shown itself completely unable to restrain cost. As I've noted before, I'm not convinced that a public plan is a requirement - BUT - unless there are much stronger cost controls in a health reform bill, the public plan option may be the only way to control cost inflation.
Why? With an individual mandate, there are no incentives for private insurers to hold down costs.
Not true, you say, the market will. To which I respond, what market?
As I noted in January, There's been so much consolidation in the health plan industry that many markets are dominated by one or perhaps two health plans.
In two-thirds of MSAs, one insurer had market share equal to or greater than 50%, and in a quarter of MSAs one insurer had market share of at least 70%.
Blue Cross of Alabama has market share ranging from 67% in Tuscaloosa to 95% in Gadsden. Blue Cross of Arkansas' share goes from a low of 63% in Hot Springs to 97% in Texarkana. The two dominant health plans in Ohio have a combined share ranging from 46% to 80%.
THERE IS NO FREE MARKET IN THE HEALTH INSURANCE BUSINESS.
The Finance Committee's effort is a path to financial ruin; without cost controls we're looking at a deficit creator that will make Part D's $8-trillion ultimate liability look paltry in comparison.
Recall that Part D relies on the private sector to provide benefits to individuals, albeit without a mandate. Well, after Part D — the largest expansion of government-assisted health care since 1964 — went into effect, drug manufacturers raised prices by an average of 7.4%. Why? Because they knew there was a large new customer base, eager to get drugs, that was not very concerned about cost.
The passage of Part D was a boon for big pharma, as the industry enjoyed a substantial increase in profits and revenues attributable to Part D. In 2009, the big Part D carriers raised premiums significantly; Humana by 51% and United Healthcare by 18%, with copays also on the rise.
On a national scale, the program is a disaster. The ultimate liability for Part D is $8 trillion, a liability that is unfunded.
This is what we can expect if Congress passes and President Obama signs into law national health reform that does not aggressively, and forcefully, address cost — a deficit explosion that will make the cost of the current bailouts look like lunch money.
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Joseph Paduda's blog, managedcarematters.com, focuses on managed care for group health, workers compensation, auto insurance, cost containment, health policy, health research, and medical news for insurers, employers, and health care providers. Paduda is the principal of Health Strategy Associates.
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