Debicella vs. Himes and Lamont

On Monday night I had the pleasure of attending the health care debate between congressman Jim Himes, Ned Lamont, and State Senator Dan Debicella. The participants offered up a comprehensive review of Democratic and Republican talking points that are worth a quick analysis. We’ll start with the Democratic talking points:

1. We have a moral obligation to cover all those without insurance.

I think many Americans agree with that statement. And we actually do cover all Americans today because no one can get turned away in an emergency room. A related question to ask is: why don’t these Americans have insurance? In many states, like Connecticut – and in Massachusetts prior to healthcare reform – almost half of the uninsured individuals are, in fact, eligible for Medicaid. They may not sign up because the state makes it difficult to enroll or the individual does not take the time to enroll. It seems like one prescription for our health care problem is: let’s get people enrolled in a program we have today.

The next big batch of uninsured Americans is illegal aliens. This is one of the toughest issues in healthcare reform – what do we do with the 10-15 million illegal aliens in the United States that do not have health insurance. I wish I had a prescription but unfortunately there is no easy answer on this one. The next batch of the uninsured are “risk takers.” Unfortunately, the risk takers are risking the taxpayers’ money and the money of those who are insured, not their own. If they get really sick we treat them anyway! A prescription for this problem is, in fact, a mandate. Finally, the rest of the uninsured population is people who are too sick to qualify for health insurance. Those people need financial assistance.

2. We need more competition (more insurance companies). Therefore, we need a public option.

Interesting point but completely irrelevant in Connecticut. In Connecticut’s individual insurance market we have Cigna, Aetna, Connecticare, Anthem Blue Cross, Time Assurant, Celtic, Golden Rule, and a few other no-names. Clearly, lack of competition is not a problem. So I’m not sure why Himes raised this talking point.

3. Insurance companies are bad.

Congressman Himes skewered the insurance companies; referring to their “pernicious” practices of rescinding policies after issuing them. In reality, this practice of “rescission” is rare. At Health Plan One, we have sold thousands and thousands of policies and have never had one client’s policy rescinded. Rescission occurs in the event of fraud perpetrated on the insurance company and its policyholders. For example, if an insurance applicant has cancer and intentionally misrepresents his/her condition, an insurance company may face hundreds of thousands of dollars of liability and has one of two choices: rescind the policy, due to fraud or take those losses and charge all their honest customers. Pretty easy choice for the policyholders and insurance company. Not sure who Mr. Himes thinks should pay for insurance fraud?

4. Medicare represents a $40 trillion unfunded liability.

Wow! Kudos to Congressman Himes for bringing this up. He got off the talkpoint memo. The insolvency of Medicare and $40 trillion unfunded liability is our ultimate problem and everything else we’re doing is working on the margins. Unfortunately, after announcing this financial bomb, the Congressman had no solutions other than to cut Medicare Advantage which is a cut to seniors’ benefits, but sounds like cuts to the insurers which is more politically palatable. He offers no clear solutions for a big problem.

5. Eliminate preexisting conditions.

Good idea. Who’s going to pay for it? You can’t have a functioning insurance market with no preexisting conditions unless you mandate that everyone gets in the insurance pool. For proof, go to the New York insurance department where they implemented no pre-existing conditions. Every insurer in the state has moved out and prices are 10 times what they are in Connecticut or Pennsylvania. The weak $750 mandate will not be sufficient to obligate people to buy health insurance.

Republican talking points:

Senator Debicella started out strong with the salient point that escalating costs are the key problem. Then, on to Republican talk points:

1. Tort Reform

The cornerstone of any Republican plan is tort reform. Certainly a good idea and should be part of any plan. Reduce physician costs and mitigate wasteful defensive medicine.

2. Electronic medical records (also a Democratic talking point)

EMRs are a good idea and cost a lot of money, but they might save a lot of money in the future.

3. Buying insurance across state lines.

Great idea if you live in NY, RI, VT, and a whole bunch of states that have blown up their individual insurance market. You have to fire a lot of state regulators, though, so Dems hate this idea.

4. Introducing high deductible plans.

This is a great point. Higher deductible plans have lower premiums and introduce the concept of cost-sharing to the consumer. For example, at Health Plan One, we carry many high quality, high deductible plans that are great options, especially for younger consumers who are healthy. Reducing health care costs must include patient cost-sharing and innovation on health benefit designs. Current congressional bills prohibit this.

5. Wellness (also a Democratic talk point)

Who could argue with wellness? Wellness is a great idea but you’ve got to have a plan to implement it. Close McDonald’s?

Prospective governor talk points:

Mr. Lamont made it very clear he will run for governor. He pointed out that Connecticut has not created a lot of jobs over the last 20 years and believes that the high cost of health care is part of the problem. We’ve heard a lot about the problems which were largely accurate but the prescription is unclear.

A fun event but, unfortunately, Congressman Himes could not adequately defend the House or Senate health care bills that he wants to pass.

Score one for Debicella – start again!

There is a lot of buzz lately regarding health insurance reform on the state level. The Washington Post reports that Virginia’s state Senate passed three bills on Monday that would make it illegal to require individuals to purchase health insurance.

In Utah, Republican leaders are looking to develop their own plan for health care reform – part of it urging Obama to allow with the right to create such a plan at the state level.

In Maggie Mahar’s post yesterday, Medicaid Needs More Than A Short-term Fix, she highlights the dire straits most state Medicaid programs are in (for example, despite a Medicaid enrollment increase of 18 percent over the past year in Arizona, the state has stopped enrolling children).

Medicaid is an out of control program that is bankrupting state and federal governments. The befits are similar to those of private insurance, but for free. The program will not allow copayments to change behavior, but without them, the systems are falling apart. Here in Connecticut, if you take a ride down to Bridgeport of Yale New Haven hospitals on a Friday afternoon and check out the ER you will see how jammed it is. Services for a majority of these people will be performed without so much as a copay. Even a copay of $5 could make a significant difference to the program. As head of Health Net Medicaid, I was sued regularly for trying to implement such ideas, but if something doesn’t change, these programs will continue to go bankrupt.

A true microcosm of the United States, Connecticut deals with the issue of provider monopolies when it comes to hospital networks. We have allowed hospitals all across the country to create player unions. For example, Yale New Haven, Greenwich, and Bridgeport hospitals are banded together for contracting purposes. There is really no negotiation between these hospitals and the health plans – as the hospitals tell health plans what the price of service will be and do not let health plans charge more to patients using higher cost facilities.

Connecticut’s strict Certificate of Need (CON) laws prevent new competition from entering the market. CON approval, regardless of cost, is required for anyone acquiring, purchasing, or accepting donation of a CT scanner, PET scanner, PET/CT scanner, or similar new technology equipment (see more about the Certificate of Need Process from the department of insurance). The CON board is controlled by the hospitals, making it even more impossible for new competition to enter the market.

This market power of the hospital oligopolies is one reason why the public option is so dangerous to private insurers. A public option would reduce unit costs below private insurers and quickly put them out of business, removing competition altogether.

Interesting article in the New York Times today poses the above question, with comments from guest writers as well as readers. Despite the differences in opinion, everyone seems to agree on one thing – we need to start from scratch.

I read two articles from online news sources today referring to the/a health care bill as “unconstitutional,” due to the mandate which will force all Americans to purchase a plan. If this mandate passes, it will be the first time in history that American citizens are forced to purchase something they may not want.

If the mandate doesn’t pass, there is no way the pricing structure of the bill will work. If age-rated pricing is removed, it will become more and more necessary to include healthy, young people in the risk pool-exactly the people who do not “need” insurance. The only way to ensure the inclusion of this population is to mandate the purchase of health insurance. The two ideas are in direct conflict.  The bill cannot be passed with its current foundation.

I read Joe Paduda’s blog yesterday, confirming the thoughts of the Washington Post article I responded to below. Paduda’s stance is that between the three options of passing a version of the current bill, passing a completely new one, or passing no bill at all, the third is most likely to happen.

Eugene Robinson reports in the Washington Post on Friday that it may be a while before a health care bill is passed, especially with the recent election of Republican Senator Scott Brown. Senator John McCain has ruled out adapting the current bill, saying the Senate must start from scratch, and Nancy Pelosi has declared that for now she cannot find the 218 votes needed to pass the bill.

As contemplated in the Senate and House health care bills, the rules around pricing for individual health plans is very restrictive and will result in insurers exiting the market and/or dramatic price increases. Starting in 2014, health plans will no longer be able to adjust prices for health status and gender and will have limited ability to charge different prices depending on a person’s age. We don’t need the big Accenture or Towers Perrin report to predict what will happen. New York state introduced similar rules in 1993: no age, gender, or health status price adjustments. All health insurers exited the market, and with small exceptions, the only products left are required to be offered by health plans if they participate in the group market. A typical individual PPO plan in New York City costs $1200 per month. A family plan costs over $4000 per month. Thirty miles away in Connecticut, an individual plan could be available for as little as $100 to $150 per month.

What happened? People seeking health insurance want a competitively priced product that fairly reflects the cost of insuring against a future medical illness or injury. When you ask a ten year old healthy boy to pay into a pool that reflects the cost of much older (and more expensive) people, that might also be smokers with illnesses, the boy will conclude that the price is too high, and he may forego insurance. When a young healthy person opts out of the pool, prices go up for everyone and it begins a cycle of “adverse selection” where only the people that are in fact ill will purchase the insurance.

Congress has proposed a $750 penalty for people not purchasing health insurance. The likely effect is for people to self insure for routine services, and pay the annual penalty. If in fact they have a major illness, they can then go buy health “insurance” which will no longer exclude pre-exiting conditions.

Interestingly, these pricing rules do work in the employer, or group marketplace. This is due to the employer subsidy which is typically 50-80% of the cost of an individual health policy. The employee cost is then usually viewed as fair by the employee, regardless of age or health status.

The proposed health care bills in both the Senate and House have several provisions that will potentially destroy the individual health insurance market. The 3 particular items that are of significant concern are: 1) the weak mandated penalty for people who choose not to buy health insurance, 2) the limited ability to change price based on age and 3) the lack of ability to adjust price based on health status. If individuals shopping for health insurance believe a plan is priced significantly higher than what the insurance should cost, they ultimately will not purchase the insurance, and, in effect, self-insure. So, for instance, if a 20 year old male believes that the price for his insurance reflects that of a sick, 50 year old male that smokes, the 20 year old will forgo the insurance. Instead, he will self-insure and pay the $750 penalty for not carrying insurance. As younger, healthier people start to exit the insurance pool, prices on policies will rise and cause even more people to exit the pool until everyone’s price, in fact, reflects older, sicker policy holders.

Congress has, in fact, created a catastrophic plan. It costs $750 dollars a year and all preexisting conditions will be waved.

We have run this experiment before. 20 years ago, New York State had an enormous individual marketplace and in 1993, “reform” of the individual marketplace, in an effort to bring “fairness” to pricing, completely tanked the individual market. New York State prohibited pricing based on age, gender, health status, and smoking, and only allowed for pricing based on geography. Almost every insurer exited the marketplace and the price for individual policies increased astronomically. An individual policy in New York City for a 10 year old boy is over $1,000 a month. In Connecticut, a similar policy would cost less than $100 a month. We’ve tried to standardize pricing across various ages and health statuses before. We should avoid rolling out a failed experiment to the entire country.

We have seen situations where age-banding works. Take group or employer health plans. These plans are age-rated, but those covered under an employer plan are typically happier with their premiums than those covered under an individual policy. Why is this? Since these plans are subsidized 50-80% by the company, the policy holder ends up paying only 20-50% of the actual premium.