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.

In the article published last Thursday in the Fairfield Minuteman,”Dodd Says Health Care Plan Will Benefit the State,” Senator Dodd highlights three points from the recently passed bill:  (1) the state’s ability to move people from SAGA to Medicaid more quickly, (2) a year of higher payments for Connecticut hospitals and (3) a possible $100M grant for a new U. of CT hospital. Really? In an $871 billion bill that’s the benefit?! Dodd ignores the key provisions. For instance, the bill adds $398 billion in new taxes on insurers (read: policyholders), medicare device and pharmaceutical companies (patients), and upper income taxpayers; the bill guts 25% of Connecticut seniors’ Medicare Advantage plans; and the bill taxes corporations that provide retiree drug coverage. The list of new taxes goes on and on, so far in fact they even tax tanning salons!

The original premise of health care reform was to reduce the spiraling costs of health care and reduce the number of uninsured. Unfortunately the senate bill does nothing to address cost increases, but instead accelerates the insolvency of Medicare and Medicaid, while creating a massive regulatory and tax behemoth that no senator fully understands nor can explain to his constituency.

If Senator Dodd loses his upcoming reelection it will not be because he was the Senate Banking Chairman during the catastrophic Wall Street and banking failure. Or for his sweetheart mortgages obtained from Countrywide mortgage. Or for his stonewalling on his ten acre Ireland “cottage.” Dodd will lose because he cannot coherently explain the $871 billion health care bill that he called the “most important” of his senate career.