Tuesday, August 4, 2009

The current health care "reform" legislation

When it returns in August, the House of Representatives will be considering this health care "reform" turd, er, legislation, which is 1017 pages long. Supposedly, it is designed to lower our health insurance costs. I am admittedly no expert, but my general rule of thumb is that any turds, er, legislation over 1000 pages in length normally increase costs, not lower them.

Indeed, while I have only made it through the first 40-some pages of this turd, er, legislation, I have uncovered several provisions that will increase the costs of health insurance coverage. The provisions I have seen so far require community rating (i.e., the insurer must determine its risks based upon the community in which you live rather than your actual health condition or the health condition of your employer's group), mandate that every health insurance policy provide certain types of coverage, place limits on deductibles, out-of-pocket expenses, and co-pays, prohibit cost-sharing for preventative care, and prohibit annual or lifetime caps on coverage. Except for the community rating requirement, all of these provisions will necessarily increase the costs of health insurance coverage, and if you are young and healthy, the community rating provision will increase your costs as well.

If the goal is to actually reduce the costs of health care, Keith Hennessey, the former Director of the National Economic Council under President George W. Bush, has some proposed reforms that would actually work. In part, Mr. Hennessey would make the following changes:
1. Repeal the current law tax exclusion for employer provided health insurance, and replace it with a $7,500 (single) / $15K (family) flat deduction for buying health insurance.

2. Index the thresholds to inflation (CPI).

3. Allow the purchase of health insurance sold anywhere in the U.S., which would force States to compete for the right regulatory balance of consumer protection and premium cost.

4. Make health insurance portable.

5. Expand Health Savings Accounts.

6. Continue to mandate an initial deductible and catastrophic protection.

7. Aggressively reform medical liability aka “medical tort reform.”

8. Aggressively slow Medicare and Medicaid spending growth, and use the savings
for long-term deficit reduction.


  1. Oh, babe! I am so with you! Nobody in politics seems to understand how important tort reform is--Bart's been wrangling with our Congressman for years, no avail.

  2. Right, right, you're no health expert. There is not question about that.

    1.) In employer-based plans sold today, health insurers do not typically consider one's individual health condition when insuring such employee. The House plan continues this practice, largely ensuring that with a larger group of insured individuals, costs associated from treatment are more widely distributed.

    2.) Many states today mandate that every policy have certain provisions in policies offered in that state. Minnesota has specific language that must appear in every policy and this language is substantive (for example, a recognition that pre-existing conditions cannot cause a person to be excluded).

    3.) Item 8 that you list above is in the House bill. How do you think we reduce Medicare costs? We start to arrive at this place: we don't cover certain high-cost procedures when a comparable low-cost procedure is available. Yes, some folks call this rationing. It's needed to drop Medicare costs.

    If some guy has early-onset prostate cancer and there are a few different procedures and one costs $800 per month in prescription drugs; one costs $2,500 per session in radiation and a third costs $50,000 and is a non-invasive procedure and each has the same success rate, the doctor that prescribes the $50,000 procedure shouldn't be reimbursed by Medicare unless there is a compelling need for the procedure (i.e. patient has a drug allergy or dr. has ruled out the effeectiveness of a low-cost alternative). Long sentence, I know, but you get my drift.

    The bottom line is this: it's critical for the country to establish meaningful health care reform. The insurance concentration in America is astounding. Wellpoint controls like 80% of the health insurance market in Georgia. BCBS controls 75% of the Arkansas market share. It's not good for anyone. The government is already very-much involved in medical insurance. Extending it to individuals by allowing them to buy into a government plan is absolutely a positive step.

  3. Teo, thanks for my first negative comment. I feel like my blog has arrived.

    In response to the points you raise, I offer the following in the same order as your points above:

    1) You are incorrect. When an insurer first issues coverage to an employer-provided plan, it has each employee complete an application form that includes a detailed medical history. This allows the insurer to correctly underwrite the group as a whole. Moreover, in most states, the insurer can adjust a group's medical rates to account for the group's medical claims history after two years.

    2. Your right most states do mandate certain types of coverage, such as chiropractic care. So if you live in a state that mandates such coverage, the policy you buy (or that your employer buys), includes this coverage whether or not you actually want it, which increases the cost of health insurance coverage.

    If you create a system that allows individuals or small employers to shop for coverage outside of their state, you could create regulatory competition among the various states. This would likely lead to some states eliminating certain types of mandated coverage to help hometown insurers compete for business.

    4. Wait, I am confused. Obama said at his last press conference that it is wrong for health insurers to come between you and your medical decisions, but it is okay for the federal government to come between you and your medical decisions. There seems to be a bit of a disconnect.

    5. I agree that there is too much insurer concentration in the various states. But that is due, in part, to the fact that a person living, or a small employer located, in a particular state can only buy health insurance coverage from an insurer licensed in that state.

    The best way to combat insurer concentration in a particular state is to open the insurance market in that state to insurers licensed in other states. You will still have a concentration problem if the only other insurance plan that can come into the state is the federal government plan.

    6. Finally, I find it interesting that you mentioned Wellpoint and Blue Cross Blue Shield of Arkansas in your response. During his last press conference, President Obama said that to reduce medical cost, the country needs to reduce health insurers' profit motive. Well, assuming my calculations are correct, Wellpoint had a profit margin of 4.04% last year (http://media.corporate-ir.net/media_files/irol/13/130104/wellpoint/pages/financials/income.html), so there is not much profit motive that one can trim from that company. And BCBS of Arkansas is a not-for-profit organization that presumably has no profit motive. (http://www.arkansasbluecross.com/about/overview.aspx).

    I am no expert, but I try to understand what I am talking about before I open my mouth.

  4. Congratulations on your new blog! I prefer these start-ups to the nutjobs that run RedState. I don't and won't contribute to any blog which is pushing -- essentially -- sedition (i.e. "You, President Obama, who received 54% of the popular vote, are not allowed to be president because you weren't born here"). So, I appreciate the opportunity to post here.

    Secondly, I am in an employer-sponsored health plan. Trust me, when we signed up, we didn't disclose a thing about our medical history. I've been in three employer-sponsored health plans since I graduated from law school and in none of these health plans did I disclose a thing about my own medical history.

    Wellpoint's market capitalization is $25,000,000,000. Its sales, in 2008, were around $61,000,000,000. It's operating margin (net profit margin) was actually around 6%. With 34,000,000 subscribers, its net profit was 2,500,000,000. That's a pretty profitable enterprise -- making money for shareholders on the medical conditions of its millions of subscribers.

    With respect to BlueCross, its not-for-profit status means its subscribers pay premiums in the amount of the plan's operating costs. This works fine, in theory, except that BlueCross has a pretty

    1.) Where possible, it tries to exclude people with preexisting conditions. In the employment context, for example, it does not necessarily do a pre-screen. Instead, when it comes time to pay for that heart operation or that breast cancer treatment, Blue Cross denies the claim on the basis of a preexisting condition. It's a pretty common form of rationing.

    2.) If the preexisting condition exclusion doesn't work, it looks for other ways to exclude coverage (after the consumer has already purchased the health care from the medical provider, leaving her with a large unpaid medical bill). For example, a judge in Michigan recently filed a lawsuit against Blue Cross for its refusal to cover treatment for her son's autism disorder. I suspect that BCBS is arguing that the treatment for her son's autism is "experimental." And, could the judge just drop BCBS and go somewhere else? Sure, if she agrees to pay the bills out-of-pocket (after paying her premiums) and she waits for her open-enrollment period.

    Finally, with respect to the concentration issue, you assert that the reason for the concentration is that people can only buy insurance from a state-licensed insurer. Consider this: in 2000, the largest health insurers were United and Aetna. They had a combined membership of 32,000,000 people. In 2009, the largest insurers are Wellpoint and United, totalling 64,000,000 insured people (or 36% of the marketplace). This is not because there are too few state-licensed insurers. It's because these insurers buy up their competitors. Just in 2004-2005, there were 28 acquisitions for around $54,000,000,000.

    It's nuts. There is too much at stake here. Government-managed health care is something that is coming because its needed. The industry itself acted in a way that led to this crisis.

  5. Teo,

    Just two points, because I am at work and only taking a quick break. First, on employer-sponsored plans, I agree that you would not have given a detailed medical history when enrolling for medical coverage after starting a new job if your employer's plan had existing medical coverage through an insurance company. But if the plan subsequently switched to a new insurance provider, the new provider would most likely require everyone to complete a medical history questionnaire.

    After the insurance company intially underwrites an employer-sponsored plan, it periodically updates the rates it charges the plan (usually every two years) based upon the plan's actual claims history. Consequently, when you started work at a new employer, you would not have had to complete a detailed medical history if the employer's plan had existing medical coverage through a particular insurer.

    Second, I have no idea if the guys who run redstate.com are nuts or not, but I do know that they are not birthers. (See http://www.redstate.com/neil_stevens/2009/07/28/taking-down-the-birthers/).