Thoughts on Health Exchanges and Pre-Existing Conditions
John on November 3, 2009 at 12:50 pm
Now that the bill is on the verge of passage, Ezra Klein is finally having some doubts about the perverse incentives the exchanges might create:
I’m a longtime proponent of the exchanges, but key to their functioning is their ability to serve a population that’s not entirely low-income…[I]t’s not clear that they’ll be particularly competitive if they’re primarily serving a subsidized population.
Megan McArdle has some reactions to his post. She expresses surprise that Ezra is concerned about maintaining “price signals” which is another way to say not having excessive (and often unpredictable) market controls by government. Frankly, she’s not half as surprised as I am. After all, this is the same guy who said he wishes he could sign all private insurers out of business with the stroke of a pen.
I tend to see this more as the first salvo in the next battle, i.e. the expansion of the exchanges to include ever-more of the population. Ezra more or less confirms this in a comment to his own post, writing:
Ah yes, if only there was a blog somewhere, where some weird guy had been endlessly whining about how the exchanges needed to be opened to more people…
You’ll be seeing lots of this sort of argument just as soon as they finally manage to get the camel’s nose under the tent…
Even more interesting are some of the comments on Megan’s post. This one in particular got me thinking:
[T]here’s an incentive (with guaranteed issue, and no pre-existing condition ban) even for people who are unsubsidised to pay into the cheapest possible unsubsidised plan that gets them out of paying the penalty tax, and then jump into the most expensive plan as soon as anything goes wrong…
Each provider sets the prices on a given plan based on actuarial tables about what it will cost them, on average, to cover the cost of illnesses (plus salaries, overhead, etc). So a cheap plan is cheap because it covers less or because it has higher co-pays, or both. An expensive plan is expensive because the insurer expects to have to shell out more in the aggregate to meet his stated obligation. But under both the average and top plans, some people get sick and some people won’t. Those that do are subsidized by the premiums of those that do not.
Now add “no penalty for pre-existing conditions” into the mix. Now you can change plans after you get sick from a cheap plan to a pricey plan. If it were you, wouldn’t you do so? I would.
The response is that we can put time limits on people’s opportunities to switch plans, sort of like we have now with annual opt-ins. However under the current system, opting in to a new plan would be restricted by pre-existing conditions.
You have end-stage renal disease. Sorry, that’s a pre-existing condition. No moving into a Cadillac plan for you.
But under the new rules in the exchange, you may have to wait some period of time, maybe a year or less, but when you decide to “opt-in” to the exchange version of a Cadillac plan they have to take you. This is so, even though they know the cost of covering you far exceeds what they charge in additional premiums.
In a relatively short period of time, say five years, all the really sick people gravitate to the pricey plans. Sure they’re expensive but, again, the added premium is less than the cost of care, so it’s a net benefit.
From the insurers side, you suddenly go from a situation where 25% of those enrolled will require major medial treatment, to a situation where 75% will. Where is the money to cover the added cost going to come from? There are only two options:
- The cost of the pricey plan skyrockets to account for the fact that so many of the “insured” are already ill and require expensive treatment.
- The cost of the pricey plan is subsidized by people from the less expensive plans offered by the same insurer. In other words, the cost of the non-Cadillac plans goes up to help offset the outlays at the top.
Frankly, I’m not even sure if #2 is legal or ethical and yet I wouldn’t be surprised if this is what happens, especially in the government plan. As I noted before, the public option is going to offer three or four tiers of coverage from basic to premium plus. Once all the really ill are getting premium plus, the cost of basic is going to have to go up. Either that or the cost of premium plus becomes so expensive that only the very wealthy can afford it.
So we either end up with a two-tiered system where only the very wealthy can get great coverage. BTW, this is not what we have now as most of the so-called Cadillac plans belong to union members and government employees.
The other option is a system where middle-class Americans pay more for average coverage so the very ill can have Cadillac plans. Somehow this doesn’t seem fair.
Neither option looks good, but I don’t see any alternative once pre-existing conditions are removed as a consideration.
Category: Health & Education |
The bills in Congress include provisions for balancing out premiums among insurers in the exchange based on the risk populations they take on. So your option #2 is essentially the way it will work. The costs will be shared by plans (and their subscribers) which have relatively healthier population pools.
It’s all designed to socialize the provision of health coverage, with or without the public option. Whether intended or not, perhaps the debate over the public option prevented more scrutiny on other aspects of the bill. There is literally almost no good which will come from this in the long run. At least not for the 80% of us who are perfectly fine with the current system.
November 3, 2009 @ 2:07 pmSo the entire exchange is really being treated as one pool? Really?
So as the “most sick” move to the plans that cover the most care the least sick will see their premiums rise to compensate.
But of course the “basic” plans are being purchased by people who need the most help buying insurance. These also happen to be the most heavily subsidized.
So doesn’t this mean the government is indirectly buying Cadillac plans for the very ill?
November 3, 2009 @ 3:21 pmWell, it’s going to be much more complicated than this – it wouldn’t be a gov’t bureaucracy if it wasn’t. I’m pretty sure the premium risk balancing will take place among each of the plan levels. I think this is the main reason for the standardization of benefits around each plan level (basic, premium, etc.).
But then I’m not exactly sure how they will account for people transitioning across plan levels. My guess would be that they will do these calculations based on dollar expenditures (inflows vs. outflows), irrespective of the flow of individual participants.
So if this is the case, the healthier subscribers to the premium plans would ultimately subsidize the costs of those attracted to these plans because they need the care.
But what if the population pool of the premium plans consist mostly of the unhealthy? Like you pointed out, it seems this may likely be the case given the incentives involved. Considering that most participants in the exchange will be receiving some level of federal subsidy, and their own contributions will be capped as a percentage of their total income, then it seems that tax payers at large will ultimately bear the disproportionate cost of these plans.
I’m ultimately going to dig more into this but since I expect the Senate bill will serve as the general blueprint for the final bill, I’m waiting for it to be released.
November 3, 2009 @ 3:48 pmAll of this insurance talk is making my head spin. All I care about is will Obamanure be able to get a plan that will pay for “ear reduction” surgery?
November 3, 2009 @ 9:14 pmAs someone who pays $700/mos. for PPO Cobra to insure only myself, with a pre-existing condition, and is basically uninsurable, and unemployable, this is very interesting to me.
It makes my head spin too Jim, but then, so does writing that check every month, plus paying for my 20% network and 30% out of network portion, and, and, and…
I can’t afford to be so ill, yet, I would have died at least three times in the past five years had I not taken care and followed up with my team of doctors and been admitted to hospitals.
Honestly, what is a person to do? I’ve said it before, but I am stuck in a vicious catch 22, and the stakes are too high to opt out.
November 3, 2009 @ 9:40 pmCindy, I sincerely hope that Democrats do not squander the current level of bipartisan support for reform of certain insurance industry practices. In the long run, mandating that insurers accept anyone with pre-existing conditions will shift more of the cost burden onto healthy people. But it’s the right thing to do – after all, this could just as easily happen to anyone. And I think if otherwise left alone, the private markets can adjust for this.
But by pursuing a partisan agenda to upend the entire system, Democrats are now seriously running the risk of not passing any meaningful reform at all.
Although if their efforts do go down in flames, perhaps some centrists in Congress can at least package together some basic reforms to deal with the kind of situation you are in.
November 3, 2009 @ 9:49 pmI really hope that all this discussion bring us an insurance plan that we can afford!
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November 4, 2009 @ 2:41 amI agree, at least this is being discussed now. Three years ago, when I would lament about my situation, I would receive blank stares from most people because they couldn’t relate, nor even imagine themselves in a situation where their own insurance might change from what it is.
Even if it does go down in flames, it has been discussed, becoming a table-topic for more people than before, and for someone like me that is giant leap forward. And then, even more hopeful, as you mentioned Morgen, perhaps other basic reforms can begin to happen.
November 4, 2009 @ 9:58 amPersonally, I’m not as comfortable with the change regarding pre-existing conditions as Morgen is. There are a lot of people out there who need medical attention because they’ve chosen to live, shall we say, stupidly over a long period of time.
I don’t want to punish those people as they are already punishing themselves, but I do balk internally at the idea that my premiums and those of other people who don’t destroy themselves with drugs, alcohol or McDonalds go up sharply so we can give Cadillac plans to self-destructive individuals. Seems like a big disconnect between choices and outcomes that is rarely a good thing, IMO.
To be clear, this doesn’t apply in your case whatsoever. I think you should write more about your perspective. It’s unique and I’m sure it would benefit everyone to hear another point of view on this, including me. I’m a fan of wrestling with the real life trade-offs.
November 4, 2009 @ 11:55 amA good compromise would be requiring that they except pre-existing conditions, but allowing them to charge a higher premium for doing so. And there should also be a substantial waiting period after someone cancels an insurance policy. To prevent people from only obtaining insurance for a short time when they need care.
Another solution to address the cost-sharing side of the equation, would be a socialized re-insurance/catastrophic plan where the government would assume liability for healthcare costs once they exceeded a certain number. Like $50K in a year…maybe more.
This was an idea that Obama supported very early in the Democratic primary, and one that has conservative supporters as well. It would need to be funded by some sort of tax, probably on insurance policies themselves.
Unfortunately there is no plausible way around burdening productive members of society with the health care costs of the irresponsible. But everyone (or almost everyone) should have to pay to some extent. The subsidies in the House bill are just outrageous, and they are also expanding Medicaid – which is a complete free ride – up to 150% of the poverty level.
November 4, 2009 @ 3:11 pmMany people with pre-existing conditions don’t suffer from them because of drug and alcohol abuse, or eating junk food. Many pre-existing conditions exist because of hereditary issues. It’s why a doctor seeks to learn as much as he/she can about an individuals family medical history. I keep myself in good shape but high cholesterol, high blood pressure and type 2 diabetes run in my family (and I have all three). If I lose my job and can’t find work (and yes folks there is age discrimination out there) my Cobra runs out in eighteeen months. After that, nobody would insure me. I’m not surprised – the insurance companies don’t want the risk and they’re in business to make money. It’s why they cancelled my physical therapy (against my back surgeons orders) while I was in the middle of recuperating from back surgery. It’s why they’ve denied any medical treatment for my daughter if it’s related to her autism. I can’t stand Obamanure as you all know, but insurance companies are a close second on my list. Some change is needed.
November 4, 2009 @ 6:53 pm