Two unacceptable policy flaws
Panel Finishes Work on Health Bill Amendments
By Robert Pear and Jackie Calmes
The New York Times
October 2, 2009
Under Mr. Baucus’s bill, which would require most Americans to carry health insurance, “the consequence for not maintaining insurance would be an excise tax,” up to $1,900 a year for a family.
By a vote of 22 to 1, the committee adopted an amendment delaying and reducing that penalty. The maximum penalty for a family would start at $200 in 2014 and rise to $800 in 2017.
At the same time, the committee decided to exempt a greater number of people from the requirement to have coverage, known as an individual mandate. Under Mr. Baucus’s bill, people would have been exempt if they had to pay more than 10 percent of their adjusted gross income for the cheapest available insurance plan. The amendment lowers the threshold to 8 percent of income.
http://www.nytimes.com/2009/10/03/health/policy/03health.html?hp
And…
What Portion of Premiums Should Insurers Pay Out in Benefits?
By Uwe E. Reinhardt
The New York Times
October 2, 2009
In March 2008, the Council of Affordable Health Insurance took aim at state regulations that would require companies selling health insurance in the non-group market to spend at least 70 percent of collected premiums on direct health benefits — a fraction insurers call their “medical loss ratio,” also known as the “health benefit ratio.” In its March 2008 newsletter, the council wrote:
insurers need to have enough money to pay claims. In most states, individual coverage faces [medical] loss ratios between 55 and 65 percent.
On its Web site, the council describes itself as “a research and advocacy association of health insurance carriers active in the individual and small group market.” In effect, the organization tells us here that unless its member companies are allowed to burn 35 to 45 percent of premiums on marketing, broker commissions, administration, other expenses, and profits, they cannot thrive in the non-group market for health insurance.
It is a remarkable statement.
Comment:
By Don McCanne, MD
Two difficult issues that stem from using private health plans as the model for reform include: 1) Can you mandate individuals to buy an insurance plan they can’t afford?, and 2) Can you allow insurers free rein on using premium dollars for their own purposes rather than spending them on health care? Let’s see how the Senate Finance Committee approached these.
1) The concern should be about the affordability of health care, but the problem being addressed is the affordability of health plans. The committee has decided that the tier level plan that would be mandated for purchase would provide benefits with an actuarial value of 70 percent. That means that the individual would be responsible for the 30 percent balance, which can make actual health care unaffordable for many (even with subsidies and spending caps). Making plans more affordable makes health care less affordable (bad policy).
Many would decide that the premiums of these inadequate plans would still be more than they would want to pay. To force these individuals to buy the plans a financial penalty would be assessed on those who fail to do so. The closer the penalty is to the premium, the more likely it is for the individuals to buy the plan. The committee recognized that many of those who could not afford the premium would not be able to afford the penalty either. Thus a decision was made to reduce the penalty for non-compliance. Since the numbers who will decline to purchase insurance is inversely related to the amount of the penalty, many more will elect to pay the penalty and remain uninsured (bad policy).
Recognizing that many truly cannot afford the premium the committee decided to exempt those for whom the premium would exceed a given percentage of their income. It was recognized that, for many, 10 percent of income was still too high of a price for the cheapest plans, so the committee reduced that threshold to 8 percent. Lowering the threshold increases the numbers qualified for the exemption, leaving more individuals uninsured (bad policy).
2) Private health plans spend far too much of the premium on administrative services, leaving much less for spending on actual health care (a uniquely American approach to health care financing). Some of the proposed changes in regulation of the private insurers theoretically should reduce administrative spending, but there is no requirement for the insurers to do so.
Sen. Jay Rockefeller introduced an amendment that would limit insurers’ administrative spending to 15 percent of the premium so that 85 percent would have to be spent on health care. When you think of our horrendous level of health care spending, 15 percent is still an outrageous amount to remove from the health delivery system (bad policy). Yet both Republican and Democratic committee members were so incensed at the prospect that the government might tell the private insurance industry how it would have to spend its money, that Sen. Rockefeller had to withdraw his amendment. (Even Democrats believe that our money held in trust in an insurance risk pool somehow becomes the property of the insurer to do with as they please.)
Making people buy a product that they can’t afford and that wastes their health care dollars is really bad policy. Really, really bad. And there is absolutely no way that the House, or the Senate, or the Joint Conference Committee can change the framework of the private insurance model to make it work for all of us.
We can’t walk away from reform, but we need to dump this turkey and move on with an improved Medicare for all. That’s the change in policy direction that we need. Change we can believe in.