We Have Found The Problem And It Is You

David Riemer and Alain Enthoven opining in today's NY Times would set us straight about what we will need to fix our health care system.

We do not need a public plan. We need 50 new government agencies:

Congress is already looking to create federal or state “exchanges” through which individuals could comparison shop for health insurance. Exchanges pool large numbers of people and give them access to various health care plans — so that individuals can enroll in the plan of their choice, and so that risks and administrative costs can be spread widely.

Which could have a significant advantage over our current broken system. If exchanges were able to force insurers to cover all at the same rate, regardless of their health status, people who need health insurance might actually be able to afford it and might not be refused coverage.

Of course the agencies will have no power to directly dictate the terms that insurers offer. That would be intrusive regulation of private enterprise. The agencies will need to bargain to get good deals. In order to do this they will need to have bargaining power. Which means that we might have to force employees and employers to participate:

First, the exchange would need to act on behalf of a critical mass of people — at least 20 percent of the insured population that does not already receive Medicaid or Medicare. Only a pool of this size could attract serious bids from insurers. To amass such a large purchasing pool, Congress might need to require that all government employees, or all employers with fewer than 100 employees, join the pool.
Now some of us might be a bit worried about being forced to buy our health insurance through a state insurance exchange or Health Help Agency as they are called in some legislation. We might reason with Professor Krugman that the bargaining power of such an agency would be limited if, as is the case in Arkansas, one company controlled 75% of the insurance market. We might even worry in here in California where there are really only four major players in the health insurance market.

We might also wonder about the influence of campaign contributions from the insurance industry on the staffing and decisions of the Health Help Agencies.

Not to worry. You see the insurance industry is not really the problem. We are. Health care and health insurance are expensive because consumers demand more health care and more health insurance than is really good for them. They have rebelled against care management by highly qualified insurance company actuaries. Now they balk at plans that take their premiums and only pay for care in the most extreme circumstances - only for one out of five consumers.

But, while the Health Help Agencies will be fairly weak in their dealings with the insurance industry, they will have real power to force consumers to change:
Second, the exchange would need to ensure that no subsidies for health insurance, whether provided by employers or the government (through the tax system), exceed the price submitted by the lowest-bidding qualified insurer and benefit package. All individuals in the pool would be free to join any insurer that submits a bid. But enrollees would have to pay out of pocket — and preferably with after-tax dollars — any amount above the price of the lowest-bidding plan.
No tax deduction or tax exemption, no collective bargaining to get a better plan, no help from the government at all. And if that does not work then I suppose that we will have to place a luxury tax on more costly health insurance.

So what will the lowest bidding health plan look like? Long ago in this space Wonks Anonymous ran series on how health Insurers compete to make profits. He concluded that modern health insurers use two mechanisms to lower their prices:

They lower plan quality by reducing the amount of actual medical care that a plan pays for. They refuse or limit certain treatments - the HMO dodge. They raise the co payment for services or, and this is most popular of late, they require consumers to pay a substantial deductible, say $5,000 for an individual, before they make any payments for services.

They avoid sick people, either by refusing them coverage or by discouraging them from applying for coverage. Healthy individuals are attracted to low quality, high out of pocket plans. They are insuring against a motorcycle accident, not trying to find a reasonable way to finance health care that they believe they will need. The rest of us hate plans like this.

We will note here that health insurers are staffed by actuaries accountants and various MBAs. They are absolutely unqualified to determine necessary care or to evaluate the quality of care.

This will insure that the lowest bidder is a high out of pocket, low service plan. This plan will present high barriers to early care for illnesses and serve to promote the full maturation of minor problems into full blown, life threatening conditions. And, since the amount of the deductible will often exceed the financial resources of a family, we can expect to see more health related bankruptcies.

But again no worries. The the major legislative vehicle for this glorious reform, the Wyden-Bennett Healthy Americans Act, insures that consumer payments for health insurance will be withheld from wages and that "personal responsibility payments" - which seem to include co payments and deductibles - will not be discharged in the event of bankruptcy.


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