Friday, September 11, 2009

Obamacare: Devils in the Details

Many have proclaimed the President's health care address to the joint session of Congress a success. Okay, nobody expected him to convince the average FOX listener. Unfortunately, he hasn't exactly convinced me either.

I read the speech several times, and I kept getting hung up on one very basic promise: "it will be against the law for insurance companies to deny you coverage because of a preexisting condition." Okay, how can you argue with that? That's one of the biggest problems, right?

Here's what I didn't hear: will insurers be entitled to charge a higher rate to people with preexisting conditions? How about higher rates for people who smoke, or who are obese, or who, say, race motorcycles? I didn't hear anything about rate structures based on experience ratings.

Without experience ratings – projections of the costs the insurance company may incur by taking on particular individuals or groups – there is no logical way to set rates. If individuals with known health problems cannot be charged more than the healthy, then everybody in the group must be charged more.

Here's an example from the current, employer based system: a small business buys health coverage for its 250 workers. One of those workers unexpectedly develops a serious illness, incurring medical costs of $500,000. Since it is a group policy, those costs average out to $2,000 per enrollee. The insurer will get it money back – the group rate will go up, substantially. The increase may be amortized over several years, but still it will be substantial.

Anxious to control health costs, businesses already discriminate against potential employees with known health problems, who are obese, or who appear to be smokers. The practice will not appear in the personnel office's policy manual, but it still will be quietly enforced. Although that may "help," there still will be surprises – and under the proposed health care reforms, a business that encounters such unanticipated health costs may find it cheaper to pay into the proposed public insurance fund rather than continue to buy its own coverage. Granted, this is preferable to dropping coverage and paying nothing, but it is far from optimal.

Individual policies, we expect, will fade away, replaced by groups formed to participate in the new insurance exchanges. Those groups, of course, also will be assigned experience ratings, and those ratings will help determine the rates they are able to negotiate with the insurance companies. The lowest rates will go to those which, one way or another, wind up with the healthiest enrollees in the lowest cost parts of the country. No longer able to cherrypick individual clients, the insurance companies will cherrypick groups.

Inevitably, some groups will be made up of lower income individuals and families not poor enough to qualify for Medicaid, but entitled to government subsidies to make their insurance "affordable." Demographically, those groups will include more smokers; more of the obese; more who have, for years, neglected basic preventive health care. Making their insurance "affordable" will require substantial funding, and the insurance companies can be expected to drive hard bargains. To make "reform" revenue neutral, contributions to the public fund must necessarily go up.

I could go on, but I won't. In brief, the chief competition among insurance providers is not to provide the lowest rates and so garner the largest share of the market, but to enroll the healthiest clients, and so be responsible for the smallest possible payouts. As long as this "competition" exists, the sickest must pay more – unless government pays it for them – and overall health care costs will not go down.

There is only one answer to the problem of competitive experience ratings. There must be just one pool of enrollees, sharing the expenses of health care for all; just one insurer, responsible to all the people rather than a small group of shareholders, and capable of negotiating with health care providers out of strength.

Yes, I know, it's impossible to achieve, here in the steaming rectum of plutocracy – but, if that's true, we may as well give up now. Are you giving up? Am I?


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