Bending the Curve: Redefining Health Insurance

Over the past few months, a politically-diverse group of health policy experts has been pondering a key question: what are the “specific, feasible steps” that policymakers could use to reduce the growth of health spending? In short, how can we bend the curve?

The fruits of their labor were published by the Brookings Institution on Tuesday as Bending the Curve: Effective Steps to Reduce Long-Term Health Care Spending Growth.

I encourage everyone interested in health policy to give it a close look.

The report’s recommendations for fixing health insurance particularly caught my eye:

Governments should ensure proper incentives for non-group and small-group health insurance markets to focus on competition based on cost and quality rather than selection. Achieving this requires near-universal coverage and insurance exchanges to pool risk outside of employment, augment choice, and align premium differences with differences in plan costs.…

[Therefore, these insurance markets should be restructured to] focus insurer competition on cost and quality through requirements for guaranteed issue without — or with very limited — pre-existing condition exclusions; limited health rating, such as those related to age and behaviors only; and full risk-adjustment of premiums across insurers based on enrollees’ risk. For market stability, these reforms must be undertaken in the context of an enforced mandate that individuals maintain continuous, creditable basic coverage.

In short, the report recommends a combination of an individual mandate and reforms that eliminate both the ability of and the incentive for insurance companies to try to enroll only the healthy and low-cost.

In a series of thoughtful posts over at Capital Gains and Games, Andrew Samwick has argued that such reforms could form the basis for bipartisan health insurance reform. I think he’s right, in the sense that there are numerous Republicans as well as Democrats who favor these changes. How that fits into today’s much larger and heated debate over health policy, however, is anyone’s guess.

Also, as Keith Hennessey emphasizes in a lengthy post on legislative strategy, an individual mandate almost certainly requires new subsidies for low-income folks who would otherwise have difficulty purchasing insurance. Paying for those subsidies could be problematic.

One of these days, I will find time to write about what I think is the obvious solution to the budget question: the subsidies should be paid for by rolling back the current tax exclusion for employer-provided health insurance (a change, by the way, that’s also included in the new Brookings report).

But rather than get into those details, I’d like to close by elaborating on the rationale behind the recommendations for an individual mandate and insurance reforms to eliminate selection.

From the individual’s point-of-view, the problem is clear: If they develop a costly, chronic disease, they may not be able to get or keep health insurance. That undermines the entire point of insurance (and is the source of some of the worst individual horror stories about our current system).

From the insurer’s point-of-view, the problem is also clear: If individuals have the ability to go without insurance when they are healthy, but then demand insurance when they become sick, the insurance rolls will be dominated by the sick and the expensive. That adverse selection drives up the average cost of insurance (making it less affordable for healthy people), and thus undermines the entire point of insurance from the other direction.

The way out of this box is to eliminate the ability of individuals to wait until they are sick (e.g., via an individual mandate), to eliminate the ability of insurers to decline coverage for sicker beneficiaries (e.g., by limiting or forbidding exclusions for pre-existing conditions), and to eliminate the incentive for insurers to find subtler ways to screen their enrollees (e.g., by using risk adjustment to offset the costs of serving different populations).

Put these together and, at least in principle, you are left with a private insurance market in which essentially everyone is covered and insurance companies compete on cost and quality, but not selection.

That solution isn’t perfect (not least because risk adjustment can be difficult and making any such changes will create losers as well as winners), but it’s almost certainly an improvement from where we are today.

Comments

[user 54079:]

"Individual mandate " What you are saying here, is that I am not free to negotiate my own health insurance with the company of my choice. I must join a pool of individuals who will, by paying increased premiums, support those whose unhealthy life styles has lead them to need extraordinary medical care. Let's do this with all phases of our lives, pooled life insurance, cars, house, disability; we could have pooled college tuition, weddings, vacations, food and whatever else you could imagine. Love it! give me my golf clubs, I'm off for a life of fun.

Sep 03 04:21 PM

[CGP:]

@user 54079:
With car insurance don't you already subsidize people who read, apply makeup, text and drive drunk or impaired? Certainly there's no perfect solution; we must accept that we're all in this together, like it or not, and must share some of the cost. It's about a common good and not the lucky few who think they are bulletproof and don't need to bother with everybody else.

This article puts forward a rational argument but unfortunately a vocal minority(?) can only think in sound bites (or is that the limit of their intellectual capacity?) and irrational fears. The NIMBY's are lead by the fear mongerers who focus exclusively on what's good for themselves (or their careers) - very curiously, would anybody consider this position consistent with christian ideals?

This country absolutely needs to have an adult conversation; anybody with a reasoned counter argument, that doesn't solely come from a place of self-interest, please SPEAK UP!

Sep 03 06:06 PM

[YoYoMama:]

"The way out of this box is to eliminate the ability of individuals to wait until they are sick (e.g., via an individual mandate)..."

This is already happening. It's called the underwriting process, where a potential policy holder practically have to account for every sneeze, sniffle and doctor's office to the potential insurer. Have you ever tried to obtain personal health insurance while sick? It doesn't happen now.

As for 54079, I'm not sure what planet you are living on, but one does not "negotiate" with insurance companies. And of course, all insurance subsidizes the sick to the cost of the healthy. That's how ALL health insurance works, and how insurance companies make money. If it didn't work that way, the whole system of for-profit insurance dictating health care would collapse.

Which, wouldn't be a bad thing, given that it is the middle men (insurance) who are driving up the cost of health care to begin with. Costa Rica has a health care system where health insurance - and medical malpractice (thus malpractice insurance) - is not allowed by law. As a result, it's just you and your doctor determining your care. If the doctor screws up enough times he's out of business (as opposed to all the quacks we subsidize through malpractice insurance).

The result? The patient care is superior and the costs are 1/3 of the United States. I know, I've been to Costa Rica for treatment.

When it's always "someone else" (i.e. insurance) that pays for health care, there's no incentive to keep costs low.

Sep 04 09:40 AM

[hermanbrut:]

I attended a town hall meeting last night in Hornell, a small rural town in western New York. The discussion was civil and the Congressman, Eric Massa, was honest and eloquent with his answers. The meeting gave me hope that the loudmouth weirdos on both the right and the left might be finally running out of steam.

This article is right on. We must have universal health care in some form. The well-being and survival of the US depends on action now. We can't afford the current system.

Sep 04 10:41 AM

[eyekew:]

Finally, a rational voice.

Everyone needs to have health insurance.; heath care via ER is not an option The playing field should be leveled by making employer provided insurance above a moderate policy taxable and giving those whose buy their own insurance an equivalent tax break/credit. Everyone ( including illegal immigrants) should be eligible to join a large affinity group which should be able to provide health insurance at rates no more than those of employer sponsored programs.

To ease the transition, those leaving or losing jobs should be able to keep their insurance at the same cost plus a minimal fee for administration. In general, alll insurance should be portable and available across state lines. Within a few years, everyone should be able to obtain insurance a reasonable rates; everyone would be covered and the problem of dealing with existing conditions eliminated.

In the transition, I would suggest that the appropriate role of government would be to provide re-insurance for insurance programs that end up with a disproportionate number of severely ill patients and to provide a subsidy on a sliding scale for those who truly cannot pay.

Somehow, medical societies and specialty groups need to step up and police the bad actors. Everyone knows who orders too many tests in their own facility, does inappropriate surgeries, etc., etc. However, the bad guys usually make more money, hire better lawyers and go on practicing egregiously bad medicine even after local medical groups try to get them to adopt better practices.

In general, how to promote good medicine w/o denying patients much outstanding medicine that may not be the accepted standard, is a real problem. Almost every significant advance in medicine went against the grain of standard practice for the time. (eg: how many decades did it take for H. Pylori to be accepted as a cause of stomach ulcers?)

Except in salaried groups, paying for outcomes is a nice goal, but not always realistic. How do you fairly compensate the truly outstanding physician who is willing to take on the really difficult, time consuming cases? He/she cannot see nearly as many patients, will have poorer outcomes, wil earn much less than someone who runs lots of patients through a superficial mill.

Bundling of services is also a problem outside of a salaried group. Docs will hang on to their patients. Those who might be better able to diagnose/treat will not be involved.

Medical IT is another conundrum. The potential is huge, but no one is talking about the major problem: legacy systems at every level that do not talk to each other. Once a task force establishes an open source protocol, lots of (hopefully, backward compatible) systems can be designed to take care of medical records, billing ( the same for all insurances and providers), etc.

Additionally, tort reform is a necessity. If you add the costs of defensive medicine and physicians malpractice insurance, the cost could be 10-15% of total medical costs. I would sugget a board analogous to a grand jury to award damages to anyone who sufers an untoward outcome. Someone with a disasterous outcome that is not malpractice is entitled to some recompense as well as those who have suffered from bad docs. Sueing should not be part of the process. Emotional rewards that go 66% (at the extreme) to the lawyers are anathema. Eliminate the tort system; establish reasonable compensation for functional loss, loss of income, etc. I bet the insurance companies might even come up with policies for those who earn huge amounts and allow those who wish buy insurance to double, triple, etc. the standard award.

I could go on, but it is tragic that rational solutions that solve problems, rather than promote a political imperative, are, in general not even on the table, not discussed

Sep 04 11:13 PM