Ironman, writing at Political Calculations has put together the most unique Cavalcade of Risk I think I’ve ever seen. Actually he posted two Cavalcades this week – the “investment grade” version (happily the Colorado Health Insurance Insider submission made it into that version with an Aa2 rating… whew!) and the “kit and caboodle” version. That had to have taken some effort to sort through everything, grade each article on three separate criteria, and write summaries. Nicely done Ironman!
I’ll admit to browsing through the Kit and Caboodle Cavalcade, just to see how bad it got. But most of my reading time was focused on the shorter version, which is filled with quality articles. One that stood out for me was from Jaan Sidorov at Disease Management Care Blog, discussing reasons why health insurance carriers are warming to the idea of community rating (the article stood out in general – it got the highest ranking of any of the submissions this week).
I was under the impression that the health insurance carriers were agreeing to the possibility of guaranteed issue coverage in trade for requirements that everyone sign up. Community rating isn’t the same thing as guaranteed issue, although both have the overall objective of leveling the playing field. Guaranteed issue means that the health insurance companies have to accept everyone. Community rating means that they have to charge everyone the same premium. Under a community rating system, a healthy 20 year old would pay the same premium as a 60 year old who had bypass surgery last year. Guaranteed issue means that both applicants would be accepted, but the 60 year old would pay more. Community rating includes guaranteed issue, but the reverse is not necessarily true. The implementation of either system in the individual health insurance market would be beneficial for those with pre-existing conditions. And a community rating system would also benefit older insureds. But young, healthy people would almost certainly end up paying higher premiums than they do now.
Sidorov’s article gives eight very good reasons why the health insurance companies (including the biggie – the Blue Cross Blue Shield Association) are in support of a requirement that health insurance companies accept all applicants – with the caveat that everyone be required to have health insurance.
Guaranteed issue health insurance and mandatory health insurance. It’s hard to argue for either of these reforms alone, and hard to argue against them together. The health insurance industry has come under plenty of fire over the years for the use of medical underwriting. It’s an emotional issue that makes for eye-catching headlines and stories like this one. A system that leaves people with pre-existing conditions to fend for themselves is inherently flawed. But fixing the flaw is not as easy as waving a wand or signing a bill into law. Simply offering health insurance to everyone does nothing to curb the dramatic increases in the cost of health care, which is the underlying problem. If people can’t afford the health insurance (again, this is directly related to the cost of health care), it doesn’t matter whether it’s guaranteed issue or not. The problem with making individual health insurance guaranteed issue (without a mandate that everyone have health insurance) is that there’s no incentive for healthy people to buy coverage. They could simply wait until they are sick to buy health insurance, knowing that their pre-existing condition won’t prevent them from getting coverage. Even if you were to remove all profit motives from health insurance, there still has to be enough money coming in to pay claims. And when you provide an incentive for healthy people to remove themselves from the pool, all that will remain are the people who currently need medical care or expect to soon. There’s no way around the outcome there: increased premiums for the people with health insurance.
On the other hand, you can’t require that everyone get health insurance unless health insurance carriers are required to accept everyone. That one is pretty self-explanatory.
But put the two together, and you end up with a pretty good idea. Everyone has health insurance. That makes the pool very big indeed. A good number of those folks are healthy at any given time, meaning that their premiums can be used to pay claims for those who need it. And since the pool of insureds is so large, the premiums coming in would be enough to pay claims for pre-existing conditions of people who would otherwise be declined for coverage in our current individual health insurance market.
Under a system with guaranteed issue and mandatory coverage, I believe Sidorov’s prediction that small health insurance carriers would cease to exist is very accurate. A system that allows insurers to cover all pre-existing conditions requires a very large pool of insureds to offset costs. Only the large insurance companies would be able to make it work, and I think that they would end up buying the smaller companies. I do believe that such a system could work under roughly the same framework that we have today in the private health insurance market. It remains to be seen what health insurance reform will actually come about over the next few years. I think that the combination of guaranteed issue and mandatory coverage has a lot of merit and deserves a second look.
