Obama And Individual Health Insurance Mandate

Update: The Healthcare Reform (Obamacare) individual health insurance mandate will take effect in 2014. Health benefits exchanges need to be functioning by October 2013, when enrollment is scheduled to begin (health insurance effective dates won’t start until January 1, 2014, but people should be able to start enrolling in the exchanges next October).

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We’ve written quite a bit about McCain’s health care proposals, but haven’t said much about Obama’s ideas yet. But as I was reading this article from USA Today, I was struck by how simple they make some of Obama’s solutions sound, but how difficult they would be to actually implement. According to the article, Obama would allow individuals to band together to buy health insurance in groups (enabling “individuals and small firms to get all the benefits of the purchasing power of big firms”), and would require health insurance carriers to cover all applicants, regardless of pre-existing conditions. To anyone who is not well-versed in the health insurance industry, this sounds like a wonderful idea. We routinely have clients in Colorado who call us wondering if they can get a group plan for their family, in order to get the “group discount.” The misperception that group health insurance must be less expensive than individual health insurance is pervasive. It sounds good – after all, group discounts are part of many industries, and it’s what people are used to hearing. And many people don’t have any idea how much group health insurance actually costs, especially if they are used to having an employer pay a good portion of their premiums.

But health insurance is a bit counter-intuitive if you’re not used to how the system works. Individual health insurance is less expensive, group plans more expensive. The main reason for this is medical underwriting – individual health insurance companies look at an applicant’s medical history, and can choose whether to offer a policy, whether to exclude pre-existing conditions, and what the premium will be. Group health insurance has to cover any eligible employee who enrolls in the plan, and pre-existing condition waiting periods are limited by HIPAA. (HIPAA doesn’t apply to individual policies). So while there may be more benefits on a group health insurance policy (for example, in Colorado only a handful of individual health insurance carriers offer maternity coverage, but all group plans cover maternity), the price is also higher.

I’m curious how Obama’s plan would allow people to buy in groups without regard for pre-existing conditions, without driving the cost of health insurance even higher. People who buy their own health insurance don’t get any help on the premiums from an employer. Individual health insurance premiums are already high – how will basically turning all plans into group plans help with the cost of health insurance? I’m very much in favor of expanding access to health insurance for people with pre-existing medical conditions. But how do we do this without pushing the overall cost of health insurance out of reach of the average American family? It has to start with the health care system. Attacking the problem from the health insurance side is putting the cart before the horse. Yes, health insurance costs are out of control – but until we get health care costs in line with what the rest of the world spends, there is no way we’re going to get our health insurance premiums down to a reasonable level.

While I’m pleased to see health care taking such a major position in this election, I’d like to see both candidates focus on the underlying costs of our entire health care system, rather than just looking at ways to get everyone insured. Because if people can’t afford the insurance, and if insurance companies can’t afford to pay claims, simply having access to insurance won’t solve our health care problems.

Comments

  1. Don Levit says:

    Louise:
    Thanks for providing your thoughts.
    Insurers are merely middlemen, passing on the higher medical costs in the form of higher premiums.
    And, if the premiums are starting to be prohibitively expensive in the private sector, why would they be significantly less expensive if the government was footing the bill?
    What does not work in the private sector will not work in the public sector, all else being equal.
    Even a potential savings of administrative costs has little relation to the cost of the medical care, after the administrative savings are factored in.

    The cost of medical services has been rising far faster than wages, for probably about the last 20 years.
    The only way to bring costs down, in my opinion,is for the unrealistically high costs to be reduced, due to lack of demand at those levels.
    May insurance benefits be partially responsible for these high costs not being reduced?
    Don Levit

  2. Don,
    Thank you for a good response. I didn’t see anywhere in the article where Louise mentions government footing the bill. But you’re right, rich (mostly employer sponsored group) benefit packages increase the demand for many services because providers are over recommending/prescribing services and medications that really aren’t needed. And consumers aren’t questioning anything because the insurance is covering it with no problem.

    Even though the article didn’t address a government solution, I’ll play devils advocate in response to the question about how such a solution would be less expensive…
    Mainly, less overhead and less of a reason to try to find more ways for people to use the system (usage). In the profit based private sector system, the more people that use the products and services – the more profit there is to be had. The corporations need to show shareholders growth year after year. Pharmaceutical companies push providers to prescribe more, providers run extra tests and procedures to pad their pockets, the AMA, pharma, and the insurance industry bankroll large amounts of money to lobby lawmakers and fund think tank organizations.
    Overuse and overhead are the problems. A government system discourages usage as much as possible and runs lean.

  3. Don Levit says:

    Jay:
    I am no fan of for-profit insurers, or really, any financial entity in which profits come before the mission, its very reason for existence.
    If its mission is simply to make money, well, that’s for another day.

    There is a difference between for-profit, non-profit, and loss.
    Government as a funding vehicle for health expenses is a loss leader in many respects.
    In order to really tackle the funding issue, we must 2 do things:
    1. Pre-fund for future expenses
    2. Have these reserves owned by the participants.
    Neither of these 2 requirements are met by the federal government.
    I will be happy to detail why that is so, but let’s not lose sight of a not-for-profit insurer which meets those 2 requirements: A Voluntary Employees’ Beneficiary Association (VEBA). Are you familiar with VEBAs?
    Don Levit

  4. Don:
    I am very familiar with VEBAs. However, the V (for voluntary) is a bad combination with no underwriting (as discussed in the article). People would not contribute to the pool until they need benefits and be able to enter into the pool with no problem when they do need benefits. So the pool would essentially be funded only by the people needing benefits.

  5. Don Levit says:

    Jay:
    Good point.
    That is why I am suggesting that contributions be paid for 2 years, in which coverage accumulates, but does not become effective until year 3.
    It would be similar to a defined contribution plan, which does not vest until year 3.
    Don Levit

  6. Don,
    That’s a good plan!

  7. Don Levit says:

    Jay:
    I’d like to brainstorm a bit with you.
    Should we do so off of the blog?
    Don Levit

  8. Don:
    I’d love to brainstorm with you too. But I think it would be more productive if we could brainstorm collaboratively with anyone else who wishes to share their ideas. And what could be a better place for collaboration than a wiki? So, I’ve just created a page on the Colorado Health Insurance Wiki called “Designing the perfect health care system” where we can brainstorm and hopefully get input from others. (If you’ve never played with a wiki, this is a good chance to start – it’s really easy)

    Or, you could always write a guest post on this blog. For you Don, I’ll publish anything you write as-is… maybe. :)

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