Guaranteed Issue, Community Rating Lead to High Premiums

Reason Magazine takes a look at the dismal track record of state “reform” efforts to date. It cites New York as “exhibit A” for its guaranteed issue and community rating provisions. It says, “In 1994 just under 752,000 individuals were enrolled in individual insurance plans, about 4.7%  of the nonelderly population. This put New York roughly in line with the rest of the U.S. Today that figure has dropped to just 0.2%. By contrast, between 1994 and 2007 the total number of people insured in the individual market across the U.S. rose from 4.5% to 5.5%.”

It adds Washington state as another example.”In 1996 similar reforms in Washington state preceded massive premium spikes in the individual market. Some premiums increased as much as 78% in the first three years of the reforms-10 times the rate of medical inflation.” And it cites a Health Affairs study as saying, “in addition to Washington and New York, the individual insurance markets in Kentucky, Maine, Massachusetts, New Hampshire, New Jersey, and Vermont “deteriorated” after the enactment of guaranteed issue.”

It also notes about Massachusetts that, “Health insurance premiums in the Bay State have risen significantly faster than the national average, according to the Commonwealth Fund, a nonprofit health foundation. At an average of $13,788, the state’s family plans are now the nation’s most expensive.”

“A Showdown Between Corporate Oligopolies”

Congratulations to New York Times reporter Anemona Hartocollis for a very informative article on a contract dispute between UnitedHealth Group and a consortium of New York hospitals.

The health plan wants to insert a clause in its contract with the hospitals that will reduce fees by 50 percent if a hospital does not inform the plan within 24 hours of one of its enrollees being admitted.  The incentives are obvious: The health plan wants to know ASAP before the hospital staff start running up the bills.

In this case, my sympathies lie (ever so slightly) in favor of UnitedHealth Group, if only because UHG is attempting to insert the condition in a privately negotiated contract, whereas the hospital consortium is running to the state government to stop it (as other hospitals in Tennessee have done, according to the article).

However, one expert quoted in the article described this as a “showdown between corporate oligopolies”.   That may be a little extreme, but it brings us to the gist of the issue.  As long as we rely on a third party to pay for our medical services, piece by piece, it will be subject to micro-management.

I expect that if every American were free to buy a health-insurance policy of his or her own choice, a catastrophic illness or accident that required hospitalization would result in a cash pay-out by the insurer, and the patient would go to whichever hospital he preferred.  There would be little or no need for wasting time and effort negotiating “networks.”

But that’s just one man’s opinion: Government needs to give that money and power to patients, and then we’ll find out.

From Health “Reform” To Government Retiree Bailout

The behind-closed-doors squabble over the so-called “Cadillac” tax on high-cost health benefits is that it’s really about bailing out public-sector retiree health benefits, especially at the state and local level. Today’s New York Times reports that the tax won’t hit these folks until 2018. If I were a betting man I’d guess that that date will be pushed out even farther before this deal sees the light of day.

The tax is now going to hit plans that cost $8,500 for an individual and $23,000 for a family, which is way higher than the current cost of employer-based health benefits.

Until recently, state and local government employers did not have to report retiree health obligations on their balance sheets like private employers do. Of course, this meant that weak local authorities negotiating with strong union leaders resulted in unfunded liabilities that are unexpected and out of control. A recent study estimated such liabilities to be $558 billion nationwide, although the extent of the crisis varies a lot between states. There are no prizes for guessing that New York, New Jersey, and California fare the worst.

The Congressional Budget Office has yet to score this partial bailout of public-sector retiree benefits, but it will certainly send the (already debunked) pledge of deficit neutrality into the dustbin of history. Unless, of course, they figure out yet another tax to patch the hole in the CBO’s score.

New York’s High Costs to Go Nationwide

New York’s individual health-insurance market is not often held up as a national model, and for good reason. It’s the most regulated, most expensive and, as a result, one of the smallest in the country, with only a few costly health plans available.

Since New York policymakers inflicted costly regulations on insurers in 1994, enrollment in the individual insurance market has plummeted by 96%.

Current prices are staggering. In New York City, the cheapest individual plan costs $9,036 a year for a single person and $26,460 for a family. In contrast, the Congressional Budget Office estimates the average national family premium at $12,000 to $15,000 a year.

Yet both the House and the Senate health-reform bills would make the rest of America look more like New York’s dysfunctional market — and then force New Yorkers to foot a larger share of the trillion-dollar cost.

Only five states now have New York-style insurance regulations, but both bills force those rules on all 50 states and then force people to buy coverage or face tax penalties. Think about it: If 45 states don’t regulate insurance like New York does, there is probably a very good reason. And there is: These regulations drive up costs and limit choices.

Adding insult to expensive injury, Congress also plans to expand Medicaid coverage. Here, too, New York is an example of what not to do. The Empire State has the most expensive Medicaid program in the country — spending as much as Texas, Florida and Illinois combined.

New York’s Medicaid program is the fourth largest among all the states as a percentage of the population enrolled, yet the state’s rate of uninsured ranks 24th highest in the country. Of the 26 states with a lower rate of uninsured than New York, only two have a larger share of residents on Medicaid.

Clearly, doubling down on Medicaid is not the right path to universal coverage — yet Congress wants to push millions of Americans into Medicaid and thrust new costs onto the states.
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Would You Like a California Cash Cow or New York Pork With Your Florida Flim Flam?

California’s recent budget deficits will look bush league relative to the fiscal hurricane that federal health reform will unleash on California and many other states.   The problem stems from the expansion of Medicaid, the program for low-income residents, jointly funded by the federal and state governments.

Most observers anticipate that if President Obama does sign a bill this year, it will look more like the Senate bill (an amendment to H.R. 3590), which would pull millions of Americans into government dependency for their access to medical services via an expansion of Medicaid.

The Congressional Budget Office (CBO) reckons that 15 million more people will enroll in Medicaid if the Senate bill becomes law (p. 8), which is just a whisker less than half the total number of persons the CBO forecasts will be newly insured, 31 million, as a result of the “reform.” This is like the government stating that it will reduce the number of jobless by putting millions more on welfare and classifying them as “employed.”

From 2014 through 2016, the federal government would cover the entire cost of roping these people into Medicaid. By 2019, however, the federal government would pay only about 90 percent of the costs of Medicaid expansion, leaving the states to pick up 10 percent. That’s how it was supposed to work, until we learned about elements in the bill such as the “Cornhusker Kickback.”

Senate Majority Leader Harry Reid bought Senator Ben Nelson’s vote in favor of the bill by promising that Nelson’s state of Nebraska would never have to pay for any of the Medicaid expansion. The federal government or, more properly, the taxpayers of California and 48 other states, would pay for Medicaid expansion in Nebraska. Similar deals for other senators were labeled the “Louisiana Purchase” and the “Florida Flim-Flam.”

Some governors are getting pretty uncomfortable with the way the deal has been hammered out. In a pre-Christmas letter to Speaker Nancy Pelosi, Governor Schwarzenegger charged that the federal plan levied an unfunded mandate on California that would cost the state $4 billion to $5 billion.  But he’s unlikely to get a “California Cash Cow.”

Many states, including California, have long since convinced the federal government to allow them to increase Medicaid eligibility. Of course, this has allowed them to draw down even more federal dollars. (Before the February 2009 “stimulus” bill, the federal government paid for 57 cents of each Medicaid dollar, on average.) Because these states have already bloated their Medicaid programs, they will not enjoy the bailout the federal “reform” offers states that have limited Medicaid enrollment to date.

One of the 24 measurements in the U.S. Index of Health Ownership is the level of Medicaid eligibility. A state scores low if it has recklessly expanded government dependency in this way. In the third edition (2009), California ranks 30th out of 50 states but plenty of states do worse. Consider New York, a lowly 45th in the Index’s measurement of Medicaid eligibility.

“We are, in a sense, being punished for our own charity,” moaned Governor David A. Paterson, in response to the proposed Medicaid funding formula. “Charity” is an interesting noun to describe the Empire State’s approach to Medicaid. Last July, New York State and New York City agreed to pay the federal government $540 to settle allegations from the U.S. Department of Justice that they had submitted false Medicaid claims! A December 26 audit by state Comptroller Thomas DiNapoli accused the state’s health bureaucrats of recently approving $92 million in fraudulent payments.

Wendy Saunders, New York’s Deputy Secretary of Health, now shamelessly suggests a heaping plate of “New York Pork.” She thinks the federal government should throw an extra $30 billion New York’s way over 10 years, above what’s currently in the Senate bill. Unfortunately, in order to convince its stenographers in the media that the “reform” is deficit neutral, the majority took such drastic steps as proposing a luxury tax on tanning salons and cutting about $400 billion from seniors’ Medicare benefits.

All this comes in order to fund a significant expansion of government, a plan supposedly too big to fail. Governors Schwarzenegger and Paterson, and their long-suffering taxpayers will soon learn, however, that the feds are unlikely to find the dollars for more bailouts.

Opposition to Reid-Pelosi-ObamaCare is Bipartisan

Stateline.org reports that “A growing number of Republican state attorneys general are threatening to block health reform backed by congressional Democrats, with Florida’s Bill McCollum becoming the late.”

Politico, meanwhile, says that “The governors of the nation’s two largest Democratic states are leveling sharp criticism at the Senate health care bill, claiming that it would leave their already financially strapped states even deeper in the hole.” It focuses on Gov. David Paterson (D-New York) as well as Arnold Schwarzenegger, the Republican who is also a fan of President Obama.

The Medicaid expansion that the Senate bill forces on New York would increase the state’s already enormous budget deficit by 15%, with California, already on the edge of bankruptcy, facing an equally damaging burden.

An official with the Healthcare Association of New York State said “The inequity built into the bill puts hardship on states and would put them in the position of making cuts to providers.” That’s not going to be good for patients of all stripes in New York, which only goes to show that government-run health care programs have costs that go beyond what’s visible in the state budget.

New Yorker Would Have Done Better With Individual Insurance To Start

Yesterday’s Wall Street Journal ran a letter by a New Yorker, who was appalled at a contributor’s criticism of New York’s regulation of health insurance. As discussed frequently in this blog, NY imposes guaranteed issue and community rating on individually purchased health insurance.  These rules allow people to wait until they become sick to buy health insurance.

Laurie Rippon notes that (s)he lost his job after being hit by a car while crossing the street, which resulted in traumatic brain injury.  After timing out of COBRA coverage, he would not have been able to buy an individual policy because he would not have passed underwriting.  Mr. Rippon is grateful for NY’s regulations, because they insured that he could buy individual health insurance.

In fact, Mr. Rippon was ripped off.   Rates in NY for individual insurance are higher than in states that allow underwriting, because they allow people to wait until they become sick to buy policies.  Mr. Rippon notes that “pre-existing conditions” are not all caused by lifestyle choices, like smoking or those that lead to obesity.  True enough, but actuarial tables do not care how you got a pre-existing condition: It has to be priced accurately, whatever the cause.

Mr. Rippon’s tragedy was compounded by the government’s driving us into employer-based benefits, instead of individual insurance as the default.  This would have resulted in a market such as the one described by Professor John Cochrane or Professor Mark Pauly and colleagues (which I discuss here).

Mr. Rippon would have bought an individual health-insurance policy, for which the premiums would not have increased after he was injured.  This would have resulted in lower premiums than he’s paying today.

Take from the Young and Poor, Give to the Old and Rich

Voters age 18 through 29 went for Barack Obama over John McCain by a ratio of 2:1. So who’s going to be hit the hardest by a personal mandate and new regulations on health insurance? Young adults.

Young adults make up just 17% of the population but account for 31% of the uninsured. The legislation before Congress would force young adults to purchase health insurance at prices far higher than the market would charge. The legislation would use that hidden tax to reduce premiums for their parents, who typically have higher incomes.

Here’s an example: A 25-year old living in California can buy an insurance plan for $134 a month. In New York, that person could expect to pay $410 a month. The difference? “Community rating” and “guaranteed issue” rules in place in New York–but not California. These same rules are in every piece of legislation likely to emerge from Congress.

Pony up!

NY Settlement on Out-of-Network Charges & Government Price Fixing

Yesterday, NY Attorney General Andrew Cuomo made a big announcement pursuant to his settlement with health insurers about their use of Ingenix (a data vendor) to calculate usual & customary rates (UCR) for reimbursing patients who use out-of-network providers.  As I noted in January, preventing health insurers from using a private vendor to calculate UCRs, and imposing a government-chartered monopolist instead, gives the state great power to fix prices for the purpose of controlling Americans’ access to medical services.

Folks who follow that previous thread will note that I am not a fan of the way insurers calculated UCRs, but that’s not because I think there’s a conflict of interest in their doing so.  Rather, it’s because I think the whole network model is absurd, and an artefact of the government artifically favoring group versus individual ownership of health insurance.

Nevertheless, as Mr. Cuomo noted in his presentation (at 17′47″ on the video), 70% of Americans have plans that allow them to go out of network.  So, something must be working for this model to persist.

Mr. Cuomo has established his health-care pricing database monopolist at Syracuse University, which is thrilled to have control of $100 million to establish its new non-profit business, which it calls FAIRHealth.  Within a year, Ingenix will be out of this business, and FAIRHealth will be providing UCRs to the health-care sector and the public.  (The NY Insurance Department has drafted a regulation to support Mr. Cuomo’s intent.)

I’m sure that there are many unintended consequences to this significant step, which I have not yet figured out.  But core fact is this: Every claim for medical services in New York (and, Mr. Cuomo hopes, the nation) will soon be monitored and controlled by a non-profit monopolist appointed by the Attorney-General of New York.

New York Moves Regulate Limited Benefit Plans

In New York, the Paterson administration is moving against companies that sell limited benefit plans (LBPs), accusing them of misleading marketing practices. The Insurance Department fined one company, American Medical and Life Insurance Company (AMLI), $700,000 for numerous violations, and imposed new restrictions on the company. AMLI can no longer sell its limited benefit products in New York, and has been forced to pull its nationwide television commercial. The actions against AMLI were triggered by an Insurance Department investigation begun after consumers complained to the department. The investigation revealed that AMLI violated numerous New York insurance law provisions in its sales and marketing of the LBPs from the fall of 2006 through the fall of 2008.

Governor Paterson announced further Insurance Department action:

• Another insurer has agreed to suspend sales of a similar product nationally while the Insurance Department investigates its marketing practices.
• The department will consider whether to propose new regulations to guarantee consumers are properly informed about just how restricted limited benefit health insurance plans may be.
• The department directed insurance companies to provide information about any limited benefit health plans they sell in New York.
• And the state held three public hearings to determine if the proper course is tighter regulation or an outright ban on the product.

The Insurance Department contends that many LBP sales are completed via the Internet or telephone without the benefit of a written application, circumventing specific disclosures required by governing New York law. Investigations also have revealed that some policies are sold through telemarketing firms using unlicensed agents, which also allegedly runs afoul of state insurance laws. The Department also has found that some insurers issue LBPs as group coverage through unauthorized associations. While state law permits the issuance of group insurance to valid associations, some associations are formed or maintained for the primary purpose of obtaining insurance, which is not permitted in New York.

If the Department moves to regulate LBPs, New York would become the first state to adopt comprehensive regulations specifically directed at this line of coverage.