Insurance exchange loopholes
Will U.S. learn its healthcare reform lesson from California?
By Michael Hiltzik
Los Angeles Times
September 14, 2009
The difference between a government program that works and one that fails spectacularly can be razor thin. A few words here, a loophole there, and you can turn a boon for the consumer into a windfall for big business.
That lesson should be fixed in the frontal lobes of everyone in Congress working on the healthcare reform bill, and especially on a piece of the reform puzzle known as the insurance exchange — a key element of the reform plan backed by congressional Democrats and President Obama.
Here in California we know all about the pitfalls of an exchange that doesn’t work, because we established a statewide version in 1992 and attended its funeral in 2006. The state exchange, known originally as the Health Insurance Plan of California and later as PacAdvantage, was designed to give California’s small businesses the collective clout to negotiate with health insurers for lower premiums and consumer-friendly standards.
As written into the benchmark bill in the House of Representatives (H.R. 3200), the federally supervised exchange would be the sole marketplace where individuals and employees of small businesses could buy health insurance. By mandating insurer participation, the exchange would provide customers the choice they don’t get in the market today. By requiring all plans to offer identical base policies it would enable buyers to compare them by price and quality.
But we’re still at the starting line. A lot of mischief can be committed on a bill’s path to enactment. The threat to a functioning exchange will come from vested interests trying to water down the mandates. Insurance companies will want the right to offer catastrophe-only coverage, which is a big moneymaker, or to specialize in the yacht-owning executive market. Lobbyists for health savings accounts, who are carrying water for financial services companies lusting after the fees these accounts generate, will insist on an HSA loophole. And politicians in some states will want to export their bare-bones coverage standards nationwide so they can lure health insurers into headquartering there, the way one-horse states without usury limits, such as South Dakota, made themselves the credit card-issuing capitals of America.
Any loophole will set the stage for others, until the exchange becomes a useless, tattered dream. “If there’s a gap or a loophole, the market will exploit it,” (former president of PacAdvantage John) Grgurina says.
http://www.latimes.com/business/la-fi-hiltzik14-2009sep14,0,7041044.column
A previous qotd also discussed insurance exchange lessons from California:
http://www.pnhp.org/news/2009/august/health_insurance_exc.php
Comment:
By Don McCanne, MD
In health care, we spend more and receive less, and everyone agrees that has to change. The decision has been made that we will do that by regulating our dysfunctional health insurance market, and then mandate that everyone who is not covered by other qualifying programs be required to purchase private health plans. To be certain that everyone has access to a plan, an insurance exchange will be established.
Regulations will require guaranteed issue, guaranteed renewability, the end of rescissions, rules to reduce adverse selection, and other measures to improve the functioning of the markets. In his speech to Congress and to the nation, President Obama provoked laughter when he said, “… there remain some significant details to be ironed out…” The particular details that will need to be ironed out should probably provoke grief, anger, disgust or other negative emotions, but they certainly are not funny.
No matter what rules are established for the exchanges, there will always be loopholes. Michael Hiltzik has suggested some possibilities. Our experience with the larger private insurers has proven that they can find loopholes that the best policy analysts could never see coming. Unlike the European insurers that have a mission of service, our private insurers that dominate most markets have an obligatory mission of enhancing investor value. Their business ethic mandates that they investigate every opportunity to increase revenues and reduce expenses. The invisible loopholes will always be there, and the entrepreneurial mind will always find them.
The insurance exchanges won’t even be established for four years, and then it will be many more years before the policy community passes judgement on their impact. During that time our public stewards will be busy trying to patch the innumerable loopholes penetrated by the entrepreneurs, only to find more opening up.
In future books recording the history of U.S. health care reform, President Obama will have his own chapter on yet another failed effort. He’ll deserve it because he hardly picked up his baton to orchestrate reform. When Obama should have been conducting Beethoven’s Ninth, Congress was busy writing Rap. Rap might work for a few of us, but the nation deserved much more.