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RISK AND THE WYDEN PLAN.
The Center for Budget and Policy Priorities has a useful analysis of the Wyden-Bennett bill -- which swing Republican Arlen Specter signed on to yesterday -- which points out both some of its flaws and some of its strengths. One of their concerns is that in giving folks choice of insurance plans, "some adverse selection likely would result, with healthy individuals choosing low-cost health insurance plans, like high-deductible plans attached to Health Savings Accounts, while people in poorer health opted for more comprehensive plans. If that occurred, sicker individuals would, over time, face increasingly unaffordable premiums for the coverage they need." To rectify this, they suggest the plan should "restrict the availability of plans that are very likely to provoke adverse selection such as high-deductible plans attached to HSAs."
There's no way you're going to excise Health Savings Accounts from a reformed system. Nor do you necessarily need to. When you're worried about adverse selection, there are two ways to approach the problem. The first is on the individual level, by creating choices and regulations such that consumers don't try and game their way around the system. That's what CBPP is proposing: Don't let them choose HSAs. But the other is on the insurer level. This is how Germany handles adverse selection, and it's a smarter model. Basically, you tax the insurers who game the system. In essence, the risk profile of each insurer's customer pool is evaluated, and those insurers who have a substantially younger, wealthier, and demographically advantaged risk pool have to pay into a central fund. That money is then distributed to insurers who have an older, sicker, risk pool. And the tax is heavy enough to make risk selection a fairly unprofitable way for insurers to spend their time. It's called "Risk Adjustment."
This is the sort of fix the Wyden people are envisioning: You can't stop insurers from trying to sign up younger, healthier people. If it's not through plan construction it will be through advertising in rock climbing magazines and on the iTunes' homepage. But it's easy enough to see if the insurer's efforts are bearing fruit: If they have a risk pool that's demographically quite different than that of their competitors, something is going on. And while it would be hard and uncertain to try and stop their efforts by shaping the market, it's relatively easy to equalize the playing field through taxes.
COMMENTS (5)
You've ignored the most important part of the analysis of the Wyden plan, that it assumes health care costs will only grow with general inflation after 2011. That is an unbelievably optimistic and unrealistic assumption. How can anyone judge this plan objectively without knowing how much it's going to cost?
Posted by: AB | September 25, 2008 11:46 AM
I would really appreciate it if you would explain why younger people paying less insurance is "gaming the system". What is wrong with paying less when your young and less financially secure and more as you age. The alternative is to put everyone in the same risk pool. That means consistent insurance payments over your lifetime but places undue hardship on the young who may (as is the case) opt out of insurance altogether.
Posted by: gordon gekko | September 25, 2008 11:57 AM
Well, no, we need to get private insurers out of the system, period. They raise costs substantially without adding any actual health care.
Posted by: Joyful Alternative | September 25, 2008 1:20 PM
"Well, no, we need to get private insurers out of the system, period. They raise costs substantially without adding any actual health care."
Yeah! No private insurers, just like in Canada, the UK, and France!
Posted by: AB | September 25, 2008 2:51 PM
gekko wrote, I would really appreciate it if you would explain why younger people paying less insurance is "gaming the system".
I think the "gaming" is coming from the side of insurers when they try to only sign up younger and healthier people. As the process shakes out, those that are sick or older can't get insured. At that point, why have health insurance at all when the only people who can buy it don't really need it?
Maybe we can split the health insurance industry in half. One half of the industry focuses on providing health maintenance and preventative care. ER visits aren't covered, but scheduled visits to your doctor or a clinic are… immunizations too, of course. We might even throw in generic drugs. It focuses on limited measures that are cheaper and the most effective. This part can be more subsidized, perhaps even fully if the votes are there. Since the "formulary" is restrictive, cost increases due to new technology or over utilization can be contained because this part of the industry just doesn't cover them.
The second half focuses on insuring for disasters like car insurance or flood insurance on your house does. They can cover whatever they want.
Each type would be regulated differently and methods and procedures could move between them, for example if an effective drug becomes a generic it could be moved to the health maintenance "formulary". The majority of any government resources would focus on this half.
So who decides which drugs and procedures must be provided by the first half? We could have a Fed style organization staffed with health professionals… perhaps chosen from the heads of major hospitals throughout the country. They will be charged with deciding the maximum impact for a limited amount of resources. Over time certain procedures could become routine and cheap, so more items can be added while still staying within budget.
Anyway, just an idea, I'll stop ranting.
Posted by: goDems | September 25, 2008 7:23 PM