Thursday, September 17, 2009

If it looks, smells, and quacks like a monopoly...

To begin, I am not impressed by “coalitions” and “committees” - regardless of their membership on the left, right or middle – unless their reports contain objective verifiable FACTS and reasonable conclusions. I am much less concerned with the “who” and try to focus on the “what”. When I encounter a group which begins by touting “who” agrees or supports with their findings doesn't lend substance to their position – in fact, it tends to make me suspicious and encouraging looking for 'ulterior motives'. This is especially true of *any* group endorsed by Former President Jimmy Carter (It's an immediate, instinctive reaction on a primitive level – burned too many times. Sorry.) Also, a particular policy position, regardless of how desirable it may be, and how wonderful the potential results could be, is ultimately useless if the proposal does not consider the likely outcome of the application of that policy in the Real World.

I don't mean to rain on your parade. My diatribe above (and below) is not intended to single YOU out. Quite the contrary - your most recent posts have been thought-provoking and excellently presented. Many thanks. Like you, I am struggling with HOW to accomplish the goals - heck, I'm still trying to DEFINE the goals! - without making things worse. Yes, Our system can be improved, but the process of doing so will be painful and will require re-thinking some long-held assumptions by all sides...

OK. Enough. – Here is something to chew on...

There is an intense debate on how to provide affordable health care coverage for more Americans. Census Bureau statistics and other sources are used as the foundation of an argument for GREATER government intervention in health care as THE way to cover a larger percentage of Americans. What is often often overlooked, is the fact that government policy, particularly excessive regulatory intervention, may be the Real Reason so many Americans have been 'priced out of coverage' and therefore join the high numbers of uninsured.

To begin, Health Care Insurance is already heavily regulated at the state level. Some states require insurance plans to cover certain types of health care providers or to provide certain types of health benefits. Other state regulations affect the rating rules for insurance or the ability of insurance plans to exclude people from coverage. Still others limit the ability of insurance companies to select health care providers. Many of these regulatory initiatives, particularly in the area of health insurance underwriting, are designed to achieve specific policy goals (not actually providing Health Care). These goals include controlling escalating health care costs or expanding the availability of health coverage, particularly for high-risk individuals.

Achieving these policy goals invariably requires trade-offs, but bureaucratic policymakers rarely consider the impact of their regulations. For example, rating rules that enable high-risk, older, or sicker employees to get low-cost health insurance without exclusions for medical conditions can make health insurance affordable for those employees. However, those rules also make younger and healthier employees pay higher premiums than they would otherwise obtain in the marketplace. When younger persons do not or cannot participate in the health insurance market, their conspicuous absence increases the pressure on the premiums for those who remain in it. When they do participate, those 'higher premiums' contribute to the Lost Value for the Health Care services they receive. A Catch-22: someone is going to pay the price.

There are many rules and regulations, and the impact of bureaucratic 'meddling' to achieve policy goals varies from state to state. In some states, regulations make it impossible for individuals to purchase a low-cost plan that would provide only catastrophic coverage. In other cases, the benefit mandates and insurance rules raise premiums to the point that insurance is prohibitively expensive for many people.

The economic impact of state-level health insurance regulations has generally received little analytic attention from both the academy and the broader health policy community. For some reason, this aspect of the relationship between regulatory cost and impact on the market is frequently ignored. Consider individual health insurance plans (a small subset of the overall health insurance market). In 2000 and 2001, the Center for Studying Health System Change, Community Tracking Survey 2000–2001 indicated 67.2 percent of the U.S. non-elderly population was enrolled in employer group coverage, while only 3.6 percent was enrolled in non-group or individual coverage.

Even though only a (relatively) small number of individuals obtain insurance in the non-group market, insurance costs in the individual market can have a HUGE impact on the number of uninsured individuals. The individual market consists largely of those without access to employer-sponsored insurance. Workers who buy individual health insurance policies – as opposed to workers enrolled in employer-based group insurance - do not enjoy the generous tax breaks that accompany the purchase of employer group plans. Because non-group markets are a market of last resort for so many individuals, the cost of premiums in these markets clearly affects whether or not many of these Americans can afford to purchase health insurance for themselves and their families.

Also, current economic trends will likely increase the number of workers without access to employer-sponsored insurance. Beyond those who work in businesses where the employer does not offer health insurance, there will be increasing numbers of individuals operating as sole proprietors or independent contractors. Ensuring access to affordable non-employer-based group health insurance on a level playing field *must* be a priority.

Previously, there has been little academic and policy literature on the impact of state-level health insurance regulations on health insurance premiums. Part of the reason has been the lack of publicly available state data on individual health insurance costs. However, in January 2005, Mark Showalter, William Con­gdon, and Amanda Kowalski published a working paper entitled “State Health Insurance Regulation and the Price of High-Deductible Policies.”

The authors used two separate datasets in their analysis. Golden Rule insurance provided 2003 insurance premium data from a series of random ZIP codes in 37 states, and, a major Internet broker of health insurance, provided pr­mium data from insurance policies sold through its Web site. The authors focused on four types of regulations: (1) mandated health benefits, which require insurers to cover particular treatments or particular services; (2) “any willing provider” laws, which restrict insurers’ ability to exclude hospitals and doctors from their networks; (3) community rating laws, which require insurers to limit premium differences across individuals; and (4) guaranteed issue laws, which require insurers to sell insurance to all potential customers regardless of health or pre-existing conditions. The authors found that each of these four types of regulations results in statistically significant increases in health insurance premiums. The findings were consistent across both the and Golden Rule datasets. The authors estimated that eliminating all of these regulations could save individuals up to $2,000 per year in insurance premiums.

Also, the Congressional Budget Office (CBO) released a study that examines how insurance prices affect health care coverage in the non-group market. The CBO authors did not have direct access to state premium data, but they were able to impute premiums by examining the strength of various state community rating regulations. Community rating laws limit the extent to which insurers can charge different prices to individuals with varying medical conditions. Community rating laws are commonly thought to increase premiums because they require insurance companies to charge healthy and unhealthy people relatively similar premiums. Since low premiums will not generate enough revenue to cover higher-risk individuals, premiums eventually increase, and the cost of insurance goes up for both healthy and unhealthy individuals in the non-group market. In the CBO study, the authors found that, after holding a variety of other factors constant, more individuals choose to forgo coverage in states with strict community rating laws. This finding provides solid evidence that community rating laws (e.g., government intervention in the marketplace) INCREASES the cost of health insurance.

Caveats... Some policies compared across states are not 100% equivalent for many legitimate reasons. Also, the studies excluded some potentially relevant regulatory policies. There is missing analysis on both sides, but the conclusion remains functional.

There is a comparison of the costs of identical health insurance plans across a number of states with a wider range of insurance regulations. [Caveat: Partisan site]

This study includes data on the health insurance premiums for nine plans offered by Celtic, six Golden Rule plans, and seven Fortis plans as obtained from The premium data come from September 2005 and September 2006 and cover 36 states. These plans have significant variance in terms of deductible, coinsurance, and coverage of doctors visits, focusing on four sets of regulations that affect health insurance premiums: Mandated benefits, Health plan liability, Direct-access-to-specialists, and Provider due process.

Without going into *all* the details, the study reports premiums tend to be higher in states that regulate more heavily. On average, states with health plan liability laws, direct-access-to-specialists laws, and provider due process mandates have higher health insurance premiums than states without these regulations. States with more than 26 mandated benefits have higher premiums than states with 26 or fewer benefits. The study includes additional regression analysis, which isolates the effects of each individual type of regulation by “holding constant” other factors. Three sets of regressions were run and the results provide solid evidence that the state-level regulations of health insurance are correlated with higher premiums. The regression model estimates that the presence of health plan liability laws increases monthly premiums by $21.84. Laws that give subscribers direct access to specialists increase monthly premiums by $31.15. Provider due process laws increase premiums by $16.62. Finally, each additional mandated benefit increases premiums by $0.75.

(Yes, some of the variation in health insurance premium costs could be due to regional differences in the underlying cost of health care, which includes prevailing wages and professional fees, the volume of medical services, or medical practice patterns. However, the premiums in high-cost states are routinely 50 percent to 100 percent higher than premiums in low-cost states; it's unlikely regional cost differences are a factor.)

All this goes to say that while it is a given that there are other limitations to the study, the point remains valid... there are distinct and legitimate costs associated with INCREASING the role of government involvement in Health Care. The argument that imposing government controls and regulations will bring costs down is unsupported in Reality... (at least not in a country that values freedom of choice and individual responsibility). Conversely, using the regulatory powers of government to provide highly favorable advantages in the marketplace to a select few companies or industry groups is equally wrong. We are a country founded on the concept of the Equalization of Opportunity, *not* on equalizing the Outcome.

Condense it to three points: A - Only use government power to keep the playing field level for all players (no favorites; not at either end of the spectrum); B - Take only those steps required to provide and maintain CHOICES for the consumer, and the bureaucracy is *not* in control of the options available or their costs; and C - Then, let the chips fall where they may, even if that means people who 'choose poorly' suffer personal hardship from their decisions. (Provide education and full disclosure, but if the horse won't drink, let him go thirsty)

Harsh? Perhaps. Do I *like* it? No. Reality trumps Theory - no matter how much we would like it to be otherwise. Is it better to centralize what (minimal) regulations are required at the Federal level (take this issue away from the States entirely)? Or do we assign FULL responsibility and control back to the States and have the Federal government take a backseat? There are advantages and disadvantages to either approach... if providing Health Care this is a proper function of government, we should do one or the other, since the hybrid mixture we have today is killing us.

Regardless, the only method historically proven mechanism which consistently reduces cost to the consumer over time is INCREASED COMPETITION. Eliminating regulatory obstructions is a critical step in this process. Simply choosing to replace what is now an effective insurance 'monopoly' – consisting , as you correctly pointed out, of a very few Very Large companies – with an undefined, unrestrained, and virtually unaccountable REAL Monopoly (total government control) is a cure that is worse than the disease.

- Steve

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