Michael Bertaut: Private Health Insurance and Health Care Reform

Posted by Kendall Harmon

During the period when the Patient Protection and Affordable Care Act (PPACA) was being considered, arguments were made by both supporters and detractors that the Private Health Insurance Markets would be changed drastically by Reform. Those on the left indicated that the Bill was unfair, because it passed a mandate that forced Americans to purchase health insurance and left private coverage as the only option, thus putting American’s at the mercy of “Greedy, villainous Health Insurance Executives (Nancy Pelosi, August 2009 House Testimony). In addition, the Progressive Coalition in the House of Representatives, 71 members strong, signed a statement that said that without a “public option” (a private insurance entity run by the federal government as an alternative to for-profit or private not-for-profit coverage) the Senate Bill was a boon for insurance companies, offering up 46 million new customers with federal subsidies to boot.

On the right, and in alliance with the Health Insurance Companies, detractors said the bill would impose so many new government regulations on Health Insurance Companies that insurance pools would be destabilized and runaway premium costs would result. Thus in the end, the federal government would be ordered to step in anyway, thus creating a Single Payer, or Federally Controlled Health Insurance plan that would interpose itself between patient and doctor and eventually ration the care Americans received through that entity.

Both arguments are compelling and both outcomes undesirable. In this article I would like to examine the realities from a “boots on the ground” perspective as a Chief Forecaster and Senior Healthcare Policy/Intelligence Analyst in the health insurance business. To be clear, I am not an attorney, accountant, or actuary. I am not qualified to comment on regulatory issues as to their specific effects on employer groups. What I am called upon daily to do, is to coordinate the projections for all the moving parts of the PPACA Bill and its changes and to forecast its effects on the Plan that employs me (The not-for-profit Blue Cross and Blue Shield of Louisiana) and communicate these changes and potential effects in a meaningful way to a whole bunch of smart, experienced stakeholders in the healthcare industry so they can incorporate my projections and background fact and data into their decision making going forward.

Let’s examine the arguments one at a time.

Read it carefully and read it all.

Filed under: * Culture-WatchHealth & Medicine* Economics, PoliticsPolitics in GeneralThe 2010 Obama Administration Health Care Bill

Posted March 30, 2010 at 1:01 am [Printer Friendly] [Print w/ comments]

1. Katherine wrote:

This is worse than I thought it was.  This bill is designed to drive private insurance out of business in short order, to be replaced by the “public option” not as an option.

March 30, 12:09 pm | [comment link]
2. Branford wrote:

But, Katherine, Rep. Pelosi and Pres. Obama told us this before the vote - maybe not directly to the American people, but in speeches to interest groups. This should not be a surprise - this was always the plan.

March 30, 12:22 pm | [comment link]
3. Katherine wrote:

Yes, Branford, I know.  I hope analyses like this one get broad dissemination.  We must repeal this.

March 30, 12:26 pm | [comment link]
4. Br. Michael wrote:

It will never be repealed.  It may be found to be unconstitutional however.

I would suggest that if we really want National Health Care it be done by Constitutional amendment.

March 30, 1:52 pm | [comment link]
5. little searchers wrote:

Excellent analysis.  Among other things it shows how our hodge podge health care system is not providing health care to large segments of our population.  We have excellent doctors, hospitals, diagnostics and medicines.  What detracts from our world standing in health care delivery is that many of our people cannot access our system.  The existing private insurance based system was not solving this problem.

March 30, 2:39 pm | [comment link]
6. Branford wrote:

little searchers - all the research I saw stated that at least 85% of the people were satisfied with their health coverage, including private insurance. It seems as though smaller fixes could have dealt with whatever segments of the population were having difficulty. Also, read this from Powerline on the individual mandate provision:

The individual mandate is one of the most controversial features of Obamacare, so when it came out that the law makes no provision to enforce the mandate, many were nonplussed. . .

The real reason [not to enforce the purchase of prescribed health insurance], I suspect, is more insidious—quite simply to destroy the private health insurance industry and create an irresistible demand for expansion of the program to a public option and ultimately to single payer provision. It is undeniable that guaranteed issue of insurance at ordinary rates for those with preëxisting medical conditions is popular; but forcing insurance companies to cover them at average rates cannot possibly work unless healthy younger people are forced into the risk pool at rates higher than what their risk rating would otherwise be. Without the mandate, in other words, the insurance companies cannot possibly be viable and also cover preëxisting conditions at average premium rates.

Quite simply, Obamacare has created a ticking time bomb for the insurance industry. Those with preëxisting conditions will be covered…..and demand continuation of the coverage at prescribed rates….and those who ignore the mandate, presumably anybody at all affected by it, face no consequences. As costs spiral out of control, premiums will have to rise and subsidies increase. Insurance companies would have to either fold or shift costs….to those covered by employers….becoming a perfect target for left wing demagoguery and vilification. The only way out as more and more of those covered by employers get pushed into the exchanges as costs get shifted to them and employers no longer offer insurance—yet another intended consequence—is the public “option” or outright nationalization through a single payer plan.

We know that a single payer nationalized health care plan is the long term objective and intention for proponents of Obamacare and has been all along. They’re completely disingenuous about how “incremental” and “modest” the program is. The astonishing fact that they deliberately prohibited enforcement of a critical component of the plan tells you all you need to know. It will intentionally create a crisis…a feature, not a bug….and a crisis is something this crowd never wants to go to waste.

March 30, 2:46 pm | [comment link]
7. Townsend Waddill+ wrote:

Br. Michael, it can be repealed if we can get President Obama out of office in 2012, and have the Republican Party tout substitute reform measures that take care of the real problem in a cost-effective way that does not yield to a government takeover of the healthcare industry.  Why not?

March 30, 4:24 pm | [comment link]
8. Mike Bertaut wrote:

#5 Little Searchers, I have to say you do have a point.  There are many people in the U.S. for whom private insurance would never be an option.  Medicare’s average cost per member is over $12,000 a year, no private risk pool could afford that.  Even the most basic coverage in an unregulated state will still cost between $2,500 and $3,000 per year per person.  So we know there are lots of low-income adults who simply cannot afford to enter an insurance pool.  So Medicaid should cover them.

The real sadness, though, is that private insurance made GREAT strides in covering larger and larger portions of the American population (rising from about 46% in 1980 to as high as 72% in the late 1990’s) right up until the Federal Government decided to control the cost growth in the Medicare program by implementing a program called Sustainable Growth Rate Limit Pricing. 

This plan has a complex formula that uses various indicees to determine how much docs and hospitals should be reimbursed for services provided to seniors.  Begun in earnest in 2002, this formula has allowed Medicare reimbursements to lag FAR behind actual medical costs.  Today, on average, when one of the 41 million seniors on Medicare receives services, that doc or hospital actually loses money on providing that service.

Compounding that problem, we have over 40 million MORE people on Medicaid, which typically reimburses docs and hospitals on a % of Medicare, typically 90% or less.  So there’s another 40 million patients that docs and hospitals lose money on when they take care of them.  90 million Americans (roughly) go into the health care market place and consume medical services BELOW COST.

Docs and hospitals figured this out pretty quickly and began rapidly increasing their demands for what private insurance companies had to pay them to stay in their networks.  The national average is now in excess of 40% higher than Medicare pays.  Since 2002, insurance premiums have risen on average about 10% a year.  From 1990 to 2001 INCLUSIVE premiums only went up 40% over 12 years, and in three of those years the average premiums actually went NEGATIVE (94,95,96). 

This cost shifting, and rapid premium inflation, has begun a “death spiral” where more and more people are dropping their private insurance and turning up on Medicaid, Medicare, or another state-run government plan that pays less than cost for care.

In other words, the government started this mess by trying to control Medicare costs, not by managing care or controlling the Medicare pool, or even by limiting fraud and abuse, but by doing the easy thing and cutting payments to docs and hospitals.  Total coverage in the nation has dropped ever since.

The Fed giveth, and the Fed taketh away…


March 30, 10:05 pm | [comment link]
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