Not a Healthcare Topic? But Impossible to Avoid

http://www.alfranken.com/content/splash_video_20091021

Another View on Re-insurance, aka. Risk-adjustment

Re-insurance plans, also known as risk-adjustment plans, are commonly thought of in terms of their primary functions: 1) as a means of protecting individual insurance companies against risk, and 2) as a means of further distributing risk across a community.  In this context, they have become part of the health reforms proceeding from the Senate Finance Committee.   

A national re-insurance plan might, however, perform an additional role.  It might become an important factor in establishing a “level playing field” between the private health insurance industry and the public plan option.

 Participation by the public plan in the re-insurance program represents a vital, but not a sufficient, condition for a level playing field. 

1. If affordable coverage is to be available for all, something must be done about free-riders, adverse selection and cost-shifting.
2. One acknowledged solution to free-riders, adverse selection and cost-shifting is universal enrollment.
3. Universal enrollment requires either default enrollment or mandatory enrollment.
4. Enforcing mandatory enrollment may be politically and practically unpalatable, but a public plan option provides a suitable format for default enrollment.
5. A public plan option, coupled with the private health insurance industry, provides other advantages (especially relative to a single-payer alternative; preserves choice, preserves the innovation inherent in the private sector, etc)
6. The sustainability of such a system requires a level playing field.
7. A level playing field requires that the public plan be actuarially sound and that it operate without subsidies from congress.
8. Participation by the public plan, as well as all private insurers, in a national re-insurance program would provide an important assurance that the public plan will become actuarially sound and operate without subsidies.

If one supposes that the public plan option represents an acceptable solution to healthcare reform (and I do, I consider it the most sustainable alternative available), one must also contemplate that the so called “level playing field” is essential – that accommodations must be made to protect both the private health insurance industry and the public plan. 

If one agrees that free-riders, adverse selection, and cost shifting are, in fact, erosive demons capable, by themselves, of rocketing health insurance premiums ever higher, then one must also admit that truly universal coverage is not optional – it is imperative.  Insurers are absolutely correct in saying that they cannot accommodate community ratings and guaranteed issue without universal enrollment.

Therefore, if I want community ratings and guaranteed issue (and I do, believing they provide both social and economic benefit), I must then accept, and accomplish, universal enrollment.

Accomplishing universal enrollment in the U.S. may be tough politically, but other nations have done it; some by mandatory enrollment (Switzerland, Germany), some by default enrollment (Canada, Australia, Ireland).  A public plan option provides a format suitable for the implementation of the default enrollment method (Australia, Ireland).

In order to establish a public plan option, so that universal enrollment – a prerequisite to both community rating and guaranteed issue – is implemented, then both the private health insurance industry and the new public plan must be protected.  One must assure a level playing field. 

Among other things, a level playing field means that if insurance companies must operate without subsidies from congress, then the public option must also operate without subsidies.  Both must operate on an actuarially sound basis.  One assurance that both operate on an actuarially sound basis is a re-insurance program. (I suggest research on the Swiss requirement for insurers’ participation in a re-insurance program and the experience of BUPA in the Irish Supreme Court.)

Participation by the public plan in the re-insurance program therefore represents a critical condition for the establishment of a level playing field. 

*** 

For a supporting view regarding the importance of re-insurance:

 http://seekingalpha.com/article/165961-how-will-risk-adjustment-work-under-the-health-care-reform?source=yahoo

It’s Time to Consider A National Re-Insurance Program

It’s time to discuss a national re-insurance program as a companion policy to the public plan option.

1. If affordable coverage is to be available for all, something must be done about free-riders, adverse selection and cost-shifting.
2. One recognized solution to this triple-threat is universal enrollment.
3. Universal enrollment requires either default enrollment or mandatory enrollment.
4. Conveniently, a public plan option provides a suitable format for either.
5. The sustainability of a public plan option, coupled with the private health insurance industry, requires a level playing field.
6. A level playing field requires that the public plan be actuarially sound and operate without subsidies from congress.
7. One important assurance that the public plan operates without subsidies would be participation of the public plan, and all private insurers, in a national re-insurance program.

The importance of this topic first came to my attention while studying the Irish healthcare system. Then I noticed it was also an important component of the Swiss healthcare system. The more I study the effects of re-insurance, the more convinced I become of the two important roles played by a national re-insurance plan: first, such a plan protects insurers who accept high-risk clients (thus removing a large part of the incentive for “cherry-picking”), and second, it distributes risk more evenly across the entrie community, thus lowering costs for all.

Read more about re-insurance in “Handbook for Healthcare Reform: Foundation and Framework.”

Dear Senator Snowe,

Today you were eloquent.

Needed: A Patch for the Donut Hole

My friend Tom Garvey sent me this explanation of the Donut Hole for prescription drug expenses for Medicare patients.  Enjoy.

Sel: The Medicare Part D program is only helpful to people that have extraordinary Prescription drug costs. Here’s the math:

Annual Deductible Maximum – $310

Member pays 25% of the next $2,520, which will equal $630 ($2520×25%=$630)
Initial Benefit Period Maximum (what the member AND the plan have spent) -
$2,830 ($310+$2520)
DONUT HOLE: Member pays 100% of the next $3,610
Catastrophic Coverage Begins when member (NOT plan) has spent a total of $4,550
Cost sharing during Catastrophic Coverage is $2.50 generic/$6.30 brand or 5%

(whichever is higher)

$310 + $630 + $3,610 = $4,550 Annual out-of-pocket Cost — So in essence you have to spend (out of pocket expenses) $4,550 annually before full coverage kicks in. How many people do you actually think spend $4,550 and get to full coverage? I’d say less the 3% of the Medicare population. What does that mean? It means that the insurers and pharmaceutical companies are making a financial killing and only the high end utilizes are really getting any financial advantage. Tom!

Dear Senator Reid,

Dear readers,

I have sent the following message to Senator Reid at the following site:
 
http://reid.senate.gov/contact/index.cfm

Cut, paste, and send.  At your leisure.  And with your own signature, of course.

****************************

Dear Senator Reid,

Please make:

-Mandatory enrollment,
-Community ratings,
-Guaranteed issue,
-a Uniform minimum benefits package, and
-a National Re-insurance Program,

all part of the new PUBLIC PLAN OPTION.

Thank you.   Selvoy M. Fillerup, MD, MSPH, FACS

Dear Mister President,

 President Barack Obama
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500

October 4, 2009
 
Dear President Obama,

Thank you for your superlative role in forwarding the cause of universal healthcare in America.  Enclosed are additional copies of Handbook for Healthcare Reform and a letter recently sent to Senator Snowe.

Please allow me to emphasize the importance of truly universal enrollment and request your attention be directed to a national re-insurance plan.

A re-insurance plan will 1) protect insurers who accept risky clients, and 2) more evenly distribute insurance risks across the entire community.  To assure a level playing field, the public plan, as well as all private insurers, should participate in the re-insurance plan.  This will 3) separate the public plan from reliance on congress and 4) help assure that it is organized to operate on an actuarially sound basis.

With these two policies in place, the costs associated with free-riders, cost-shifting, and adverse selection will ultimately dissolve.  The entire system will benefit.

The other policy instruments common to successful healthcare systems, namely choice (including a public plan option), community rating, guaranteed issue, and a standardized minimum level of benefits, seem adequately addressed in existing proposals.   These final two policies need and deserve particular attention. 

These two policies will protect the private health insurance industry against crowd-out, citizens and patients against increasing costs, and establish the public plan as an independently operating entity, without subsidies from congress, in a balanced healthcare system.  The entire system will benefit.

Sincerely,

Selvoy M. Fillerup, MD, MSPH, FACS
TheCenter for Health Care Policy Research and Development
Gilbert, AZ 85234
www.ChronicCrisis.com

Dear Senator Snowe

Hon. Olympia J. Snowe
United States Senate
154 Russell Senate Office Building
Washington, DC 20510

October 4, 2009

Dear Senator Snowe,

I want you to know that I appreciate your thoughtfulness during the discussions on healthcare reform. I am a registered Republican and an avid advocate of health reform.

With the enclosed books, I hope to persuade you that a public plan option is a suitable format for reform. It provides good protection for the private health insurance industry, and if correctly implemented, will provide a sustainable format for universal enrollment with financial protection for enrollees.

I have been writing about healthcare systems similar to what has come to be known in the U.S. as the “public plan option” for several years. Three considerations are critical for the success of any healthcare system based on shared responsibility between insurers, a public plan, and consumers: a set of protections and responsibilities for the private health insurance industry; a set of protections and responsibilities for the public plan; a set of protections and responsibilities for patients. Only when each is protected and accountable will the playing field be truly “level.”

The experience of foreign healthcare systems suggests that a single set of six policies, in an inter-related way, protects all three interests. Most, but not all, of these policies have found their way into current health reform proposals. Notably absent are: 1) assurances of universal enrollment, and 2) a re-insurance program. These two policies are essential for the long term viability of any plan.

Systems with universal enrollment have lower per capita healthcare costs, suggesting universal enrollment is essential for economic as well as humanitarian reasons. Without universal enrollment, even small numbers of uninsured will assuredly grow. Cost shifting and premium increases will return. These represent the natural consequence of free-riders and adverse selection.

A re-insurance plan accomplishes two objectives. First, it protects insurers who accept risky clients, and second, it distributes insurance risks across the entire community. To assure a level playing field, the public plan, as well as all private insurers, must participate in the re-insurance plan. This will separate the public plan from reliance on congress and help assure that it is organized to operate on an actuarially sound basis and without subsidies from congress.

The other essential policy instruments common to successful healthcare systems, namely choice (including a public plan option), community rating, guaranteed issue, and a standardized minimum level of benefits, seem adequately addressed in existing proposals. These final two policies need and deserve particular attention. With these two additional policies, the costs associated with free-riders, cost-shifting, and adverse selection will ultimately dissolve. The entire system will benefit.

I hope you will consider how these two policies will protect the private health insurance industry against crowd-out, citizens and patients against increasing costs, and establish the public plan as an independently operating entity, without subsidies from congress, in a balanced healthcare system.

Kindest regards,

Selvoy M. Fillerup, MD, MSPH, FACS
TheCenter for Health Care Policy Research and Development
2980 E. Millbrae Lane
Gilbert, AZ 85234
www.ChronicCrisis.com
480-629-5882 H
720-219-2680 C

Cc: President Barack Obama
Karen Ignani, CEO, AHIP

Gaining Ground

I want people to see this link. It is a reminder that even small efforts matter. I started studying health policies of foreign healthcare systems six years ago. You will notice that the successful policies described in “Chronic Crisis” have percolated into the health reform proposals now emerging from congress.

http://blog.hcfama.org/?p=723

 

This happened because we studied the successes of others and described them well. I have no hesitation adding that the additional policy recommendations in “Handbook for Healthcare Reform” will also find their way into U.S. health reforms. Why? Because they have already been proven successful in health systems around the globe.

http://tinyurl.com/a7qj5t

Leaky Boat

U.S. Health Reform: On Course but Leaking

 Who would set to sea with all their friends in a leaking ship? 

 The craftsmen responsible for U.S. healthcare reform seem more worried about the woodwork in the staterooms than in the strength of the keel or the soundness of the hull.  There are basics that must be attended to if healthcare reforms are expected to float.

Some credit is due; some of the essential policies for a sustainable healthcare system have been incorporated in the new health reform proposals.  But not all; and not enough.  Significantly, two important policies have made their way into reform proposals, but two more have not. 

The first two that made it in pretty much unscathed are guaranteed issue and community ratings.  These policies protect patients.  Guaranteed issue means that no matter how sick you might previously have been, you cannot be denied health insurance—not by the public plan and not by private insurers either.  You will be insured.  You will be cared for.  You cannot be denied.  That’s guaranteed issue.

The second policy is community rating.  It means that your insurance company cannot raise the price on your insurance premium if you have ever been ill, or if you ever become ill.  You are assured a reasonable price forever for your health insurance.  You will have the same price as everyone else in your community.  Or if the policy is modified to accommodate the practice referred to as “age banding,” you will receive health insurance at the same price as everyone else in your age group in your community, and prices for older clients are capped at a reasonable level.  That’s community rating.

Insurance companies need one other policy in place if the first two policies are to be successful.  That third policy is simply universal enrollment.  Everyone benefits; everyone participates; everyone is insured.  It is important to have universal enrollment, not just to satisfy the notion of social justice; it is essential for economic reasons as well. 

Universal enrollment eliminates “free-riders.”  The term free-rider is used in reference to anyone who uses a service but does not pay for it.  There are many who do not enroll in health insurance programs because they simply cannot afford it, but there are others, too many others, who refuse to enroll only because they would rather have a newer car.  Sooner or later, one of two things will happen. 

The first alternative is that a substantial number of these free-riders will one day need healthcare and receive it in the emergency room.  (Not only do they not have insurance, they do not have a regular doctor either.)  Then, once in the emergency room, they expect the very best of medical care, which isn’t cheap.  But because they have never contributed to the system—never paid for health insurance—people who already have health insurance end up footing the bill.  This is cost shifting.

The second alternative is that when these people one day sense that they just might need some medical attention, they apply for health insurance.  They apply, but insurers, correctly suspicious that these free-riders have delayed buying health insurance till the last minute, try to discover previous illnesses or familial conditions that might make them high risk clients.  The process is called underwriting.  The process is lengthy.  It is expensive.  Its purpose is to avoid adversely selecting a high risk client.  (Hence the term “adverse selection.”) 

Insurers fear “adverse selection.”  It is expensive. It means they will have to pay out more in medical expenses than they can ever expect to collect in revenues.  To accommodate the risks associated with adverse selection, insurers have adopted practices of denying high risk clients or of charging them higher premiums; sometimes so high that people have to decline the insurance they need.  Sadly, the practice of raising premiums is also applied to patients who already have health insurance.  Therefore, the sickest among us, the ones who most need medical services, can’t get them because they can’t afford the premiums.   This is the way we ration healthcare in America.

Happily, both cost-shifting and adverse selection can be avoided by implementing a policy of universal enrollment.  When everyone contributes, everyone benefits.  People who already have health insurance don’t have to pick up the bill for those without insurance, and insurers don’t have to deny coverage to anyone because they can distribute the risk to everyone. 

It is important, therefore, to understand that universal enrollment is a prerequisite for the financial sustainability of the policies of guaranteed issue and community ratings.

If only all of health reform were so simple.  The fourth policy needed for a sustainable healthcare system is a definition of the minimum health benefits package.  A minimum benefits package accomplishes two things.  First, it establishes a level of healthcare below which no one can fall.  It means a large employer, for the sake of a better deal, cannot whittle away part of your health benefits, or shift additional co-pays and deductibles onto employees.  There is an assured level of care.

Second, it lowers premium costs because a minimum benefits package persuades insurers to compete based on price.  When every insurer must provide the same minimum benefits package, people looking for insurance know that wherever they get their policy, they will get the very same policy.  They can therefore get it from the insurer that offers it at the lowest price.  Insurers will have to compete for your business.

Each of these policies protects both patients and insurers.  But, they are not all in the newly proposed healthcare reforms.  What’s missing?  Where is the leak in the boat? 

President Obama has, for whatever reason, held fast to two campaign promises.  He needs to abandon these two promises for the sake of the long term sustainability of the healthcare system.  One is the promise that people who prefer to go without health insurance may pay a token penalty.  The second is that people who are satisfied with their present coverage can keep it, no matter how under-insured they might be.

At first glance, both sound reasonable.  But they represent slow leaks.  Allowing people to retain a health insurance policy that fails to cover essential medical services is an invitation to under-insurance.  When people are under-insured, but then need medical care, they will still show up at the hospital or the emergency room.  But they may not be covered for certain needed services.  Some individuals may have employers who bargained away benefits to lower premiums.  Some may have simply been sold a sub-standard policy to save a few dollars.  In any case, the people who do have adequate insurance pick up the bill for people with inadequate insurance.  As they do, their own premiums slowly rise. 

Some of the people with rising premiums will then accept lesser coverage plans. They also become under-insured.  As more under-insured people drift into hospitals and emergency rooms, more financial burden will shift to those with adequate insurance.  Community rating disappears.  A tiered healthcare system evolves.   The under-insured now exploit the rich when they go to the emergency room because hospitals once again engage in the practice of cost shifting to pay for the care of the under-insured.

The answer to the problem of incrementally increasing under-insurance is simple; define a minimum benefits package and require all insurers to offer it.  People can always buy additional coverage if they want it, or need it, but no one can buy less.  But assuring that everyone has coverage for the essentials protects all of us. 

The same logic applies to the notion that some people should be allowed to pay a token penalty rather than participate in universal enrollment.  These people are literally being invited to shift the cost of their medical care onto those of us who have insurance.  If we will not tolerate our hospitals to turn them back into the parking lot to die (and I hope we never do), we must find a mechanism that protects us all.  The answer is, of course, universal enrollment—no exceptions.  Universal enrollment must be linked to a minimum benefits package to be effective.

All sounds simple, right?  Now how do we get to there from here?  We already know how to enforce guaranteed issue and community ratings, and defining a truly minimum benefits package is within our grasp, but, how do we enforce universal enrollment?

It may come as a bit of a surprise to many Americans that other countries have already tackled the problem.  Different countries solve it in different ways.  The Swiss have a system where everyone, 100% of the population, by mandate, buys private health insurance.  How do they enforce this policy?  They require proof of health insurance whenever you enroll a child in school, or open a bank account, or buy a car, or rent an apartment, or buy a home.  And they enforce this with heavy fines.  The Swiss don’t seem to mind this.  They don’t consider it an intrusion.  After all, they enjoy one of the finest medical systems in the world and Swiss healthcare costs 29% less per capita than it does in the U.S.A.   That’s one way to enforce universal enrollment.  (Other countries have slightly different enforcement policies.)

The other major alternative is default enrollment, which means, if you live here, you’re enrolled.  Default enrollment is used in Australia, Ireland and Germany, and in a few other countries that have both a private health insurance industry as well as a public coverage plan.  (The Canadians and British use default enrollment for their single-payer systems.)  Default enrollment simplifies universal enrollment.  If you live in a country with this policy, enrollment is automatic.  Unless you enroll in private health insurance you automatically have public health insurance.  Anyone who prefers may choose private health insurance, and will receive a voucher for doing so.

Default enrollment requires a public coverage plan, a plan capable of accepting everyone that does not choose a private plan.   The alternative method of accomplishing universal enrollment is some kind of enforcement policy (as in the Swiss example just mentioned.)  Take your pick.  But without universal enrollment and a minimum benefits package, you can’t eliminate free riders or adverse selection, nor can you enjoy the social and financial benefits of guaranteed issue and community ratings.

Well, I want guaranteed issue and community rating.  Together they assure access to care and lower costs.  To get these, I need truly universal enrollment and a minimum benefits package.  To get universal enrollment I must choose between default enrollment in a public plan (with the option of enrolling in whatever private insurance I choose), or its alternative, an enforcement system.  I prefer the default enrollment method. 

Healthcare reform is, in fact, headed in the right direction.  Policies addressing community rating and guaranteed issue are already part of every reform proposal.  Universal enrollment is recognized by both insurers and legislators as a means of dealing with adverse selection.  We can eliminate under-insurance and cost shifting by defining a minimum basic benefits package.  We can mend the last slow leak associated with free-riders by assuring truly universal default enrollment in what is now referred to as the “public plan option.”   In other word, the currently proposed public plan option provides a satisfactory framework for implementing the health policies necessary for a sustainable healthcare system.

A couple of modest policy modifications can avert disaster.  Others, hoping to scuttle the voyage, may try to divert our attention to the finish on the mahogany in the staterooms, but someone had better accept responsibility for the soundness of the keel and the tightness of the hull.  No slow leaks.  The success of the system depends on it.