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 August 26, 2009

Imposing Costly Regulation Is Not Real Reform

President Obama and Democrats in Congress want to impose two costly health insurance regulations nationwide.

The first is community rating, which prohibits insurers from varying premiums based on an individual’s health status. The second is guaranteed issue, which forces insurers to sell policies to everyone at anytime, even individuals who wait until after they are sick to obtain insurance. Community rating and guaranteed issue are designed to raise healthy people’s premiums in order to subsidize the premiums of high-risk individuals.

It is important to work to ensure that high-risk individuals can access affordable coverage. However, community rating and guaranteed issue are such inexact, inflationary, and nontransparent efforts at achieving that goal that they can end up being counterproductive.

States currently regulate health insurance, so to see what effects these regulations could have nationwide, it’s important to look at their impact on state markets.

Dr. Bradley Herring of the Johns Hopkins Bloomberg School of Public Health and Dr. Mark Pauly of The University of Pennsylvania’s Wharton School recently conducted a study “test[ing] for differences…between states with both community rating and guaranteed issue and states with no such regulations.”

The Herring and Pauly findings should give Democratic policymakers pause:
“Overall, our results suggest that the effect of regulation is to produce a slight increase in the proportion uninsured, as increases in low risk uninsureds more than offset decreases in high risk insured.”

In other words, after the regulations were enacted, the number of high-risk individuals who purchased coverage because their premiums went down was somewhat less than the number of low-risk individuals who dropped coverage because their premiums went up.

An editorial in The Wall Street Journal elaborates on the lack of logic behind such regulatory “reforms”:
“ObamaCare would impose on all 50 states rules that have already proven to be failures in numerous states. Because these mandates would raise the cost of insurance, ObamaCare would then turn around and subsidize individuals to buy the insurance that the politicians made more expensive. Only in government could such irrationality be sold as ‘reform’.”

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Comments Author: Jeet Guram
  • I should add that my question reflects the political realities of today's health insurance reform debate. I'm assuming that if any health insurance reforms are enacted in the next three years, they will ban life-time caps, denial of insurance based on pre-existing conditions, rescinding coverage after expensive claims are filed and raising premiums on those who've filed expensive claims or become chronically ill or disabled.

    My assumptions may be wrong, but that looks like the political reality unless health insurance reforms are delayed until after the 2010 elections and the GOP regains the power to have a say in what kind of reforms are enacted.
  • DOOW
    Donald Johnson:

    "..the GOP regains the power to have a say in what kind of reforms are enacted."


    Response:

    If the Democrats have control of the House and Senate, plus the Executive Branch, and couldn’t pass health care legislation, why do you think GOP can? Considering health care been in the works since Medicare in 1965, this is the closest we got. That is, there is an actual (almost) bill in the oven. Why do you think GOP can do better? What is the difference and why can Democrats do the same currently?


    Health Care Reform Supporter.
  • It's amazing how so called conservatives who believe even the freest markets should be regulated as I do fail to get the full story on community rating, which I've supported for years and still do.

    You have to ask the right questions, and no one has or seems to want to.

    I recently suggested on Politco's Arena that a member of Congress ask the CBO to use its fancy health care economics models to project the cost of community rating when everyone in families with incomes over 200% of the poverty level are required to buy basic, catastrophic, no lifetime cap health insurance that couldn't be denied based on pre-existing conditions as long as the applicants had paid for health insurance for five years and paid their premiums. The question also assumes insurers wouldn't be allowed to raise premiums or take policies away after insureds filed expensive claims.

    I think the results of such a study would surprise the editors of the WSJ, Mark Pauly, et al.

    Here's what the people who don't understand insurance don't get. The young and small employers won't buy insurance at any price unless required to. Check the literature. The young should be required to buy more expensive insurance while they're young so that they won't have to go broke buying it when they're over 40 or 50 and out of work because of age discrimination. It's called insurance, risk pooling, risk sharing, spreading the risk.

    Insurers don't like the idea because it makes them be insurers instead of expensive banks for buyers of primary care services. They don't like insurance reforms because they don't know how to run real insurance companies or compete based on price, service and the plans they offer. They don't want reforms because they prefer to sell to employers instead of to individuals. It's easier and involves much less accountability.

    I've been covering "health care reform" since the 1976 presidential campaign. The issues and players haven't changed that much.

    For more info, search my blog for "community".

    www.businessword.com.
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