Silly Republican Insurance Reform Ideas––Selling Insurance Across State Lines And Association Health Plans

There are news reports indicating Republicans will be proposing such longstanding health insurance reform ideas as selling insurance across state lines and association health plans.

These ideas have been around for some time and have served Republicans as convenient talking points out on the campaign trail positioned as common sense alternatives to Obamacare.

When I discuss these ideas with people in the insurance industry––people who know how their market really works––these ideas generally command plenty of snickers.

Selling Insurance Across State Lines
Presumably, Republicans are targeting the many state benefit mandates that drive health insurance policy prices up. The idea is to allow the sale of policies from states with the fewest benefit mandates to be able to be sold in a high mandate state––thereby encouraging the state with more mandates to curtail them.

There are a number of problems with this idea:

1. IF it did attract new carriers to a market, it would be a great way to blow up an existing health insurance market––for example, the high market share legacy Blue Cross plan whose business is in compliance with all of the existing state benefit mandates. A new carrier could conceivably come into the market with much lower rates––because it is offering fewer benefits––attracting the healthy people out of the old more regulated pool leaving the legacy carrier with a sicker pool. Stripping down a health plan is a great time tested way for a predatory insurance company to attract the healthiest consumers at the expense of the legacy carrier who is left with the sickest.
2. It's a 1990s idea that fails to recognize the business a health plan is in in 2014. Health plans don't just cross a state line and set up their business like they did decades ago when the insurance license and an ability to play claims was a all a carrier needed to do business. This idea was first suggested by the last of the insurance industry cherry pickers back in the 1990s and it has long outlasted its relevance. Building a new health plan in a market can easily cost hundreds of millions of dollars over a plan's first few years of operation. The most important thing a health plan now offers is not an insurance contract but rather a comprehensively managed provider network. Just look at the capital costs for the new co-ops under Obamacare that are often receiving something approaching $100 million each to set up a new plan. Georgia, for example, passed such a law in 2011 and not a single new carrier entered the state because going into business in Georgia would be about a lot more than simply having a licensed contract to offer and there just aren't a lot of cherry pickers left to want to exploit this opportunity.
3. It doesn't solve the masalah it identifies. The masalah this solution targets is that there are arguably too many benefit mandates unnecessarily driving costs up. So, solve that problem. Why do we even need to enact this convoluted and market obsolete idea? Why even encourage the return of predatory health insurance cherry pickers? Why create a two-tiered market? Why not fix the real masalah and create a level playing field for everyone at the same time? I suggest the supporters of this idea first ask the leaders of the insurance industry if they would even do this under the best of circumstances.

Association Health Plans
Small group health insurance costs a lot more than big group health insurance. This idea is based upon the commonsense notion that if you pool lots of small buyers together you can get them lower costs.

Commonsense unless you know how the insurance markets work.

I may be one of the only people you will ever know that has actually run blocks of association health plan business over the years.

Pooling lots of smaller groups together in order to get them the benefits of the economy of scale?

What the hell do you think a Blue Cross plan is?

If I take 10,000 dry cleaners and put them into the Dry Cleaners Association Health Plan will I get their costs down?

No.

Marketing and renewal costs? The same. I will still have to market to each and every one of those dry cleaners––broker/agent costs, telemarketing, web sales––whatever technique it will be the same as the Blue Cross plan will have to spend because you don't just sign-up the association to get to each and every one of those dry cleaners and convince them to join the association plan and then convince them to renew with you each year.

Policy and enrollment costs? The same. Every dry cleaner needs a copy of the policy, enrollment cards, and booklets for each employee, etc.

Claim processing costs? The same. An insurance company needs so many claim processors per thousand covered people whether they are serving a big business or a small business.

Billing and eligibility costs? The same. Every one of those dry cleaners has to be billed every month and keeping their enrollment straight requires the same tasks.

Provider discounts? Maybe worse. That Blue Cross plan, for example, gets the provider discounts it does because it often insures millions of people in its state. Putting ten thousand dry cleaners together is not going to get a better deal than that.

So, the Dry Cleaners Association ends up with the same costs as any small group book of business? Well, actually no. The association costs end up being a little bigger. I never met an association executive that didn't want to get paid. That is one expense I did not have in my regular small group block. And, it is likely that the only way the Dry Cleaners Association can get the optimum levels of expense in any of these categories is to work with the most cost efficient plans in the market––like that Blue Cross plan.

I have been critical of Obamacare because it has looked to me that it was largely created by people who really didn't understand how the insurance markets work.

Looks like Republicans and Democrats have a lot in common.


Recent post regarding a health insurance reform usulan by four Senate Republicans:  The Republican Alternative to Obamacare––Their Aversion to Fixing It May Prove to Be a Political Mistake

Republicans Considering Proposing High-Risk Pools––Health Insurance Ghettos

We are hearing that Republicans are considering proposing high-risk pools as part of an alternative health insurance reform tawaran to Obamacare.

A high-risk pool tawaran would likely mean the Congress giving states the flexibility, and perhaps funding, to set up these risk pools. Risk pools by definition are a place where people can go when they are not able to buy health insurance in the regular market because they have a health problem.

That means Republicans would be turning the clock back to a time when insurance companies could turn people down for health insurance because of their health status.

Presumably, the Republicans are contemplating a market where insurance companies could once again choose just who they wanted to cover––the healthy but not the sick.

Anyone turned down could then go the high-risk pool to be assured of having health insurance. Presumably, Republicans would assure consumers that they would be able to access the same kind of comprehensive health insurance and at the same market rates as those able to buy from insurance companies would be able to get.

Let me be clear at this point that I don't know of anyone in the insurance industry asking to go back to the days when a carrier could exclude people as a result of their health status and make money just covering the healthy.

Whether it's Obamacare or a risk pool concept, policymakers are faced with the same dilemma: How do you insinuate the unhealthy and otherwise uninsurable into a health insurance system in a way that benefits are comprehensive and costs are affordable for everyone?

The Obamacare route did this by mandating that everyone needed to be in the same system––same benefits and same rates. That meant rates had to increase for everyone to offset the cost of the sick now being allowed in the pool and a temporary reinsurance system had to be devised as the transition took place (the three-year $20 billion Obamacare "3Rs").

If we instead went down the Republican high-risk pool route, we would have the same challenges. But instead of putting the solution inside a comprehensive health insurance system everyone was in, a risk pool solution would create two parallel health insurance systems––the traditional mainstream system for the healthy and a second high-risk pool system for those who were rejected by the insurers from the mainstream system.

All other things being equal, each system would have exactly the same cost if everyone had access to the same benefits and premium costs. You pay the extra costs for the otherwise uninsurable people inside Obamacare or you pay those same costs outside the mainstream market system by subsidizing high-risk pools.

This is why Republican claims that the Obamacare reinsurance aktivitas is an insurance company bailout are so disingenuous. If and when we see a Republican high-risk tawaran in detail, you will find much the same financial transition mechanism buried in the high-risk pool structure.

A properly structured high-risk pool system that assured consumers access to the same benefits and prices would accomplish the same thing Obamacare is trying to accomplish. It wouldn't do a worse job and it wouldn't do a better job. It wouldn't cost more and it wouldn't cost less. Everyone would have quality health insurance at market rates.

But it is a politically stupid idea.

For Republicans to sell a high-risk pool scheme in 2014, they would have to convince voters:

1. That we need to go backward to the days when insurance companies could deny anyone access to health insurance on account of their health.
2. That insurers can make their profits covering only the healthy leaving the sick to go to a government supported pool.
3. That the government supported pool will always have coverage and prices as good as a consumer would have otherwise been able to find in the mainstream market––separate but equal coverage.

History is full of examples of states setting up high-risk pools. They all have one thing in common––they were never adequately funded. The number of people who had access ended up being capped, premiums were higher, and coverage was restricted. Could high-risk pools theoretically work as well as putting everyone in the mainstream market? Yes. Have they ever? No.

I can't believe Republicans are even considering this idea in 2014.

Do Republcians really want to go into the November elections suggesting we should go back to the days insurance companies make money unilaterally deciding who they would cover and those shut out would be eligible for separate but equal coverage in a government-run pool for the sickest?

Who would want to be in this health insurance equivalent of a ghetto?

I really think Republicans are risking ceding the health insurance issue back to the Democrats.

The polls say people don't like Obamacare but they think it should be fixed––people don't want to go back.

I see Democrats slowly coming to the realization that they need to admit Obamacare is broken and that they want to fix it. (Although, I am not always sure they are really willing to fix it or know how to fix it.)

If the best Republicans can do is to end up pushing silly ideas like selling health insurance across state lines, association health plans, and separate but equal high-risk pool ghettos for the uninsurable, they risk taking all of the voter anger over Obamacare for granted and blowing yet another election.

For a good historical perspective on state risk pools, you can access a 2010 Kaiser Family Foundation white paper here.


Recent post on other Republican health insurance reform ideas: Silly Republican Insurance Reform Ideas––Selling Insurance Across State Lines and Association Health Plans