Based on my research, none of the bills currently before Congress have robust enough risk adjustment mechanisms and/or the necessary regulations in place to discourage adverse selection. Other “market based” health care systems (Switzerland, Netherlands, Germany) in the world use a much stronger risk adjustment mechanism and have a much tighter definition of what minimum insurance every company must provide.

completely agree and thank you for saying so.

If the exchange did not have a robust public option (or had only a very weak one), the lack of a sufficient risk adjustment becomes an even more serious concern. The result is that it would be impossible for an insurance company to ever offer high quality, low cost insurance even if they wanted to.

here is where i disagree somewhat with you on two points:

1) your second sentence, “…it would be impossible for an insurance company to ever offer high quality, low cost insurance even if they wanted to” applies to all weakly regulated insurance markets, including one with a public option. therefore, in order to judge if the public option is “robust enough” to overcome the race to the bottom in a weakly regulated market, we must evaluate BOTH the robustness features of the public option AND the strength of market regulation and enforcement.

in other words, there can be NO claims of “robustness” of any specific public option plan without ALSO specifying the “robustness” of the regulation and enforcement mechanisms.

2) market regulation and enforcement is, even when specified in detail in legislation which is not the case here, extremely dependent on the intentions and execution of the executive branch — as well as the intensity of industry lobbying efforts and the administration’s openness to industry influence.

it therefore is incumbent on us to evaluate this administration (as well as political realities in general that affect all administrations) for the kind of regulatory effort we can expect from them:

* it is possible (imo likely) that the obama administration doesn’t want a public option (see scarecrow’s diary on this). if this is the case, how can the administration be trusted for adequate regulation and enforcement? i don’t think we can. if a po is included in legislation, the administration may decide to kill it via regulatory neglect.

* the obama adminstration has shown NO interest in significant regulation of the FIRE industry, even in the face of financial crisis, and worse NO interest in investigating evidence of serious criminal activity (fraud). the FIRE industry lobby appears to work hand-in-glove with obama administration (including massive levels of donations to his campaign).

* members of this administration’s economic team, led by larry summers, have a significant history of adhering to a corporate centered neoliberal ideology including privatization and deregulation. some examples of this are financial industry deregulation during the clinton administration (see for example, here and here) and for an example in remaking a country’s economy and the effect that had on human health, here is a comment i made yesterday:

larry summers helped kill 3 million people with the economic policies imposed on russia during the clinton years (for more on this, i highly recommend naomi klein’s the shock doctrine, joseph stiglitz’s globalization and it’s discontents, and an article in the jan 15, 2009 lancet, mass privatisation and the post-communist mortality crisis: a cross-national analysis. (also in that issue of the lancet is a related commentary by stiglitz, trade agreements and health in developing countries.)

the history of the clinton years reveals that in too many ways, the economic team obama has put together, has shown not just a dislike of regulation, but a disregard for human life and health. unadulterated by a stiglitz or a robert reich (members of the clinton economic team who argued for economic policies to put people first), the larry summers economic team is imo seriously dangerous.

* and the republicans are even worse (see for example, bush’s epa).

………

so, based on the above:

1) how do you justify calling any of the public options now being considered by congress “robust enough” to overcome what may be a very weakly regulated market? what assumptions are you making about the robustness of the insurance market regulation?

2) given the message of this post, isn’t it necessary that the exchange (and therefore the public option) be open to all individuals and employers?

First, thanks for the diligent, thoughtful, consistently high-quality coverage.

I know little about the insurance business as such, but the need for what you call “risk adjustment” is obvious enough that it obvious to me off the bat. I was thinking that you’d need to make all participants in the exchange share the risk that any one participant would get overloaded with sick patients.

Each insurer that owns a given portion of the business in the exchange should also own a proportionate piece of the total risk. Then if any one insurer–the public option or your theoretical Good Samaritan Insurance Co.–runs up costs out of proportion to its share of the total premiums paid, the others have to cover a portion of the expense proportional to their own share of the subscriber base. Perhaps this is what “reinsurance” means?

Yes it is just not robust enough. Something like 50% of the premiums on the Dutch exchange go to reinsurance to prevent this adverse risk selection. Some form of this is an all the bills bu unfortunately none of the bills go near far enough. It is like fighting a house fire with a garden hose. Yes it is like a fireman’s hose in that it shots water but will not take care of the problem.

When I was a teacher (back in the old days) high school teachers got paid more than elementary school teachers — as if high school teachers were more important, dontcha know. I think there must be much more ‘assistance’ to see that primary care doctors earn something reasonable in comparison to surgeons (for example) — commenserate with years of study but not as skewed as now. And $ for geriatricians, and for skilled nurses. When I was a mental health therapist I applied for and received my Medicare provider number, but the reimbursement was so low that I wouldn’t have been able to pay rent on an office. Much balancing to be done.

Yeah, these are all excellent points. This health care reform is really nothing more than health insurance reform. Don’t get me wrong, it’s badly needed if we’re going to keep health insurance (better to have government as single payer but….).

But no matter the system of paying for it, the elephant in the room that nobody wants to talk about is the cost itself. When someone is rushed to the hospital and emergency brain surgery (as an example) is performed, the bill will probably be in the hundreds of thousands when that person checks out. But somebody, sometime, needs to look behind that see WHY it costs so much, because IMO it probably shouldn’t.

Doctor’s should be well compensated as they go to school for half their life it seems, but I don’t get why they need to be multi-millionaires, which is what some specialists are. But nobody wants to talk about this part of the health care that also needs reforming. Everyone is just stuck on this “free market” bullshit thinking that competition in the insurance market will force insurers to force prices down. Health care is not a service that should be in the “free market.” Just like police and fire aren’t.

Single payer

Getting a more favorable risk pool is so much more effective a means to profitability than anything else an insurer could do, that private insurers have no choice but to pursue to the hilt getting themselves a better risk pool, and their competitors a riskier pool. It’s pointless to try to regulate that behavior out of them, because it’s their raison d’etre. What’s the point to having competing plans, what are they supposed to compete on, if not their ability to, in one way or another, get themselves a less risky slice of beneficiaries? As a matter of practical politics, when the folks trying to push a robust public option get to the point of trying to regulate this behavior out of the industry, what do you imagine the industry’s beneficiaries, their healthy, desirable beneficiaries, will think about this attempt to prevent their insurers from saving them money on their premiums by forcing these insurers to insure their fair slice of sick people?

Competition to sell health insurance to the only people who need health care, sick people, is inherently perverse and pernicious in its effects, in that it creates a massive incentive to not cover the only people who need coverage. Wherever else in health care that competition might have some valid and useful place, it’s not here on the question of recruiting beneficiaries. They simply have to all be in one pool, the good and the bad risks together, with one payer liable for all risk, or no system will work. The Dutch, maybe, can tolerate a system that achieves this indirectly, whereby the govt assumes all the risk ultimately, but pays out through private insurers, because they still have a functioning social democracy, and can keep the private insurers in their place. Under our system, any attempt to do anything similar will result in the socialization of all the risks, and the privatization of all the profit that an ungoverned market will bear.

The only thing that will work in this country is to kill off the industry so that it can’t write the rules anymore, and replace it with single payer.

Doctor’s should be well compensated as they go to school for half their life it seems, but I don’t get why they need to be multi-millionaires, which is what some specialists are. But nobody wants to talk about this part of the health care that also needs reforming. Everyone is just stuck on this “free market” bullshit thinking that competition in the insurance market will force insurers to force prices down. Health care is not a service that should be in the “free market.” Just like police and fire aren’t.

actually there are thousands of health care activists who are most definitely NOT ‘stuck on this “free market” bullshit thinking’ — but as they are almost all single payer activists, many of whom have been working for years on researching, educating, organizing, etc. the po multipayer market competition based model comes from the dem party (can you say neoliberal?).

if you can download the mp3, you might want to give our very own montanamaven’s interview with one of the mad as hell doctors a listen. i really enjoyed it and he talks about the issue of specialist overpay (and how it got to be that way) as well as many other healthcare issues:

http://seminal.firedoglake.com/diary/9748
http://seminal.firedoglake.com/diary/9839

thanks for an excellent post. I think that the moral hazard problem (of riskier people having a greater tendancy to shop in the exchange) may only be an interim issue if the Medicare-tied robust PO is enacted AND if there is true portability and no limitations to access to the exchange – both of which are necessary caveats to any successful plan IMO. Over time, I can see more and more people dumping their pathetic corporate HMOs in favor of the added convenience, wider coverage acceptance, lower costs, and job loss protection of Medicare Schedule E PLUS corporate provided supplemental private insurance… for added frills such as travel coverage, discretionary procedures, private rooms, home care, etc etc. The Cadillacy private supplemental policies would inevitably develop as they did in places like France and Singapore.. encouraging even the employed and wealthy to opt-in to the public plan. Of course, many employed and corporate-insured PPO clients would still not choose the PO, but this should be alright since I’m not aware of any risk differetial between PPO and managed care customers other than wealth level and employer generousity.

I agree we should be concerned about the diligence with which the exchange administrator implements and enforces standards for guaranteed coverage and community ratings, to try to minimize discrimination against high-risk consumers/patients. And even if that is done well, we’d also want the administrator to have effective rules and fair enforcement of the cost-sharing mechanism to counteract whatever remaining cherry picking/adverse selection occurs.

Without any public plan organization trying to survive, there would be less pressure on the exchange administrator under any administration to perform these functions well. With a PO, it has a strong incentive, — because it’s likely to be this provider of last resort for the higher risk people — and incentive keyed to its survival to be an advocate for effective oversight and enforcement.

None of this is a guarantee, and we saw in the last 8 years that decades of precedent and regulatory drive can be dismantled and put in reverse if there is an an anti-regulatory ideological administation determined to do so. No public option structure can prevent that; but barring that constitutional breakdown, a PO that cares about surviving would logically encourge better regulatory enforcement than a system without one. The incentives matter, and here they seem to be aligned in a good way.

Throw the bums out. Hire the line staffers to handle claims. Beef up the regulators. Everyone into the pool. Medicare for all. It’s the only thing that will capture the payments, regulate the payouts, control costs. It seems self-evident.

by the way, the differentiated risk pool issue is precisely why I don’t think there should be an excise tax on cadillacy private plans, as augmentation of schedule E by such expensive discretionary coverage will promote PO
risk equity rather than encourage moral hazard and adverse risk selection.

Hey, that was some good stuff! Thanks. I really missed a lot I guess when I couldn’t access The Seminal for about two months.

Gonna give that interview a listen now, just read them but wanted to thank you for pointing them out.

And then a major dose of reality. Brain dead is dead. Lots more hospice for people who are no longer “alive.”
No hip replacements for people who will die in 4 days; no unnecessary tests to protect against ‘possibles’ — and NO you do not need tort refore….most medical malpractice cases are defeated (even if some are reasonable) — someone, for goodness sake!, get some decent data. If a doctor cuts off the wrong leg, then they SHOULD have to pay for that. This is not rocket science. Why can’t we just be real?

but barring that constitutional breakdown,

Speaking of constitutional breakdowns, what’s your take on the individual mandate? I really, in my heart of hearts, think that’s probably unconstitutional. Some compare it to car insurance, but no one is forced to buy car insurance. They can choose to walk, or take public transportation, or whatever.

I don’t see how it (the individual mandate) could be constitutional, was wondering your (and Jon Walker’s if he’s lurking) take on that.

Or be fined for causing an accident while failing to carry auto insurance and have their license lifted.

See, the problem is that if an uninsured person has a medical emergency, they WILL go to the hospital…..and very few people make it a lifetiime without any need for medical care. I say: All In.

I’m not saying that I disagree with mandate, as I understand that’s how you spread the risk.

But even though I may understand it and agree with the need for it, if it’s unconstitutional, then it’s unconstitutional. And we’ve wasted another x number of years on reform.

I’ll bet you the day Obama signs a bill with the individual mandate, there will be lawyers in all 50 states ready to challenge it in court. And then it could delay it’s implementation for years as it works it’s way up the system. Massachusetts started it’s mandate in 2005 (I think), and it wasn’t until 2009 that it “won” it’s first case challening it. It is being appealed. What’s gonna happen when it gets the 9 Supremes??? I dunno, but if I were forced to make a bet on it, I’d bet my money on it being unconstitutional. I just don’t see how it can possibly constitutional for the government to force you to purchase something from another private entity.

Well, I’m an idjit. I couldn’t find that interview. LOL, probably right in front of my, but clicked all over the place and couldn’t find it.

1. The answer under most courts would likely be (IMO) no constitutional problem.

2. Under the current Supreme Court — no precedent is safe is these clowns want to cause mischief.

That said, there is no legal problem with the government collecting taxes and requiring people to pay for it. That’s a mandate.

There is no legal problem with the government providing health insurance to people who pay taxes. We call this Medicare.

So the two key elements are: a requirement to pay money in exchange for receiving a product/service called health insurance — and we already do that without any Constitutional concerns. The structure of the current bills seems different, because we describe it differently — “you have to buy a product whether you want to or not” but looking at this from 10,000 feet, I think you can argue we already do this — we just describe it differently.

In California (and most states, I think) we ARE required to purchase auto insurance — if we drive. We must have home owner’s insurance — in order to have a mortgage. I suppose if people promised to NEVER, EVER use the health care system, then they shouldn’t be required to pay for health insurance. Try turning them away from the emergency room when they break their leg. Oh, well.

So, if, say, the beef industry successfully lobbied Congress and the President to put in an individual mandate to purchase x number of pounds of beef per year or be penalized, that would pass as being constitutional?

Or, insert any industry?? I’m having a hard time understanding it. Like I said, car insurance is different. You’re not forced to purchase car insurance. You can choose not to have a car.

I’m not trying to argue, I’m trying to find someone help me understand how it’s Constitutional, because I fear if it’s not, then it’s going to set health care reform back a lot of years, not to mention weaken it’s effect since young healthy folks probably won’t be contributing anything to the pool.

I just wish we’d get single payer and be done with it. Paid for through taxes, there’s an amendment in the Constitution that I know makes taxes constitutional. *g*

thanks for the reply. your experience with complicated regulation has been a big plus for all of us.

… a PO that cares about surviving would logically encourge better regulatory enforcement than a system without one. The incentives matter, and here they seem to be aligned in a good way.

i guess you mean that the people who benefit from the PO would have an incentive to encourage better regulatory enforcement (if i have that wrong, would appreciate a correction)…. i can see two groups: the people who get their insurance through the po and the administration officials who’s job depends on the po. the problem i have is seeing these people having much influence, especially compared to insurance company lobbyists. if there are 10 million people using the po, they will certainly out number the insurance corp lobbyists, but when it comes to access, knowledge (especially of complicated regulatory matters) and resources the lobbyists will have the edge.

i really really wish we could make congress and the executive branch employees (and their families) have to use the po. then we’d have some people with both the incentive and the clout to successfully counter the lobbyists!

otherwise, i just can’t see this administration being very motivated to implement and enthusiastically enforce good regulations. as always, hope to be very wrong.

my bad for not including the direct link to montanamaven’s podcasts. here is the rss feed:

feed://feralcat.libsyn.com/rss

the interview is oct 10. please let me know if this doesn’t work for you.

glad you like montanmaven’s diaries — i thought they were great too!

I really missed a lot I guess when I couldn’t access The Seminal for about two months.

yikes! something similar happened to me a couple of times when i couldn’t access fdl (my ip got blocked or something), but rbg fixed me right up. there used to be an email addy for the site admin, but i just went looking for it and couldn’t find it. maybe joh or scarecrow can give us the link in case it happens again.

Think of it like a tax. Federal taxes are constitutional.

The two main constitutional arguments against an individual mandate are 5th Amendment Takings and the Commerce Clause (Article 1, Section 8).

Since taxes aren’t a taking, the individual mandate should not be a taking. The Commerce Clause question is a little more interesting. As for current precedent, it’s probably constitutional, but who knows how the Supremes will decide? We’ll find out.

I don’t see the evidence in these comments whereby the premiums in the proposed PO plan is not going to vary according to the risk of the enrollee. Is the sugestion here that all enrollees in the public plan are going to pay the same premium irrespective of their expected medical bills? Are the actuaries once the PO plan is enacted just going to cease working?

Whatever the cost of the premiums for the PO plan turn out to be, as a function of the risk of its enrollees, it will need to be paid and for low wage earners government subsidies will defray a portion of the cost.

But there is nothing to preclude the PO plan to charge a lower premium to a healthy enrollee that is comensurate with its risk, than a private plan will charge. That is, a PO plan will always charge lower premiums to enrolles that are comensurate with their risk than will a private plan. The reason is that the comparative cost of covering them for the former is lower than for the latter.

For this reason both healthy as well as sick participants will always choose to the PO plan, if allowed to do so freely.

This is a very good point. I wonder if the same logic would apply to the opt out states.

They could have insurance companies that happily take money from people when they were inexpensive and cheap, but when they get sick they would have a financial incentive to start doing little things that might make someone with an option move across the state line.

I saw one thread here about a guy whose care was 700,000 a year. What if the people in the office were rude to him, what if they were late every time they had a meeting with him, if they showed up at all? If the guy could just switch to the public option by moving over the state line, why not? Why should he put up with that when he is in enough pain already.

People who have expensive health problems might also need other social services. If people left an opt out state to get the public option, the state that opted out would save that money.

Of course all this is just speculation. The same is true when people say no state will turn down the public option. The public option is not the same as a stimulus check.

I don’t see the evidence in these comments whereby the premiums in the proposed PO plan is not going to vary according to the risk of the enrollee.

modified community rating not risk rating (also guaranteed issue).

wiki link: Community rating

from the crs:

• Prohibit coverage exclusions of pre-existing health conditions. (A “pre-
existing health condition” is a medical condition that was present before the
date of enrollment for health coverage, whether or not any medical advice,
diagnosis, cares, or treatment was recommended or received before such
date.)

• Require premiums to be determined using adjusted community rating rules.
(“Adjusted, or modified community rating” prohibits issuers from pricing
health insurance policies based on health factors, but allows it for other key
characteristics such as age or gender.) Under H.R. 3200, premiums would
only be allowed to vary based on age—by no more than a 2:1 ratio within
age categories specified by the Commissioner, premium rating areas, and
family enrollment—for example, for single versus family coverage.

• Require coverage to be offered on both a guaranteed issue and guaranteed
renewal basis. (“Guaranteed issue” in health insurance is the requirement that
an issuer accept every applicant for health coverage. “Guaranteed renewal”
in health insurance is the requirement on an issuer to renew group coverage
at the option of the plan sponsor [e.g., employer] or nongroup coverage at the
option of the enrollee. Guaranteed issue and renewal alone would not
guarantee that the insurance offered was affordable; this would be addressed
in the rating rules.)

Hi,let’s stipulate the following:

Sick enrollees have higher medical costs and their premiums will always be lower from a public rather than from a private for profit plan. So they will always choose the former. Net effect, the public plan may not be able to meet these costs from the premiums alone.

The bidding between the public and private plans then devolves over who gets the brunt of the healthy enrollees. Here again the public plan has the advantage. This is because the premiums for this group are set by the prevailing community rate for both the public and private plans. But whereas the public plan is more efficient the private plan will need to charge a higher premium.

The universe of people at play are the currently uninsured and whoever else could opt for the PO, roughly 50 million people. This group is more than likely skewed toward the sick but the preponderance will still be relatively healthy. Presumably this group will also be the community on which rates are set. So the prevailing rate of the premium will tend to reflect this higher risk.

The net effect would seem to be that the public plan loses money on the sick enrollees but gains money on the healthy enrollees, and that these last outnumber the former. But this is how the managing of risk is supposed to work. Further the higher costs in the public plan associated with the sick enrollees may be outweighed by the inefficiency in managing risk by the private plans. It is not easy to know beforehand.

Interesting and helpful. References on risk adjusters in legislation being negotiated?

Presumably this group will also be the community on which rates are set. So the prevailing rate of the premium will tend to reflect this higher risk.

note quite. here in MA we have modified community rating. each insurance company set it’s rates for each of it’s plans and must then charge the same to all customers for that plan — the only modification is for age, gender, location. but each company sets it’s own rates.

so, to get a premium quote on any/all available insurance plans (each company has more than 1. bcbs, for example had 16 last i looked) including both those in the exchange and those outside it, all i have to do is enter my date of birth, female and zip code and i can easily determine the premium rate i (and any other woman my age living in my community) would be charged.

only the public plan is limited to the exchange. for the tri-committee version of hr 3200 the cbo predicted 30 million in the exchange with about 10 million choosing the public plan although that number is in doubt, it could be lower. private plans can be offered both in the exchange and outside it.

finally, i think it’s “the less restrictive utilization management practices that attracts those with serious illnesses” (from cms report), not premium cost. for people with lots of medical bills, far more important that relatively small differences in premiums are things like not denying claims, low/no deductibles, low max out of pocket limit.

for healthy people, it’s just the opposite. low premium cost is more likely to be the critical issue in choosing a plan.

that is why, without good risk adjustment, there will be incentives to the insurance companies, not to maximize social good, but rather to deny/delay claims and do other things that make people with serious health issues choose another plan.

Hi:

I think that there is a leaps in this portryal. Let’s see if we stipulate the following:

Public plans are more efficient, so they offer lower premiums the sicker you are. They also use fewer utilization management practises (UMPs) than other plans, so they are more atractive to all prospective enrollees.

In any community or in any random subdivision of one, there will be sicker and less sick people in roughly the same proportion with more healthy than sick. And each group will have an estimated aggregate health cost on which premiums are set.

There is no naturally occuring community or random subdivicion comprised only of the sick and therefore no community rated premium that reflects only the sick. So whatever group the PO plan uses to estimate the cost of the premium it will always contain more healthy than sick.

A private plan in attempting to lure the healthy most lucrative enrollees will offer them tailored premiums that are lower than the single premium that the public plan offers all its enrollees. And in the process still extract a profit from them in doing so.

This last must be shown with some estimates at least. With all its built in inefficiencies one can not know that setting lower premiums for healthy prospective enrollees is a profitable strategy. Since by lowering pemiums they lower their profit.

An aside point is why would only 10 of the stipulated 30 million opt for the public plan. Does the CBO feel that the 10 million are all sicker and for that reason will opt for the public plan and the 20 million are all healthy and for that reason opt for the private plan. And if so on the basis of what estimates. They may be arguing from preconcieved conclusions.