Archive for January, 2008

Everybody into the pool

Monday, January 14th, 2008

Health care is emerging as one of the key issues in the presidential race. It seems that some kind of health care reform will move forward in the next session of Congress. Notwithstanding its ability to substantially reduce cost, single-payer health care is unlikely to be adopted. It is far more likely that we will end up with some variant of a mandatory health insurance model (as Romney pushed in Massachussets, for example), with a federal or state risk pool as a back-stop for those who can’t obtain health insurance from an employer. Even Senator Edwards’ incremental approach to universal health care is probably farther than can be achieved given the lobbying of health insurance companies and pharma.

Whatever plan is adopted, I think we will end up with some form of a health insurance marketplace, so the rules of the marketplace will be critical. I think health insurers should compete on:

  • age-adjusted price – how much they charge per person per month
  • coverage – what they’ll pay for — prescription drugs, alternative medicine, dental, etc. Of course there should be some minimal standards of care.
  • deductible and co-pay – the customer’s out-of-pocket expenses
  • provider network – the quality of the doctors and hospitals they work with

But we can’t allow insurers to not insure someone because of pre-existing conditions — everybody needs to have access! And the age-specific price must be the same for everyone of that age. Then we can have a real health insurance marketplace. During the open enrollment period at the beginning of each year, everyone is free to shop for their insurance, comparing rates, coverage etc. Health insurance companies are free to change coverage, prices, etc. to try to induce (healthy and profitable) customers to sign up.

Contrast that with current practice, where  insurance companies try to optimize their risks, by carving the pool into small segments, each of which is underwritten separately. The small pools are inherently more risky, the cost of insurance is higher because of that risk, and because of the administrative cost of managing a small plan, and to top it off, the insurers don’t want to pay for “pre-existing conditions”.  Individuals and small groups have too little bargaining power to get a fair shake with that system.

Instead, let’s put everybody into the risk pool and let real competition fluorish!