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UPDATE – Other thoughts on Wyden’s Health plan

Here’s a synopsis of the initial reactions from the health blogosphere to Sen. Ron Wyden’s (D OR) Healthy Americans Act.
Ezra Klein notes that insurance companies will have to compete on quality and low cost instead of medical underwriting and risk selection. I’d agree but note that HAA should push health plans to take all those dollars they have been investing in risk selection and broker commissions and invest them in care management. Health plans talk a lot about managing care, but few are really doing anything innovative or productive.

Matt Singer of Left in the West opines that Wyden’s plan is not perfect, but as it dramatically reduces the number of uninsured, it eliminates many of the current problems in health care – cost shifting and cerry-picking (underwriting) among them.
Matt Holt thinks Wyden’s a few years too early with his proposal, and also is not sure how the plan will actually reduce health care expenses. My take? Wyden’s approach is to let the health plans figure out how to manage care and cost, thereby avoiding the “Harry and Louise” problem – the public really does not want government controlling health care.
If you really can’t get enough of this, head over to the DailyKos, where deaniac, a single payer true believer, thinks that Wyden’s plan solves the biggest problem (universal coverage) first. Not d’s ideal solution, but way way better than the alternative (which is no reform at all). D also notes that the support from the SEIU is huge, as the union has more members working in health care than any other group.
Meanwhile, at least one blog describes this as socialized medicine, a repeat of Hillarycare, and, (yes, this is a quote “when everyone believes in something it’s communism”). And says after two years of the Wyden program America will collapse. No reasons for the implosion; perhaps the poster is a really smart geologist who knows something we don’t about earthquake predictions or has figured out that the center of the earth really is hollow and we’re slipping into it. Hey, if they’re not willing to be serious and thoughtful, why should I?
A much more thoughtful criticism is found at Hank Stern’s Insureblog. Hank has three problems with the Senator’s proposal and discussion thereof: it’s reliance on community rating wherein all members get charged the same premium, and (Hank thinks) that the emphasis on prevention will not help down costs. Hank also interpreted Wyden’s comments on cost-shifting to mean the program will solve the problem of cost shifting from private sector to the government; I didn’t hear that (from private to government cost shift), which is why it’s good there were a bunch of ears in attendance.
Hank’s a good man and a sharp guy, but I’m absolutely fine with community rating. That’s what insurance is; spreading the risk among a large population. And prevention with teeth will help reduce health care costs.
There’s a few questions yet to be answered; among my concerns is the plan’s full coverage once the member’s out of pocket costs hit $4000. As I’ve noted before, most health care dollars are spent by folks with chronic conditions. And once they blow thru their deductible they don’t care what it costs. If “consumerism” is ever going to be anything but a nice idea, we need to make sure the folks who spend the most have some financial skin in the game.
I posed that question, and when I hear back from Wyden’s staff I’ll update.

9 thoughts on “UPDATE – Other thoughts on Wyden’s Health plan”

  1. Hi Joe –
    Can you point to one model where community rating actually works? States that have mandated community rating are also the same areas where there are the fewest competitors and the most complaints (my observation, not scientific) about the price of health insurance.
    In the “old days”, all the Blue plans were not for profit and used community rating. Most (if not all) are now for profit and have abandoned community rating altogether.
    I suspect those who have no problems with community rating are those (like me) who are aging boomers and are more than willing to let the young studs subsidize the cost of my care.

  2. Hey Bob – community rating works very well, for a while. It is then cherry-picked by other plans who medically underwrite, after which the community rated plans enter the adverse selection death spiral.
    If you ban medical underwriting, you eliminate the cause of the death spiral.

  3. I think there’s some confusion on all this “community rating discussion.” In the past, the Blue Cross and Blue Shield plans practiced community rating and other companies didn’t. Healthy people found cheaper (underwritten) coverage and left the Blues bleeding. This is different than the Wyden plan because only some companies practice community rating; under his plan, they all would.
    Some states (New Jersey, if I recall correctly) MANDATE community rating of all insurance companies, as Wyden’s would. Problem is, healthy people choose “other alternatives.” In this case, buying no insurance is an alternative. So this is different than Wyden’s plan because individual are legally bound to participate.
    Wyden’s plan is a new form of community rating because it binds the health into the system along with the sick. I think it’s the only fair way to share costs, as those of use who are healthy now may get sick later. And good behavior doesn’t guarantee good health (though it increases your odds of staying healthy.)
    I like a lot of things about Wyden’s plan, including the incentives he gives for positive behavior, which, if significant, could make a difference.
    What I don’t like is that it doesn’t do much to limit the use of expensive procedures and drastic end of life care, and hugely expensive new technologies. I’d like to see a gov’t plan that covers a more basic set of care like John Kitzhaber’s plan at and allows the wealthy to finance Cadillac (or Lexus) care on their own.

  4. I agree 100% with Jason’s comments. Wyden’s plan needs to make a serious attempt to reduce utilization, especially related to end of life care. A leaner package that still did a good job of covering catastrophic events would also be better. People who can afford to could upgrade in the private supplemental market, and, if we find, that we can provide universal coverage at reasonable cost, we can always enhance the package later if resources are available.
    Separately, NJ is, indeed, a community rating state. That generally means young, healthy people will pay about $4K per year for coverage, but I think community rating is a better and fairer approach than medical underwriting for the society overall.

  5. > That’s what insurance is;
    > spreading the risk among
    > a large population.
    Insurance is spreading risk among a number of people (not necessarily a large number) facing similar risks. Community Rating mandates pretend that everyone faces the same risk. With respect to health, this is false even before we are conceived. It amounts to Social Insurance by another name.
    Properly speaking, Social Insurance isn’t insurance at all because it ignores differential risk. It is frankly redistributive.
    Not that I’m against Social Insurance, but let’s keep the ideas straight. It can only work when everyone who can pay does pay, and pays also for them that can’t pay.

    Wyden is the largest recipient of campaign donations from the health care and prescription drug industries among Democrats in Congress.
    It leaves retirees who had Health coverage as part of thier retirement plan with nothing but medicare.Striping them of the other coverage. Putting Billions into the Profit Margins of thier former Employers.
    The Mandatory purchase has no consumer protection.HMO’s have been escalating rates 10-15% percent without cause for years now.The Wyden plan leaves only the people exposed to this. As Employers would be on a Fixed contribution. Negotiators are in fact impotent.
    There is no reason to think any cost savings would be passed on.”They have a duty to thier share holders to maximize profit”
    The Government Subsidies would be eaten up quickly.And In The Third year when the individual takes on even more of the cost. It will be tragic.
    This Plan is Based on The Heritage Foundation Scheme adopted in Massachusetts. The Heritage Foundation is funded by Insurance Agencies.
    This is a Diabolical Scheme!
    Please everyone this is a bad plan! America can do better. We have to do better.
    Someone say something please spread the word, Not This Plan,Not This way.

  7. Enoch — If the Wyden plan is so horrible, how come SEIU President, Andy Stern, was standing with Wyden when he introduced it? There is no reason why the “cash out” approach couldn’t apply to reitirees as well. As for the cost growth issue, I suspect that this will be mitigated by the rapid spread of price and quality transparency tools and much greater interest among consumers in high deductible plans once the full cost of of health insurance is more visible (transparent) to them.

  8. I am a retired actuary and I think Senator Wyden proposal for individual medical insurance is an interesting start. I would suggest fleshing it out with the following proposals, derived in part from the New York Times:
    (1) Cover maternity care via Medicare. Maternity coverage is typically uninsured (and uninsurable) in the individual market.
    (2) Reduce differential pricing, especially in hospital charges. Currently hospitals collect about 92% of costs from Medicaid, 96% from Medicare, about 120% of cost from private insurers and charge the uninsured 300-400%. (Data from Am. Hospital Association and other web sites.)
    (3) Allow underwriting in the individual market so the healthy can benefit from healthy lifestyles.
    (4) Provide a subsidy for those who are uninsurable, I suggest the subsidy, to be financed by general revenue, would be the smaller of 50% of the premium or $2000 per person.
    Currently 46 of 51 states (including DC) allow underwriting. Five states (NY, VT, NJ, MA, ME) require individuals to buy into the high risk pool. The New York Times Guide to Getting Affordable [Medical] Coverage by Fred Brock notes:
    “[Individual Medical] Premiums in the five guaranteed-issue states are uniform and high .. if you are healthy and live and work in a guaranteed issue state like New York and New Jersey where individual premiums are high, you could move to a nearby state with less expensive premiums and commute to your job.”
    Mr. Brock gives some premium comparisons:
    Male or Female 25 years old PPO
    Springfield NJ $374.67
    San Jose, CA $36
    Married Couple, each 48 years old
    Springfield NJ $749.34
    San Jose, CA $171
    Married Couple each 55 years old
    Springfield NJ $749.34
    San Jose, CA $329
    Mr. Brock thought that premiums for NJ and NY were lower than other states for those in bad health. In fact, my own research has shown that NJ premiums are often higher than the premiums from the CT high risk pool.
    The additional taxes for the subsidies might come from a tax on intellectual royalties – see the New York Times February 4, 2007 “Gimme Tax Shelter” plus the “Nancy Pellosi tax” on those earning over $500,000 per year. There are however, only 2500 in the CT high risk pool so extrapolating to the whole U.S. the subsidies might not require additional tax.
    Tom Kabele, Ph.D. FSA

  9. If workers are given raises to offset the cost of purchasing insurance then wont this increase their contributions to Social Security and Medicare as well? Will they make more but take home less?
    If companies pay Workers Compensation, Disability, Life Insurance, Retirement costs based on salary as well as Social Security and Medicare wont this increase their costs even more? Might they not make cuts to other benefits to make up for these increased costs? Will they be tempted to reduce future wage increases and Retirement benefits?
    If wages are artificially increased wont the Prevailing Wage for all public works projects increase and thereby forcing property tax rates to increase? Again we make more and take home less.
    I understand that the cost of replacement insurance could only be based on geographic, family, and smoking status. I am a smoker and I understand this but fail to see why other conditions are not relevant. Maybe there should be a surcharge for people that drink or those that drive a car and could be in an accident. Most private groups look at location as well as the average age of those covered and not specific habits of those covered.
    I think the concept of universal health care is admirable but the devil is in the details and I am afraid too many details are being overlooked.

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Joe Paduda is the principal of Health Strategy Associates




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