I’ve been virtually talking with other interested parties and staff from Sen. Ron Wyden’s (D OR) office about his Healthy Americans Act and how it deals with pricing. Here’s my preliminary take.
There are two core concepts central to HAA’s viability. First, universal coverage. If everyone has coverage, than there is no (or at least a lot less) need for providers to charge folks with insurance more to cover their losses incurred when they treat people without insurance. Cost-shifting drives up health insurance costs for those folks fortunate and employed enough to have coverage.
Those without insurance also don’t have the same access to nor do they receive preventive medicine as frequently as those with insurance.
These two problems make the un-insured a problem for the insureds; they end up paying a hidden tax approaching a thousand bucks per family in the form of higher premiums.
Second, community rating. This is a method of developing health insurance premium rates (or for any other type of insurance) wherein actuaries figure out what a population’s total costs will be, then estimate what portion is allocated to each individual, family, single+spouse, etc. The only means of altering or modifying the premium amount per insured is by geographic area; insurers are prohibited from factoring in age, sex, previous medical conditions or any other factor.
Community rating has been condemned because it has not “worked” in the past; this is true, as far as it goes. The problem with community rating is that if all health plans in an area don’t stick with it, it falls apart. Health plans that are seeking a competitive advantage in the market will try to charge lower prices. In order to do that, they have to ensure that their costs, specifically medical expenses, are lower than their competition. The best way to ensure that is to only sell health insurance to people who are not likely to need it.
So, the companies “underwriting” insurance skim off the healthy folks along with their premium dollars (which were going to subsidize the less healthy folks). Now, the plans that are still community rating find that their population is sicker, and therefore the plan has to charge higher premiums, which drives more healthy people into other plans…which produces the community rating death spiral.
Under Wyden’s plan, there is no medical underwriting, which means the death spiral isn’t started by risk selection.
But without universal coverage, community rating doesn’t work.