Solving Texas’ healthcare problems…or not.

Yesterday we dug into the difficult position Texas Mutual is in thanks to Texas’ Legislature and Governor.

Today – as promised, why forcing Texas Mutual into a business it has zero experience in will NOT solve Texas’ healthcare mess – and may actually make it worse. (note this is NOT TM’s fault…it is stuck in a very difficult situation through no fault of its own)

First, TM is planning to sell stop-loss and Level Funded plans…let’s be clear – Level Funded plans have been sold in Texas for years; there are a lot of brokers offering these plans throughout the state.

In a phrase, Adverse Selection.

I’ve written about this a LOT – mostly back in the 2000s before the Affordable Care Act came into being and effectively ended adverse selection and the insurance death spiral it creates.

Here’s the Cliff Notes version…

1. Thanks to the ACA, health insurance companies cannot:
   1. charge people or their employers more if employee(s) have pre-existing medical conditions
   2. refuse to pay for care for those pre-existing conditions
   3. refuse to insure the employer if its workers or their family members have pre-existing conditions.
2. Back in the pre-ACA days, health insurers got really good at “medical underwriting”  aka identifying and refusing to insure or upcharging anyone who might have the temerity to file a claim. Why?? well, capitalism baby!.
3. What happens when employers with young, healthy workers drop health insurance or don’t buy it, self-insuring instead of joining other employers in a health insurance “pool”?
   1. the “mix” gets worse; without that employers’ premiums helping cover other employers’ costs, health insurance premiums rise for all the employers left in the pool.
   2. over time,
      1. the number of employers in the pool drops,
      2. healthcare costs zoom (as only sick people who really need insurance stay in the pool)
      3. eventually the insurer goes bankrupt as it can’t charge enough.

Let’s suppose Texas Mutual’s program to sell self-insured health benefit plans (NOT HEALTH INSURANCE) to smaller employers is a rousing success, and hundreds/thousands of employers ditch health insurance and sign up. (TM is proposing to sell “level-funded” health benefits plans, a type of self-insurance)

Remember, TM will be medically underwriting employers that apply for health benefits plan. As the incredibly knowledgeable (and friend) Louise Norris writes;

Medical underwriting refers to the process by which a life or health insurer uses an applicant’s medical history to decide whether they can offer them a policy, and whether the policy will include pre-existing condition exclusions and/or a premium that’s higher than the standard rate.

Costs will be lower for TM’s health benefits customers because their employees’/families’ heath risks are lower than the average Texas employer’s.

Good for those healthy employers! – they get health benefits for their workers and their families at a lower price.

But…costs for employers left in the health insurance pool go up. And Up. And Up.

So, those employers apply for a Level-Funded plan…but

…some of their workers/workers’ families have pre-existing conditions, so at best they will pay more, at worst those conditions won’t be covered OR they won’t be offered a plan.

What does this mean for you?

this, dear reader, is why forcing Texas Mutual to offer smaller employers health benefit plans will NOT solve Texas’ health care problems.

For a much more detailed discussion of adverse selection, see here.