Sunday, August 09, 2009

Public Option talk, part 1

In the comment thread following Friday's post on health care, I asked why there should be a public option in any insurance exchange? In response, former local blogger Seth Zlotocha pointed to policy rescission - the possibility that an insurance company may rescind coverage after you get sick based on a misrepresentation regarding your health history at the time you applied for coverage.
National commentators have also advanced this as a reason for a public option.

There may be a justification for a public option, but this is not one of them. First, rescission can affect relatively few people. Most of us obtain coverage from our employers in ERISA qualified plans. Rescission is basically nonexistent in such plans. The reason is that the law makes it essentially impossible to deny coverage for preexisting conditions. If you have what is known as "creditable coverage" (basically meaning that you were part of a group plan in the year before you joined your new employer), preexisting conditions are are likely to be covered from day one. For example, when I moved from Rite Hite to Marquette, any claims for treatment of preexisting conditions (and I had a rather expensive one about a day after joining the faculty)were covered - and, by law, had to be because I was covered by Rite Hite.

Even for those who lacked creditable coverage, preexisting conditions must be covered after a waiting period (usually twelve months) and, even then, can only be denied with respect to conditions for which the enrollee sought treatment in the preceding six months.

In other words, most folks are not subject to even the possibility of rescission.

This is not to say that the law governing rescission is perfect or that in all cases every insurer follows the law. There is no law that isn't broken. But rescission - which is extremely rare even within the universe of individual policies to which it applies - is not much of an argument for a public option. If you think it is too easy to rescind a policy, the more direct solution would be to limit rescission to cases of intentional misrepresentation or tighten materiality standards (i.e., the relationship between the misrepresenation and the condition that the insured now seeks to have covered.)

11 comments:

Dad29 said...

the law makes it essentially possible to deny coverage for preexisting conditions

I think you meant IMPOSSIBLE.

And, by the way, a strong HRA or HSA requirement coupled with a (State and/or Fed) Gummint subsidy of same, (say ad arguendam) inverse with income-tax obligation, would remedy much of the problem where it DOES exist.

Especially if you combine that with a "hospitalization" insurance-segment which is non-recissionable, similar to ERISA-qualified policies.

Anonymous said...

It is reassuring to know that if an insurance company figures out how to screw someone, that they can go through a legal process to get screwed even more. We wonder why so many people don't have insurance.

Thanks.

Seth said...

Stick and move! Nice work taking a piece of my comment and starting up a new conversation with it as the new fulcrum.

You may recall my larger point is the profit-driven nature of how insurance companies operate today is part of a perverse incentive structure that needs to change. Individual market policy rescission is a part of that, as is small business policy cancellations in the group policy market, and I gave you an example -- which you doubted existed -- of a large insurance company systematically dropping policies based on technicalities.

Of course, you can try to focus on large employers who cover most employees -- screw the self-employed, small business employees, or anyone working for a large employer who's considering self-employment or a small business -- since that's the part of the market today that actually somewhat resembles a rational market. But the troubles of the individual marketplace are real, significant, and growing every year to the tune of 73% of individuals who tried to find policies on their own being unsuccessful because of premium costs, and a full 1/3 of those seeking individual coverage were denied or charged more because of a pre-existing condition.

The private insurance market, as it exists today, will never cover those people as long as the only driving incentive in their business plan is coming from analysts on Wall Street. And, again, I'm not saying profit alone is an issue. Profits are fine. But, when it comes to something as morally and economically crucial as health insurance -- we just don't let'em die in the streets, as you say -- the regulation of a market that is between primarily and entirely profit-driven becomes imperative.

What a public option does is puts pressure on private insurers from the consumer side, so that practices need to change if they want to keep their business. It gives consumers some standing by giving them an option that isn't driven by the same incentives as the existing private marketplace. The concern of the right is that the public option is going to work so well that it will not only cover those without access to large employer insurance, it'll also start gobbling up those large employer covered folks, as well. I, actually, think that private insurers will come out just fine since I'm skeptical about how many large employers will switch and I have faith in the ability of private insurers to change their business practices so that it's as much about actually providing insurance as it is profits without facing insolvency and, if needed, the development of market innovations like supplemental insurance.

But, again, if the 'just say no' crowd can come up with a real solution that works better than and doesn't involve a public option, then great, let's hear it.

However, I don't think solution is your project here; you'd rather focus on protection of the private marketplace, not because that's what the reality on the ground demands but because that's what your ideology dictates. Fine. Keep ruminating on the effects of monopsonies on the marketplace, as if that's a foregone conclusion with a public option, or that it doesn't essentially exist already and with a crowd that is driven by incentives that are aimed at limiting rather than providing insurance, or that those concerns -- even fully realized -- somehow trump millions who need and want insurance but can't get it with serious moral and economic implications for all of us.

Rick Esenberg said...

Seth

I don't doubt that some companies may try to rescind policies when the law does not permit it. As I said, I never doubt that people will do things they should not. You misunderstood my point which was that the practice is illegal. I appreciate the reference to Blue Cross/Blue Shield in California, but I need a case where other lawyers don't have dibs already.

The suggestion that seeking profit is somehow intrinsically flawed is, of course, also an ideological position and one that is at odds with both widely accepted economic theory and experience. There is no area of our life where a public option has "disciplined" private providers in a way that market competition cannot. In fact, one of my concerns about "reform" is that it will weaken profit opportunities and,as a consequence, we will have less medical innovation.

Nor do I believe that government provided care will be offered with purer motives. Public choice theory tells us otherwise, no?

To focus on the individual market, of course, is to focus on where most people don't get their health care. Blowing up a system that works well for the overwhelming majority to solve the problems of a minority seems ill advised to me.

Having said that, my own view is that a "solution" would attack affordability issues by subsidizing basic coverage for those who can't afford it. It would seek to create the framework for a private market unattached to where one works.

Although it is anathema to most conservatives (and makes me uncomfortable), that framework may require a mandate to purchase basic coverage (probably enforced through some kind of tax penalty). The reason is that health care does differ from an ordinary market because we don't allow the same kind of individual failure. If you don't insure your car and it gets totaled, I am not in the least upset that you now have to ride the bus. If you foolishly fail to insure yourself and get coronary artery disease, I am upset by the prospect that you must now wait to die. That problem is not a function of insurers and drug companies and doctors who want to make money and won't be solved by restrictions on their ability to do so. Bleeding all of the profit out of they system will not make health care cheap although it will make it lousy.

It's a demand side problem caused either by someone who wants to be a free rider and fail to take responsibility for her health or somone who can't afford to. The former may need to be nudged and the latter may need to be subsidized.

I hardly think that is just saying no or serving ideology to the exclusion of facts on the ground.

Rick Esenberg said...

D29

You are, as usual, correct.

Seth said...

The suggestion that seeking profit is somehow intrinsically flawed is, of course, also an ideological position and one that is at odds with both widely accepted economic theory and experience.

Look, Rick, I can't say I have a whole lot of time to comment on blogs -- which is a big reason I stopped blogging -- but I definitely have no time to engage fabrications. You read my comment. You know it didn't say seeking profit is intrinsically flawed.

Nor do I believe that government provided care will be offered with purer motives.

First, it's not government provided care, it's government provided coverage. Second, I'm not sure about purity, but I do think the incentives would be better for the consumer under a public plan, at least relative to the current private market, particularly for individuals and small businesses.

To focus on the individual market, of course, is to focus on where most people don't get their health care.

First, it doesn't need to be the biggest to demand attention -- the individual market is big and getting bigger. Second, the individual market doesn't operate in a vacuum; the costs that are incurred by the un- and under-insured have a dramatic impact on the costs in the large employer coverage market, as well, as you've noted.

Having said that, my own view is that a "solution" would attack affordability issues by subsidizing basic coverage for those who can't afford it. It would seek to create the framework for a private market unattached to where one works.

AND

I hardly think that is just saying no

See, that's my problem. You've spent post after post going after the public option based on the theoretical effects you think the public option will have on the otherwise rational private marketplace. I disagree with those posts, as I've made clear, but it becomes just saying no when the only effort you give to offering an alternative is a generic paragraph in the comments section.

And, by the way: "seek[ing] to create the framework for a private market unattached to where one works." Talk about blowing up the system.

But, hey, if you're talking about something like the Wyden/Bennett bill, I'm all for it. Why not spill some virtual ink on that?

Michael J. Mathias said...

Rick--I had planned to leave my reply to your comment on my post today here, but then I saw what a nice job Seth is doing in taking apart your argument. I'm not fancy enough to know how to embed links nicely in comment boxes, but I will offer this post that Jay Bullock uncovered (http://tauntermedia.com/2009/07/28/unconscionable-math/) as at least a partial refute to your point that rescission is so rare as to be irrelevant.

I don't want to overdo an argument that we may not find any common ground on, but I'm afraid I don't take your point that rescission alone is no justification to make changes in the current system because it's not grounded in reality.

Rescission doesn't exist in a vacuum; it's part of a larger, fundamentally unfair system that favors insurance companies in almost every circumstance over their paying policy-holders, including forced arbitration, unreasonable billing deadlines, and overly broad pre-existing condition standards.

You asked if I thought people should be allowed to get away with lying about prior coverage--as if somehow that was at all material in obtaining coverage for care one paid for. I don't think people should lie, but I wonder about your adherence to a system that might force people to do so in an effort to stave off bankruptcy.

Of course none of this would be an issue if we simply extended Medicare to everyone, cradle to grave, straight up single payer. It's a scenario that requires no tricky laws and no complicated contracts that can withdrawn at a whim (legally or not).

Rick Esenberg said...

Michael

You use the following formula highlighted text.

I am aware of the Tauntermedia thing and it is a perfect example of the misunderstanding that I point out. He takes rescission statistics and applies them to stats for health care generally. But rescission only applies to a relatively small subset of coverage.

And so do these "overly broad" preexisting conditions standards. If you are covered through your work, virtually any preexisting condition will be covered. That's not very broad, is it?

If people are forced to lie to stave off bankruptcy, it is because they waited until they needed the insurance to buy it, much like you waiting until your wreck your car to cover it and then expecting to be paid. No system of insurance - public or private - can work that way.

Your comment on the public option avoiding such problems is the subject of my next post on this.

Rick Esenberg said...

Seth

There is apparently controversy over whether the Hippocratic Oath originally said "First, do no harm" but it remains good advice. Current arrangements provide health care that an overwhelming majority are satisfied with. Criticisms of public plans are not spun from whole cloth - they are present in every public plan everywhere one exists.

I am not an expert on Wyden/Bennett but it is far more promising than HR 3200.

Seth said...

Current arrangements provide health care that an overwhelming majority are satisfied with.

AND

I am not an expert on Wyden/Bennett but it is far more promising than HR 3200.

See, Rick, this is where your argument starts to sound like its, not "spun from whole cloth," but being dictated by a pre-set ideology against anything public entering the private marketplace.

So, on the one hand, you're saying that health care for the vast majority of Americans is fine, and throwing a public option into the mix would have such a dramatic impact that, even if someone can point to some good it could cause, isn't worth the potential for "blowing up the system." Very similar to your argument against same sex marriage, it seems. Fine. I don't agree, but fine.

But then you turn and say that the Wyden/Bennett bill -- which actually aims to blow up the system as we know it -- and say "it is far more promising." That's where you lose me on the grounding of your argument. That's where I start to think it's just about the word "public" in the phrase "public option." And, to me, that just makes it a less serious argument. Again, not completely fabricated, but just less serious, because -- to hark back a bit to the previous administration -- it looks like fitting the facts around the argument rather than letting them drive it.

But, this is your blog, so, by all means, feel free to proceed with the ruminations.

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