“For every complex problem there is an answer that is clear, simple, and wrong.”
H. L. Mencken
In this post I will highlight two components of the recent executive order that demonstrate a lack of understanding of the relationship between insurance companies, providers and individuals, and how this willful ignorance is harmful.
PROMOTING HEALTHCARE CHOICE AND
COMPETITION ACROSS THE UNITED STATES
1. “It shall be the policy of the executive branch, to the extent consistent with law, to facilitate the purchase of insurance across State lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American people.“
As a doctor I was instructed to take heed of the Hippocratic injunction, “first, do no harm. An injunction ignored in the current Executive Order. Permitting the sale of insurance products across State lines that can’t satisfy the minimum requirements of the ACA will have consequences that will hurt people for the sake of a soundbite. Superficial, intellectually undemanding sounding solutions will result in serious harm to individuals and the country.
If we accept that a foundational element of a free market is to remove barriers to competition, then this executive order would be a step in the right direction. However, the President’s clear and simple solution to address the cost of care by allowing for the sale of insurance across state lines fails to understand that healthcare does not exist as a straightforward free market transaction, such as buying a hamburger. For most of us health insurance is an employee benefit and employers purchase insurance from payors who act as middlemen to providers (doctors, hospitals, etc.) who provide care. This economic separation of the doctor from the patient by one or more steps each with its own incentives is enough to destroy the workings of a free market. If buying a hamburger were like getting a check-up you would be getting your hamburger from a cook who is paid by a burger broker who receives money from your boss who is going to spend the least amount of money possible to get you something you can call a burger, while the burger broker makes his money from the difference between the money he can get from your boss and what he has to pay the cook. Simple enough. Bon Appetite.
This Executive Order also ignores the fact that it is not enough to have insurance. Providers, doctors and hospitals, have to accept your insurance and the payment offered. Simply put, it is not sufficient for a person to have health insurance, the doctor has to accept that insurance. Providers need to be contracted with individual insurance plans, accept the payment offered and be permitted by those companies to see the patients who carry that insurance. Each of these steps is a considerable administrative burden, and so for plans sold to individuals or small groups there is little incentive for a provider to accept that insurance. A low cost plan is also a low reimbursing plan and providers, be they hospitals or doctors, will simply not contract with such a plan. Therefore the patient will have insurance, but insurance no one will accept. This is a simple truth ignored in the Executive Order.
The outcome of such proposal would be that patients will be able to receive Emergency Care, but once the insurance company is billed the patient will be billed over and above the reimbursement from the insurance company. Patients will be charged the “usual and customary” rates by the hospital and the patient would have been likely better off with no insurance at all. For outpatient services, like finding a doctor, there simply that won’t be anyone available. If you live in California and your inexpensive insurance comes from Iowa, you may be traveling to Iowa to see your doctor.
3. “Expanded Availability of Short-Term, Limited‑Duration Insurance. Within 60 days of the date of this order, the Secretaries of the Treasury, Labor, and Health and Human Services shall consider proposing regulations or revising guidance, consistent with law, to expand the availability of STLDI. To the extent permitted by law and supported by sound policy, the Secretaries should consider allowing such insurance to cover longer periods and be renewed by the consumer.”
A second aspect of the Executive Order is the creation of short term policies. A proposal that is potentially more harmful then selling policies across State lines. This dangerous idea fails to recognize the very basics of how insurance works. Not being a fan of insurance companies and the role they play in our current healthcare crisis does not mean that I cannot understand their business model and how they make make a profit.The affordability of insurance is based on the concept that a large group of individuals buying insurance together will lessen the risk to the insurance company. The larger the group, the more predictable the risk. The healthier the group, the lower premiums can be. Insurance costs can be lowest for large groups with a significant proportion of individuals that are at low risk for needing care. The smaller the plan, the shorter the time frame the greater the risk to the company and the greater the premiums for individual.
Short term individual plans work against all aspects of what makes the business of insurance a profitable business. Therefore, the only way to have a short term plan is to have excessive premiums. Premiums that will exceed what the insurer expects to pay out to providers. That excess is what keeps the insurance company in business, and their shareholders in dollars. The analogy I would paint is that short term plans are going to act like payday loans.
Payday loans often range in size from $100 to $1,000. The average term of the loan is about two weeks. The finance charge ranges from $15 to $30 to borrow $100. Hence, a typical payday loans has an effective interest rate of 400% (APR) or more. Short term insurance plans, like payday loans, will prey on those that cannot afford to have insurance and will have very high premiums in the same way that payday loans have exorbitant interest rates. The short term plan will have a jacked up price because that is the only way the insurance company will cover its risk and make a profit. Finally, short term plans will only be useful for those that can predict their next illness or accident, because no one will sell you a policy after you get sick.
The only defense against greed fueled soundbites is greater understanding of how healthcare works. Clear, simple policy suggestions may not only be wrong, they can be lethal.