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Three Big Obstacles to Selling Health Insurance Across State Lines

Having relatively easy-to-fix solutions for our health insurance woes is the preferred track that most of us would like to embrace. Many remedies, in fact, make a great deal of sense when we apply the consumer-market approach. But when it comes to healthcare and health insurance, any semblance of operating in an efficient consumer market is nothing more than a mirage.

When gaining political support to sell concepts that are otherwise difficult and complicated for many of us to absorb, the typical American approach is to offer ideas and solutions in understandable sound bites. In healthcare, as we know, simplicity can be a virtue.

In addition to offering high-deductible plans coupled with health savings accounts, another Republican-backed initiative is to allow insurance to be “sold across state lines” in the non-group and small group insurance markets. Proponents believe that deregulation of state insurance markets will allow insurers to offer a wider variety of products across state lines thus avoiding state mandates and other cumbersome rules. They feel this will give consumers access to lower-cost options that are better tailored to meet their needs. From this, basic insurance policies would be sold that provide catastrophic coverage with limited benefits for certain services, such as maternity care or mental health services. Additionally, cross-state sales allow insurers to create regional or national health insurance markets, creating larger risk pools to distribute the financial risk. This would be advantageous to smaller states and healthcare markets.

Sounds simple, but there is a catch. Actually, at least three BIG catches.

It is important to know that federal law already permits the sale of health insurance across state lines, thanks to Section 1333 of the Affordable Care Act (ACA). However, due to regulations and restrictions, no insurer currently offers an insurance product under the ACA due to the many issues discussed below. Here are three notable concerns about selling insurance across state lines that would be problematic to implement.

  1. Controlling Health Costs – Removing benefit mandates and other regulations are two of the many factors affecting the premiums we all pay. However, the major portion of premiums consist of the healthcare expenses we incur at the hospital, doctor and pharmacy – usually 80 to 85 percent of the total premium. Factors not affected by cross-state sales include healthcare practice patterns, provider supply and market power, price levels of care and consumer demand in local markets. These important (and costly) factors would still be included within the premiums.

2. Risk Adjustments – Lightly-regulated states will have low-cost consumers who buy inexpensive coverage, and high-cost consumers who buy more generous coverage from states with more extensive benefits and consumer protections. From this, low-cost consumers will pay lower premiums, while high-cost consumers will pay higher premiums, primarily because there would be a lack of low-cost consumers in the pool to spread the financial risk. Such activity, if not thoughtfully addressed, would destabilize the insurance market and push states to loosen regulations to stay competitive. From this, health plans issued in lightly-regulated states may fail to provide adequate financial and consumer protection.

3. Establishing Provider Networks – Healthcare (like politics) is local. Because of this, any insurer who wishes to sell products in a new state would need to set up provider networks, much like establishing a health maintenance organization (HMO) or preferred provider organization (PPO). Doing this requires a great deal of time, effort and financial investment by the insurers. This significant barrier to new market entry may prove to be too large of an investment for most insurance companies. In addition, out-of-state insurers may only capture a small market of consumers within a state, which limits the insurers’ ability to negotiate with healthcare providers and create an adequate risk pool to distribute costs across individuals and employer groups. Only when carriers have a significant market share of insureds are they able to negotiate deeper provider discounts and thereby lower premium costs.

Will having a different federal policy allowing cross-state sales be successful? Limited evidence suggests that, even with deregulation in the insurance markets, it will take more than selling insurance across state lines to meaningfully impact health premiums.

Lest we forget, insurance is merely a tool used to pay for high healthcare costs, but does not automatically control the healthcare consumed by you and me. Healthcare providers and other forces, such as cost-shifting from government to private payers, also have a pronounced impact on the premiums we all eventually pay.

So much for this easy-to-fix solution.

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Health Reform – Cover More People By Containing Cost

Here’s a very brief quiz about the newest healthcare reform battle about to be waged:

Question:  What do you get when we add more uninsured people to an already costly and inefficient system?

Answer: A MORE costly and inefficient system!

This quiz was not meant to be humorous, nor is it. But if you think we are upset with our healthcare costs today, just wait for what may come next.

As in 2009-2010, similar contentious debates are being made on how to expand and pay for American’s health coverage. We now live in a never-ending polarized environment. Every day we learn about another new plan to rewrite what health insurance should look like in this country. Policy wonks are kept perpetually employed through this process – a really nice form of job security.

So, will we ever see breakthrough policy changes covering more Americans (beyond Obamacare) that will enhance our health (and productivity) at a more affordable cost? Without any doubt, it depends on the political will of both parties. Unfortunately, in the healthcare arena, good policy may not be good politics. In other words, what is best for addressing the core issues and problems of healthcare may not be best for sustaining a political career during the next election cycle. 

If we stay fixated on tying one-fifth of our economy to two-to-four-year election whims, we are doomed to repeat the cycle of not adequately addressing the core problems in our healthcare ‘system,’ which is, primarily, controlling costs. The premise of Obamacare was more about focusing on access first, while neglecting to address cost. 

By the end of 2017, our country is projected to spend about $3.7 trillion in healthcare, which will be 15 percent higher than what we spent in 2015 ($3.2 trillion). To put this into greater perspective, what our country spent on healthcare in 2015 exceeded the gross domestic products of all but four nations. Ironically, so much political capital is exhausted on three essential questions that do not address the root causes of cost:

  1. Who should be covered?
  2. Who should pay for this coverage?
  3. How much should they pay for this coverage?

Many agree that it is good policy to cover more Americans, which will have a positive impact on achieving a healthier population – regardless of demographic differences (age, race, income, location, etc.).

But, as we continue dividing a ‘bloated’ pie laden with sizeable waste between public and private payers, and provoking enraged differences between political parties and citizens, it will be equally logical to address the fundamental causes that make this pie bloated in the first place. 

‘Replacing’ or ‘reforming’ portions of Obamacare should also come with a clear political consensus on eliminating waste and developing performance measures that will provide sufficient feedback on just how well our bloated system is progressing (or not) when providing that care. On a per capita basis, America is already paying a grossly higher amount for healthcare when compared to all other industrialized countries in the world – and some of these countries have universal coverage for their population. One can quite successfully argue that our country has enough money in the current system to cover the entire population. What we lack is the political will to find prudent ways to reapportion our limited financial resources so that it is strategically used more efficiently to also address the social determinants of health. Policymakers are lobbied hard by key industry stakeholders who stand to lose their slice of the bloated ‘entitlement’ pie.

The upcoming debate should begin on what is universally agreeable, but unfortunately, most often ignored. The care provided in this country is woefully underperforming when compared to the cost of this care. This is primarily due to little transparency on price and care outcomes. ‘Value-based care’ – an often over-used phrase – begins with complete transparency in what we pay and receive.

Think about it.  If you or a family member has surgery in a hospital, do you really know the true cost BEFORE the elective surgery takes place? I’m not talking about ‘estimated’ cost, but rather, ‘actual’ cost. (One primary example of how surgery prices can be transparent is found at Surgery Center of Oklahoma.) Then, perhaps three-to-six months following surgery, are you queried by that hospital (or their agent) about how you or a family member is doing after that surgery?  This information is so vital to collect because it will eventually allow for future healthcare delivery improvements.

Who tracks medical outcomes?

Who tracks our medical outcomes on a national, regional or state level? By logic, you may be led to believe that this is being handled. But, despite the great activity seemingly generated by providers and their paid agents, this simply is not happening in most places. For example, the CMS Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey is sent to a random sample of adult patients in the period of forty-eight hours to six weeks following discharge, but this patient-reported experience addresses hospital performance measures while the patient was in the hospital, not the outcomes experienced by the patient sometime later. The national experiment of paying hospitals to coax better outcomes has been a mixed-bag to date. According to national experts, Hospital Value-Based Purchasing (VSP) have been discouraging.

Transparency will sometimes be mentioned during reform – but tragically, it somehow becomes a casualty during the political process. The inconvenient truth is that full transparency in pricing and medical outcomes may not be in the best interest of many healthcare organizations because obfuscation is still considered to be a ‘competitive advantage.’ In healthcare, the product should not be the PRICING of the care, but rather, the CARE itself. When policy is being made, lobbying participants will usually find a seat at the table, nudging out the much larger but generally diffused public. Any public transparency initiatives soon morph to opaqueness. The key, therefore, is to have good policy also become good politics.

No doubt, some progress is being made in the delivery and payment of healthcare, but much work remains.

Perhaps Yogi Berra phrased it best: “It’s like déjà vu all over again.”

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Chasing Squirrels – the GOP’s Pursuit of Obamacare

As happens almost daily, when I take our family Shih Tzu-Poodle for a walk, he will invariably spot a lone squirrel near the driveway foraging for food in the front yard. Acting on pure instinct, Oreo will initiate a chase, presumably to catch the squirrel before it ascends to a nearby tree. Recently, Oreo surprised a ‘lazy’ squirrel and was within three yards of catching it, but the wily squirrel was able to outrace the jaws of our 20-lb house pet.

By watching this somewhat comical incident, I mused to my wife, “Assuming Oreo caught the squirrel, what would he actually do with it?” We both concluded that this particular pet would “have no clue” on how to proceed. For Oreo and most canines, chasing squirrels is essentially a ‘sport’ that requires little forethought about what may follow should the improbable event happen.

Following the November election results, we are bombarded daily with news about the fate of Obamacare. Since 2010, when the Affordable Care Act (aka, Obamacare) was created, Republicans have battered Democrats with generic claims that this legislation is directly responsible for rising premiums and frustrations within our country. Frankly, there are mixed truths to these claims. We can all agree, healthcare delivery and payment problems preceded this mammoth law, and many of these problems (e.g. overpriced and opaque healthcare) persist to this day.

In a different way, Obamacare has become the GOP’s ‘squirrel.’

I am often asked the question: “With Republicans taking control of both houses of Congress and the White House, how will ‘repeal and replace’ campaign promises play out?” Unfortunately, I don’t have an answer. Then again, nobody does – not even Republicans. Intra-party diversity on healthcare ideology is the only sure thing we know as 2017 begins. Even the savviest of policy wonks have nebulous notions about how to proceed with ‘fixing the atrocities’ of a major partisan law that has had almost seven full years to ‘bake’ within our health ‘system.’

This much is known. After the January 20 inauguration, the GOP will have the ability to begin dismantling Obamacare. Portions of this law, if related to federal revenues and spending, will require only a simple majority (51 votes) in the Senate for repealing – Republicans have 52 Senate votes in the new Congress. However, parts of the law not directly related to federal spending, such as insurance market reforms, require at least 60 votes to overcome a Democratic filibuster in the Senate – most likely resulting in a messy and prolonged process.

Suffice it to say, there are a myriad of routes that “repeal and replace” measures can take, with most all scenarios requiring a transitional period for replacement plans to buffer against coverage disruption. Yet again, one-fifth of our economy will be profoundly impacted by how the ‘other’ party will treat the captive squirrel.

Unless bipartisan support suddenly becomes ‘in vogue,’ any new legislation to replace Obamacare will consequently become a big target on the back of Republicans – a role reversal for both parties. The GOP will own their new creation and subsequently become the ‘hunted,’ an unenviable position to have in future elections.

The times they are a changin’. Maybe sometime soon, the squirrels will be chasing Oreo!

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