Setting Premiums for Publicly-Subsidized Healthcare Coverage – Additional Concerns

National Healthcare Insurance Reform has moved a bit closer to reality, though it could still be derailed in the Senate. We now have a House Bill and a Senate Bill that will have to be merged into a single bill via an appointed Joint Conference Committee. The committee members will be chosen by Majority Leader Harry Reid and House Speaker Nancy Pelosi so a final bill can be written and voted upon by the Senate and House, and finally sent to President Obama for his signature. With both bills setting records for length, honestly I have not read much of their texts even though I have read quite a bit of commentary. That is why I am asking for TMV reader assistance.

SOME NEW NON-DISCRIMINATION PROVISIONS

Some of the least controversial measures in both bills concern new limitations on discrimination by private health insurers towards those individuals with “pre-existing” conditions. Both bills require insurance companies to cover everyone no matter how sick, and in some cases they also prohibit discrimination based upon age, race and sex. The whole brouhaha over abortion coverage versus Viagra/Cialis coverage exposes some political and social inconsistencies. If readers determine that the proposals permit some other forms of discrimination, I would appreciate being informed of those situations as well.

Most annual and lifetime dollar limits would also be prohibited. But I do not know of all the other consumer protections and anti-discrimination provisions in both bills, many of them long overdue and quite laudable. They have been ignored by much of the senselessly disingenuous, false, vitriolic, angry, partisan and ideological debates we have conducted for most of this year. However, all provisions with respect to setting premiums will determine many important matters, particularly the public cost of providing subsidies to those who cannot afford health insurance.

The private health insurance industry has not vociferously opposed healthcare reform as they did in the past. Even with these new requirements of non-discrimination, every U.S. citizen and legal resident will be required by law to purchase private health insurance through their employers or directly with public subsidies based upon income. This mandatory requirement is fully constitutional but wholly unrelated to the states requiring drivers to carry automobile liability insurance. This will provide tens of millions of new policyholders to insurance companies paying whatever new premiums they are still essentially free to set.

Both bills will provide that public subsidies will pay for part or all of private health insurance premiums for individuals and families that cannot afford the rates that the private companies will determine themselves. Without a national standard for minimal health insurance coverage at a specified monthly cost, this might well become a financial boon for insurance companies at the public’s expense.

AUTO INSURANCE DISCRIMINATION MAY COME TO HEALTH INSURANCE

First, let’s turn to automobile insurance and how that is legally priced across the country with minor state deviations. The premiums for individual drivers are not just based upon a person’s driving history, but also upon several other factors. Most private auto insurance companies factor in a person’s credit history, their residential zip code, and sometimes income levels and unlucky involvement in accidents caused by other drivers. There are discounts for those who own their own homes (regardless of whether their mortgages are upside down or not) and renters do not receive such preferences.

Effectively automobile insurance rates are inversely related to a person’s income. The poor and unlucky among us generally pay far more for the same coverage as do wealthier and luckier individuals. To make such auto coverage affordable, the poor and unlucky opt for far less comprehensive coverage and much higher deductibles – all unaffordable in real life situations when an accident does occur.

While there are few published studies clearly linking how a person who has had a foreclosure is also a greater risk for causing an auto accident, insurance companies constantly discriminate on that basis and charge more for the same policy as a person’s credit rating decreases. Zip codes sometimes reflect overall income levels and crime statistics, so those living in poorer areas also pay more for the same auto policy coverage than those residing in more favorably-viewed zip codes, even though the factual linkage to poor drivers or auto theft is generally missing.

If a person is involved in any auto accident, even if he or she is completely not at fault, insurance companies in many states assess an “unlucky” surcharge. That connection is about as relevant as claiming a person who likes to eat bananas will more likely slip on a peal and injure himself than one who prefers apples. We may really need a national class-action lawsuit by consumers against auto insurance companies to rectify these massive coverage distortions.

POTENTIAL OVERCHARGING FOR POLICIES COVERED BY PUBLIC SUBSIDIES

Will future private health insurance premiums reflect discrimination against covered individuals based upon their credit ratings, zip codes and other unlucky factors? These are not clearly prohibited in current health reform legislation. If they are not prohibited, one can rest assured that insurance companies will use these differences to price policies accordingly. Since many poor people cannot afford health insurance already on the basis of current premiums, after healthcare reform is enacted, will those premiums be raised on such factors and will the public subsidies also be unnecessarily increased to cover such insurance discrimination?

Let’s compare two families, both with 2 working adults and 2 grade-school age children. The individuals are all about the same ages and both have 2 comparable cars, one is paid and the other is still being financed.

Family A has great credit as there have never been any job losses. They live in a wealthy zip code, and they have no history of any DUI convictions or at-fault auto accidents. There is one pre-existing condition in their background, a child with a congenital condition requiring more annual care than most other children but no frequent hospitalizations – only expensive treatments and medications. All the members of Family A are considered obese but that is irrelevant since they are covered under a Cadillac health policy sponsored by the most generous of their two employers. This type of coverage is highly favored by our tax code, essentially providing Family A with an indirect public subsidy for their relative good fortune in life so far.

Family B has lousy credit due to one spouse’s job loss last year and non-employment to date, resulting in the foreclosure of their home mortgage, and many other unpaid bills. A few months ago, while taking one child to see the doctor, they were hit by an uninsured driver and everyone required medical treatment that was paid by their auto insurance policy’s uninsured motorist coverage. A few months earlier, a neighbor’s dog bit the other child and fortunately the neighbor’s homeowner’s policy covered the medical and hospital bills. Family B has no pre-existing conditions and is in much better overall health than Family A. They have recently moved to a rental unit in a poorer zip code as a result of the foreclosure. The remaining spouse who continues to work does not get any healthcare coverage through employment. They also have not had any DUI convictions or at-fault auto accidents during the past five years.

Under a future healthcare reform, Family B shops around for health insurance but the cheapest they can find costs more than the Cadillac plan for Family A, even with far less coverage and higher deductibles and co-pays. The insurance companies all rated them higher risks than Family A because of their credit history, current residence, low household income, and those two unlucky occurrences. Family B’s auto and home-owners policies also increased their premiums as a result of their unlucky accidents, bad credit and new zip code residence. Fortunately, their needlessly high health insurance premiums for Family B will be fully covered by subsidies from the federal government.

The public financial subsidy for Family B would have been much lower, and the overall cost to the Federal budget for many more Family B’s would consequently be much lower, if health insurance companies were prohibited from discriminating against these poorer families across the country on the bases described above.

I strongly favor the public helping those who cannot afford health insurance. Every U.S. citizen and legal resident should have adequate health coverage – and illegal aliens and foreigners should be able to buy into coverage without subsidies. However, I am against insurance companies raping public coffers because they are not sufficiently regulated to prevent them from engaging in such surreptitious alternative forms of discrimination.

Whereas the annual out-of-pocket healthcare costs between Family A and Family B might be the same, or Family B might even be lower, the premiums collected may be artificially higher for Family B solely to increase insurance company profits – particularly since the public subsidies are based upon the ability to pay and not on the reasonableness of the underlying premiums.

FINAL THOUGHTS

It’s bad enough that our current national healthcare system is principally a bloated disease mismanagement operation that essentially caters to wealthy hypochondriacs. We really need an integrated healthcare system that fosters healthier lifestyles for all people and eliminates many unnecessary treatments, tests, paperwork and fraudulent excessive billings to our public Medicare system and private insurance companies. More than likely, we will have to reform our reforms a few more times in the future before we get our nation’s out-of-control healthcare system under some semblance of rationality or sanity.

I hope my concerns are unfounded but most of what I have read does not discuss or dispute these warnings on premium calculations. Left unchecked, they could easily gut all alleged healthcare savings under any final reform bill. Without some strict controls over how health insurance companies set premiums, the public will shell out far more money in subsidies to cover excessive private insurance premiums. This will further limit our society’s future flexibility to spend public money where we deem appropriate. Enriching private health insurance companies at public expense is probably not the wisest form of national economic or job stimulus.

Posted 11/19/09 by Marc Pascal who happily rants in Phoenix, AZ. Please note that I will discuss new job stimulus proposals in one of my future posts as I promised at the end of my last TMV posting.