The Kerry Reinsurance Plan--Important Improvements and the Need for Fundamental Cost Containment

My good friend, Richard Eskow, on his blog "The Sentinel Effect," has published another one of his thoughtful posts this time commenting on John Kerry's proposal to have the federal government absorb large health claim costs from employers: "John Kerry's Reinsurance Bill: Will it Work?"

Richard is responding to an earlier post I did (John Kerry's Health Reinsurance Idea is Counter Productive--Kerry Would Transfer All Health Care Costs Above $50,000 to the Feds) on Senator Kerry's reinsurance plan and is suggesting a number of improvements that could have some very positive benefits.

Richard very correctly points out that the shortcoming in the Kerry plan is that it isn't a very good reinsurance model--it doesn't leave the "reinsured" employer (or their insurer) with enough incentives to better manage the costs as would a well designed reinsurance program. A well designed reinsurance scheme transfers risk but does so without leaving behind a "moral hazard"--that is it still keeps the "reinsured" anxious to keep claim costs down through various incentives.

Richard goes on to suggest ways the Kerry plan could be upgraded to become a better reinsurance model and he makes some good suggestions.

Still, I have concerns that the Kerry reinsurance plan seems to avoid the "big elephant" in America's health care living room. That is, costs continue to rise at unsustainable levels. We can't just transfer these costs--we need to hit them head-on.

I don't believe any reinsurance scheme can fundamentally help unless it operates in connection with a real cost containment plan. I just get the sense that, as it is, the Kerry reinsurance plan would just sort of hide these ever rising costs inside the federal budget.

The more costs the federal government absorbs and covers with general revenues, the more necessary it is for the feds to have a cost containment program in place. Just as it is important for the private sector today.

How can cost containment be accomplished? That's the "$64,000 question."

My best answer is to look to the National Coalition on Health proposal supported by more than 100 stakeholders from all sides of the debate.

Thanks to Richard Eskow for adding some good ideas to Senator Kerry's proposal.