Monday, March 17, 2014

Silly Republican Insurance Reform Ideas––Selling Insurance Across State Lines and Association Health Plans

There are news reports indicating Republicans will be proposing such longstanding health insurance reform ideas as selling insurance across state lines and association health plans.

These ideas have been around for some time and have served Republicans as convenient talking points out on the campaign trail positioned as common sense alternatives to Obamacare.

When I discuss these ideas with people in the insurance industry––people who know how their market really works––these ideas generally command plenty of snickers.

Selling Insurance Across State Lines
Presumably, Republicans are targeting the many state benefit mandates that drive health insurance policy prices up. The idea is to allow the sale of policies from states with the fewest benefit mandates to be able to be sold in a high mandate state––thereby encouraging the state with more mandates to curtail them.

There are a number of problems with this idea:
  1. IF it did attract new carriers to a market, it would be a great way to blow up an existing health insurance market––for example, the high market share legacy Blue Cross plan whose business is in compliance with all of the existing state benefit mandates. A new carrier could conceivably come into the market with much lower rates––because it is offering fewer benefits––attracting the healthy people out of the old more regulated pool leaving the legacy carrier with a sicker pool. Stripping down a health plan is a great time tested way for a predatory insurance company to attract the healthiest consumers at the expense of the legacy carrier who is left with the sickest.
  2. It's a 1990s idea that fails to recognize the business a health plan is in in 2014. Health plans don't just cross a state line and set up their business like they did decades ago when the insurance license and an ability to play claims was a all a carrier needed to do business. This idea was first suggested by the last of the insurance industry cherry pickers back in the 1990s and it has long outlasted its relevance. Building a new health plan in a market can easily cost hundreds of millions of dollars over a plan's first few years of operation. The most important thing a health plan now offers is not an insurance contract but rather a comprehensively managed provider network. Just look at the capital costs for the new co-ops under Obamacare that are often receiving something approaching $100 million each to set up a new plan. Georgia, for example, passed such a law in 2011 and not a single new carrier entered the state because going into business in Georgia would be about a lot more than simply having a licensed contract to offer and there just aren't a lot of cherry pickers left to want to exploit this opportunity.
  3. It doesn't solve the problem it identifies. The problem this solution targets is that there are arguably too many benefit mandates unnecessarily driving costs up. So, solve that problem. Why do we even need to enact this convoluted and market obsolete idea? Why even encourage the return of predatory health insurance cherry pickers? Why create a two-tiered market? Why not fix the real problem and create a level playing field for everyone at the same time? I suggest the supporters of this idea first ask the leaders of the insurance industry if they would even do this under the best of circumstances.
Association Health Plans
Small group health insurance costs a lot more than big group health insurance. This idea is based upon the commonsense notion that if you pool lots of small buyers together you can get them lower costs.

Commonsense unless you know how the insurance markets work.

I may be one of the only people you will ever know that has actually run blocks of association health plan business over the years.

Pooling lots of smaller groups together in order to get them the benefits of the economy of scale?

What the hell do you think a Blue Cross plan is?

If I take 10,000 dry cleaners and put them into the Dry Cleaners Association Health Plan will I get their costs down?


Marketing and renewal costs? The same. I will still have to market to each and every one of those dry cleaners––broker/agent costs, telemarketing, web sales––whatever technique it will be the same as the Blue Cross plan will have to spend because you don't just sign-up the association to get to each and every one of those dry cleaners and convince them to join the association plan and then convince them to renew with you each year.

Policy and enrollment costs? The same. Every dry cleaner needs a copy of the policy, enrollment cards, and booklets for each employee, etc.

Claim processing costs? The same. An insurance company needs so many claim processors per thousand covered people whether they are serving a big business or a small business.

Billing and eligibility costs? The same. Every one of those dry cleaners has to be billed every month and keeping their enrollment straight requires the same tasks.

Provider discounts? Maybe worse. That Blue Cross plan, for example, gets the provider discounts it does because it often insures millions of people in its state. Putting ten thousand dry cleaners together is not going to get a better deal than that.

So, the Dry Cleaners Association ends up with the same costs as any small group book of business? Well, actually no. The association costs end up being a little bigger. I never met an association executive that didn't want to get paid. That is one expense I did not have in my regular small group block. And, it is likely that the only way the Dry Cleaners Association can get the optimum levels of expense in any of these categories is to work with the most cost efficient plans in the market––like that Blue Cross plan.

I have been critical of Obamacare because it has looked to me that it was largely created by people who really didn't understand how the insurance markets work.

Looks like Republicans and Democrats have a lot in common.

Recent post regarding a health insurance reform proposal by four Senate Republicans:  The Republican Alternative to Obamacare––Their Aversion to Fixing It May Prove to Be a Political Mistake


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