Monday, April 12, 2010

What do you do when the model breaks?

I heard last week the state of Massachusetts's (MA from now on...) health care plan was in need of desperate help. Why should we care? Because this is the model that many universal health care proponents are using.

I'll do my best to summarize what has happened:
  • According to an analysis by the Rand Corporation, “in the absence of policy change, health care spending in Massachusetts is projected to nearly double to $123 billion in 2020, increasing 8 percent faster than the state’s gross domestic product (GDP).”
  • Physicians for a National Health Plan, a doctor’s group that supports a fully socialized, single-payer health-care system, warned in a February 2009 report that the new system had failed to reduce medical spending, and has subsequently drawn funding away from crucial health resources such as emergency room care.

That's right everyone. A group that is in favor of a single-payer system is really unhappy with the results when it comes to reducing medical spending.

Just last week, MA Gov. Patrick denied rate increases that insurers had asked for. As a result, several events of key interest have happened. First, after blocking the rate increases, several insurers just stopped offering insurance to new subscribers. One reason is that they are not sure what the rates would be. In response to that, the state ordered the companies to immediately start selling insurance and posting their base rates on line. Now, the base rates were something that the state and insurance companies settled on in 2009. If you wanted basic insurance, there would be a minimum that you would be able to get, and that's what the base rate refers to. After having their rate increase proposals denied, the insurance companies sued the state.

To the state's credit, much of the proposal increases were in the 8-32% range, which is probably excessive. Each state has an insurance commissioner that is basically in charge of making sure insurance rates and increases are reasonable. Keep this in mind, also. Any increase has to be approved by the state. So, now the question becomes, why are the increases so much?

One reason is that short-term costs are increasing much more than anyone thought they would. Since insurance companies are required to provide service despite pre-existing conditions, customers can get coverage before they need procedures then drop it a few months later when they no longer need it. Or better yet, they may swap insurance companies. Customers that do this may only pay a few hundred dollars for coverage during the few months, but the cost to insurance companies is running in the tens of thousands. Unfortunately, those additional, unexpected costs are now being passed to where they normally go: customers. Data from insurance company Harvard Pilgrim showed that about 40% of the private buyers in their health insurance pool

"kept their insurance fewer than five months and they incurred, on average, $2,400 a month in medical expenses — about six times higher than the monthly spending of
other consumers

The short-termers are also affecting how much small business are paying in insurance costs as well. Those who purchase insurance in the open market are placed in the same pool as small businesses. When crafted, the legislation intended to keep costs low for business by helping private buyers absorb some of their costs and vice versa. What has happened though is a large percentage of those buying on the open market tend to be sicker, account for more doctors visits and prescription drug costs. As a result, small business are bearing a much larger burden than legislators expected.

One reason people are gaming the industry is that it costs less to pay the $93 yearly fine for not having coverage than it does to pay for it. Those opposed to the recently passed national health care act say the same will happen then.

It's clear that many things will need to change in order for the model to operate the way it is designed.

Or they can just scrap it and start over.

Until the "either or" happens, keep an eye on Massachusetts.

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