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Should We Have Mandatory Group And Individual Health Insurance?

The Obama administration’s pledge to reform health care has set in motion one of the most important debates affecting small businesses in recent memory. Next to tax reform, the cost of health care and health insurance ranks highest on surveys of small business owners’ concerns.

As the debate unfolds in the coming months, small business owners will need to get up to speed on the current system’s problems. A recent hearing before the House Committee on Energy and Commerce’s subcommittee on Health provided some eye-opening testimony on the current system’s problems and why mandatory, universal health insurance should be a cornerstone of reform efforts.

"Insurance, in its simplest form, works by pooling risks: many pay a premium up front, and then those who face a bad outcome (getting sick, being in a car accident, having their home burn down) get paid out of those collected premiums," explained Katherine Baicker, a professor of health economics at Harvard’s School of Public Health.

"Uncertainty about when we may fall sick and need more health care is the reason that we purchase insurance, not just because health care is expensive," Baicker explained. "It is impossible to ‘insure’ against an adverse event that has already happened, for there is no longer any uncertainty. Try purchasing insurance to cover your recent destruction of your neighbor’s Porsche; the premium will be the cost of a new Porsche. You wouldn’t need car insurance, you’d need a car."

The same logic explains why insurance companies attempt to weed out or deny coverage to those who are already sick, or have so-called pre-existing conditions. "The reality of the health insurance market is that a carrier’s success depends on its ability to minimize its risk. This means that each company is better off if it only insures people who will not need medical care. This provides incentives to cherry-pick healthy people, and limit the number of unhealthy people covered," Mila Kofman, Maine’s superintendent of insurance, told the committee.

"Since an estimated 20 percent of people account for 80 percent of health care spending, avoiding even a small number of high-cost individuals can substantially reduce an insurer’s losses," Kofman noted. "While the desire of insurance companies to reduce risk is rational from a free market perspective, it creates a market which many Americans cannot access. No one competes to insure sick people."

Insurance works because not everyone will fall sick at the same time, so it is possible to make payments to those who do fall sick even though their care costs more than their premium, by tapping the pooled insurance premiums. Thus, the system is undermined by the uninsured, both healthy and unhealthy.

For uninsured or under-insured individuals who are sick, uncertainty is no longer a factor. They need health care -- not health insurance -- but lack the money to pay for it, because they lose the benefit of tapping a pool of insurance premiums.

By the same token, when healthy individuals choose to go uninsured, the model breaks down as well, because they are limiting the pool of reserves available for those who are sick. If they wait until they are sick to get insurance, they defeat the purpose of insurance, too. That’s why Massachusetts, one of the states leading health care reform efforts, requires universal participation in its health program.

Today, two years after enacting sweeping health care reform, 97.4 percent of Massachusetts’ residents have health insurance coverage, compared with 85 percent on average nationally, said Jon Kingsdale, executive director of the state’s Commonwealth Health Insurance Connector Authority.

"As a result, financial barriers to obtaining care have fallen markedly, Kingsdale said. In 2007, the first full year of reform, the number of people in Massachusetts who deferred needed health care because of high costs declined to between one-half and one-third of the national average. "And it is reasonable to expect that financial barriers continued to decline in the second year of reform, as the number of newly enrolled continued to grow," he added.

Although it’s been widely reported that 47 million Americans have no health coverage, millions more are underinsured, defined as families that have out-of-pocket medical spending amounting to 10 percent or more of their income. According to one study by the Commonwealth Fund, 25 million adults who had health coverage were underinsured in 2007, a 60 percent increase from the 15.6 million Americans who were underinsured in 2003. In short they are living on the precipice, one serious medical emergency away from financial disaster.

Indeed, nearly half of all bankruptcies in the United States are related, at least in part, to health care expenses. And, of those facing medical bankruptcies, roughly three-quarters had health insurance at the onset of their bankrupting illness, according to Judy Feder, senior fellow at the Center for American Progress Action Fund, a Washington, D.C.-based think tank.

Seven out of 10 respondents in a recent survey of borrowers in foreclosure reported unmanageable medical bills as an underlying cause of their foreclosure, or had experienced other medical disruptions to their income, such as lost work due to illness or using home equity to pay medical bills, Feder said.

Under the current system, the widespread lack of adequate health coverage is estimated to cost our economy $60 billion to $130 billion annually. One way or another, taxpayers pick up that cost, whether it’s through tax write-offs by hospitals for unreimbursed care, federal programs like Medicaid, or through the worst possible outcome -- medical related bankruptcies and foreclosures

That’s why reform needs to begin with mandatory, universal health insurance coverage, ideally offered through private carriers with some sort of government safety net. It’s critical to getting a handle on both direct and indirect health care costs and bringing the level of care up to the standards of other developed nations.

Overhauling The Health System

The Obama administration and House leadership are reported to have resolved to accomplish health care reform by September even if it takes use of a Senate process that requires only 51 votes rather than the usual 60. The Democrats have 58 votes. If health care reform is enacted in this way it will not be subject to the normal Republican/Democratic debate and compromise.

What this “health care reform” would mean, if it succeeds, is that 47 million uninsured Americans will finally be covered. But from what I’ve learned in my posts in a congressional fellowship, health forums and Washington think tanks, it does not mean any serious action to decrease the cost of health care. The annual expense to taxpayers will be at least $110 billion, a cost that will grow at nearly twice the rate of the economy, like the rest of health care.

The uninsured must be covered. However, the absence of a workable plan to manage cost should be a major cause for concern. According to Dr. Amy Finkelstein, Professor of Economics at MIT, when Medicare was enacted, U.S. hospital spending rose 37 percent within 4 years, the result of a hospital building boom financed by newly insured seniors.

Here are a couple of facts:

• • According to Thomas Saving, a Medicare trustee, in 2006 Medicare accounted for 11 percent of our income tax payments; by 2030 the figure will be 34 percent.

• • According to Medicare’s trustees, the program’s hospital benefit will begin taking in 20 percent less than it pays out by 2019 — it will be insolvent without a tax increase.

No matter whether the uninsured are covered by public or private programs, it will be with tax money. Without serious steps to decrease health care spending such a plan will accelerate the day of a health care financial meltdown that could emulate the banking crisis.

The new guard in Washington is underestimating the magnitude of the task of health care transformation and the ability of the federal government to engineer it. Sound bites substitute for reality. A perfect example is the assurance that billions of dollars in federally funded health information technology will decrease health care cost. Most physicians who have studied the matter think that the result will be the opposite — putting information technology into a health care system where providers are paid for the volume of their services, not its quality or efficiency, will be like installing a computer in the home of a 90-year-old.

Here are the realities that should guide health care transformation:

• • Doctors and hospitals are paid by the quantity of services they deliver, not the results of those services — that is, providers are paid more the sicker you get.

• • Americans have only a 50 percent chance of receiving appropriate care when they go to the doctor — the result of a payment system that dictates assembly-line medicine.

• • Because they are paid for volume, doctors and hospitals provide enough unnecessary services to fund the uninsured 7 times over. At least one-third of health care spending is waste.

• • Ten percent of people account for 70 percent of health care spending; they have chronic illnesses such as heart disease, cancer and lung failure.

• • The average Medicare patient sees seven doctors who can have no idea what the others are doing, leading to poor outcomes and high cost.

These facts have common-sense implications. The only way that we will decrease the cost of health care and also improve quality is to implement a three-fold plan, one that will require re-engineering what happens inside clinics and hospitals and create a new business model.

High-cost patients must anchor themselves to one doctor of their choice who manages their conditions and is their first point of contact with the health care system. Providers must be paid for the quality and results of the services they provide, not just their quantity. And we must establish, measure and report benchmarks of quality in medical practice.

It will be left up to the states to accomplish transformation of their own health care. There are remarkable differences in the cost and quality of health care among the states that are not related to their demographics but to the habits of practice of their doctors. For example, in 2000-2001 the cost of care of a Medicare patient in Texas was $8,000 but was $5,000 in Utah, the difference being the number of interventions, not the prices. Yet Utah ranked near the top on measures of quality and Texas was tied for bottom.

Texans should begin planning right now how they will reconfigure their health care to withstand a cost tsunami that could easily dismantle state and federally funded health care programs and no less threaten the ability of Texas’ small businesses to fund health care.

Medical Choice?

A recent poll from CBS News found that the tightening economy is forcing people to make some tough choices. Alarmingly, these kinds of decisions are spilling over into an area where they don't belong -- health care. More than one in three Americans is delaying care. Around 30 percent are skipping screenings, tests, and other treatments. And 27 percent aren't filling their prescriptions.

In the most advanced and wealthiest nation on earth, people should never have to make these kinds of choices with their health. It's as clear a sign as any that our current healthcare system is overdue for an overhaul -- and I've spent over 30 years analyzing opinion polls.

But fixing our broken healthcare system presents a huge challenge -- one that can't be solved through partisan politics. If it could, we'd have fixed the problem long ago.

The simple fact is neither side has the complete answer. As a centrist committed to nonpartisan solutions, I'd like to offer some middle-of-the-road approaches that bare serious consideration.

First, we need a renewed emphasis on disease prevention. Promoting wellness and healthy lifestyles is a lot cheaper than paying for someone's hospital care. Prevention campaigns, like those spearheaded by Mayor Bloomberg in New York, will pay huge dividends in the future for everyone.

The obesity epidemic, for example, is ravaging the nation -- the Centers for Disease Control estimate more than one-third of all adult Americans are obese. Obesity drives up healthcare spending and costs untold billions of dollars in lost productivity.

Fighting obesity, particularly in children, will, in the long run, reduce healthcare costs and strengthen our economy. But it will require a joint public-private approach just like the successful efforts to reduce and curb smoking.

Public and private partnerships shouldn't end there. While most Americans agree that the eventual goal of healthcare reform should be universal coverage -- that is, health insurance for all -- there is more than one way to get there. The political right generally opposes completely government-run health care, and the left distrusts the private sector to get the job done by itself.

But a public-private partnership, similar to the very successful and lauded healthcare systems in the Netherlands and Switzerland, may strike the right balance between privately-organized but publicly-guaranteed health insurance.

Our government already has effective programs in place to identify and enroll the 12 million Americans currently without any health insurance yet eligible for Medicaid and the State Children's Health Insurance Program. But only privately-run insurance plans have the experience, ability, and impetus to push the healthcare system forward to innovate and adapt. Indeed, the insurance industry is ideally positioned to address the uninsured crisis.

Government can also create new pooling mechanisms to extend health insurance to the self-employed, small businesses and the poor, and private health plans should compete for the business of those groups, working to generate both affordability and expanded access.

Government alone can't solve these problems. Nor can private industry. But working together, we can find the right innovation and infrastructure to effectively reform the system. From a renewed emphasis on prevention, early detection, and intervention to expanding the public safety net that will catch the neediest members of our society.

The healthcare crisis is not some incurable disease. It can be treated -- jointly -- with the best of private industry and the best of public programs.

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