JONATHAN COHN JULY 20, 2010
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Speaking of Massachusetts, and related issues, here is my latest column for Kaiser Health News:
The weekend’s newspapers included a pair of headlines about health care reform. And they were probably not the kind that reform advocates like to see.
One was in the Boston Globe: “Firms Cancel Health Coverage.” According to the article, a number of small businesses had recently decided to stop offering insurance to employees. In 2006, Massachusetts put in place a new health insurance scheme similar to the Patient Protection and Affordable Care Act, the federal law President Barack Obama and congressional Democrats passed earlier this year. If businesses in Massachusetts were now dropping coverage three years into that state’s reform experiment, people might conclude the same will happen across the country. And they probably wouldn’t like that very much.
The other headline was in Sunday’s New York Times: “Insurers Push Plans Limiting Patient Choice of Doctors.” As the story explained, insurers in three cities (Chicago, New York and San Diego) were testing new plans that offered beneficiaries significantly reduced networks of doctors and hospitals, in exchange for lower premiums. The target audience, again, was small businesses, but the insurers thought the new plans might appeal to some larger businesses as well.
This isn’t the first time insurers have offered plans with fewer treatment options. It happened most famously in the 1990s, when insurers first introduced the concept of “managed care” on a wide scale. Consumers didn’t like it then, and they might not like it now. But last time, most people blamed the insurance industry. This time, they might blame the government--in no small part because reform critics will use the occasion to say, “I told you so.”
Taking the blame for anything and everything that goes wrong in health care has always been the biggest political danger to reform, at least in the short term. The Obama administration and the Democrats now “own” health care just as surely as they own General Motors. But before Sean Hannity or the Wall Street Journal editorial page get their hands on these stories, let’s be clear about something: Those headlines don't highlight reform’s problems. They actually highlight its virtues.
Insofar as the articles report broader trends--and they may not--they actually chronicle the same basic process at work. Health care is getting more expensive; the economy is still sputtering. Employers who provide and help pay for employee coverage can react to this in one of two ways. They can stop offering insurance altogether, which is what the Globe reports some small Massachusetts firms are doing. Or they can simply offer less generous policies, which is what the Times suggest will happen in those three cities.
But employers were doing these things already, long before Obama and his allies came along. Firms have been walking away from coverage ever since the early 1970s, when rising health care costs first hit American business hard. The question is whether reform makes employers more likely to drop coverage. The answer seems to be no, at least for now. Reform includes a requirement that employers provide insurance or pay a penalty. Although the Globe story suggests a few firms are dropping coverage, the official data shows that, overall, the number of employers offering coverage actually increased after Massachusetts implemented its new scheme.
That doesn’t mean every company that offers insurance will keep doing it forever. Over time, some businesses will inevitably decide to drop coverage, just as they do now. But before reform, employees in such companies were frequently in big trouble, since they no longer had access to decent policies they can afford. In Massachusetts and, soon, the rest of the country, people without employer coverage will be able to get comprehensive policies through insurance exchanges--complete with subsidies to help pay for them.
But what about the people who watch as employers whittle down coverage, restricting which doctors and hospitals they can see? Again, this happened before and was bound to happen again--only now, thanks to health reform, the law will limit how plans can do it. They can’t impose cost-sharing for basic preventive care. They can’t impose annual or lifetime dollar caps on benefits. And while they can limit beneficiaries to certain doctors and hospitals, they have to offer beneficiaries the right to appeal treatment denials--and the right to get treatment out-of-network if it’s not available in-network.
These guarantees aren’t as strong as they could or should be. Future legislators, hopefully, will improve upon them. But they provide real security, the kind that didn’t exist before--and the kind that most Americans should appreciate, even if the critics of reform don’t.
This column is a collaboration between TNR and Kaiser Health News. KHN is an editorially independent news service and is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization, which is not affiliated with Kaiser Permanente.
16 comments
Can't speak about Hannity, but can note that on 7/19 Fox evening news did play a clip of the president mocking assertions during the health care debate that the mandated purchase of insurance is a tax, followed by the disclosure that his Department of Justice today filed a brief in defense of the legislation based on the taxing power of the government. Whatever the merits of the legislation, Mr. Obama has not shed his last drop of political blood over it.
- lsernoff
July 20, 2010 at 12:33am
Arguing that black now is really white in the long run won't cut it -- the mirror image of Tom Lehrer's: "when correctly viewed, everything is lewd." These are problems that the average voter can =see and understand. It is why many Progressives argued for Health Care Reform-- rather than Insurance Reform to take place mostly in 2-4 years that might lead to health care reform God-knows when. There was general public support for single payer-- Obama never really tried. What Krugman has said about Obama and the stimulus package/jobs has eerie application to health care reform: [and to bank/Wall Street reforms] The best way for Mr. Obama to have avoided an electoral setback this fall would have been enacting a stimulus that matched the scale of the economic crisis. Obviously, he didn’t do that. Maybe he couldn’t have passed an adequate-sized plan, but the fact is that he didn’t even try. True, senior economic officials reportedly downplayed the need for a really big effort, in effect overruling their staff; but it’s also clear that political advisers believed that a smaller package would get more friendly headlines, and that the administration would look better if it won its first big Congressional test. In short, it looks as if the administration itself was taken in by the pundit delusion, focusing on how its policies would play in the news rather than on their actual impact on the economy. Republicans, by the way, seem less susceptible to this delusion. Since Mr. Obama took office, they have engaged in relentless obstruction, obviously unworried about how their actions would look or be reported. And it’s working: by blocking Democratic efforts to alleviate the economy’s woes, the G.O.P. is helping its chances of a big victory in November.
- drofnats1
July 20, 2010 at 12:50am
"The best way for Mr. Obama to have avoided an electoral setback this fall would have been enacting a stimulus that matched the scale of the economic crisis" Recovery.gov says $415B has been paid out so far. Much of what has been spent has gone to simply pay salaries for people that already have jobs. Remember shovel-ready? Remember repairing our crumbling infrastructre? The DoT has received $14B in stimulus funds to date. That's 5.5% of what has gone out. Are you seriously arguing that a stimulus package 2X larger would have made a difference? The government absolutely FAILED at handling the stimulus. It was supposed to be going for infrastructure projects that were ready to go in early 2009.
- seattleeng
July 20, 2010 at 2:03am
Cohn, insurance companies and shareholders keep $0.04 of profit for every dollar they take in. If the president's plan would cause that to drop to $0.02, $0.00 or even lose money, then the insurance companies, very simply, will exit the business. What is comical is that Obama and other progressives believe that if they simply will the insurance companies to do it, it'll happen. They are messing with a business that runs on razor thin margins. I just renewed my TNR subscription for another 2 years for $99. What if Obama decided that was too much, and you should do it for $49. $29? At some point, it's not worth your time to stay in business. That applies to insurance too. It's like you've never read a balance sheet in your life.
- seattleeng
July 20, 2010 at 2:07am
Hannity reads?
- propjoe
July 20, 2010 at 9:10am
Neither Hannity nor Seattle reads. They just make it up,as they go along and repeat talking points. Overhead in insurance companies is about 30% on average versus about 3% for medicare. Thats the more relevant data. How much profit is passed on to stockholders after multimillion dollar salaries and billion dollar bonuses is something else again. You're better off having a conversation with a table. At least the table doesn't makeup whatever data might be needed for a talking point.
- drofnats1
July 20, 2010 at 10:23am
Decouple employment and health insurance. Coupling employment and health insurace was a historical accident, not a well-designed system for delivery of health care. And yet we hold onto it like like it was sent down from on high by Moses. As we scratch our heads and try to figure out why employers are reluctant to hire or increasingly drop health insurance, we persist in imposing on them not only the cost of health care but much of retirement too. To call this a dumb idea is an insult to ideas. This isn't a knock against Mr. Cohn, surely one of the most informed about health care, and who must work in the reality-based world of a dysfunctional political system in which one side's only idea is to dismantle the employer-based system we now have and replace it with . . . . . nothing, and leave every man, woman, and child to fend for himself or herself. HCR was a monumental achievement. But out of necessity it was built on a very shaky foundation. Let's only hope that Mr. Cohn's optimism is warranted, that HCR is only the first step, and that eventually the shaky foundation will be replaced.
- rayward
July 20, 2010 at 11:23am
drofnats1 writes "Overhead in insurance companies is about 30% on average versus about 3% for medicare" http://economix.blogs.nytimes.com/2009/09/25/how-much-money-do-insurance-companies-make-a-primer/ Read the link above. The figure you are looking for is called the medical loss ratio. That is how much is paid out of each premium dollar collected. As the NYT article explains, Wellpoint paid out 84.4% of what they took in. And you are ignoring Medicare fraud. It's very near 10% and considerably higher than private insurance. Funny, but if you add fraud to the Medicare mix, you end up with about what Wellpoint pays. So, Medicare has low administrative costs, but fraud is rampant. Private insurance has much better control over fraud, but higher overhead. Both have a 10-15% overhead that doesn't benefit the truly sick.
- seattleeng
July 20, 2010 at 12:31pm
rayward: "HCR was a monumental achievement" Except there hasn't been any reform. All that happened was it was made a law to require health insurance, and everyone has to pay more as a result. Nothing was done to address rising costs. Nothing was done to address quality. Nothing was done to address availability. By all counts, costs are going up as fast as before, quality will be declining, and availability is declining. Fewer doctors will take medicare/medicaid, but we've expanded those programs. so where does the sick person with medicaid go when he cannot find a primary care doctor? To the emergency room. See how important it was to get this right? Just passing something wasn't good enough.
- seattleeng
July 20, 2010 at 12:41pm
drofnats1: "Overhead in insurance companies is about 30% on average versus about 3% for [M]edicare." You're omitting some important words in that sentence, like, say, "in the individual and small group market." Now why is this figure what it is? Let's go to the Congressional Research Service (http://assets.opencrs.com/rpts/R40491_20090406.pdf) since you only seem to trust government: "One analysis prepared under contract by the Small Business Administration (SBA) Office of Advocacy, found that insurers’ administrative expenses for health insurance sponsored by small employers—'small group coverage'— amounted to 33%-37% of claims; for large companies’ self-insured plans,11 administrative expenses amounted to 5%-11% of claims. For small group coverage, the cost of commissions were found to make up 4%-11%of premiums, taxes and fees 2-3%, general expenses 10%-11%, and profits 4%-5% of premiums." With the creation of the Exchanges, insurance agents will be wiped out of business, and so much of agent commissions will be wiped out. With the new medical underwriting limits, much of the general expenses will be limited, as insurers won't be spending as much money weeding out the highest cost customers. In other words, much of these costs will be eliminated. What's more -- 70 million Americans get their health insurance through businesses that self-insure. Are these Americans somehow so much better off than those Americans who get their health insurance from businesses that fully insure?
- jimbomoron
July 20, 2010 at 12:57pm
seattleeng: "All that happened was it was made a law to require health insurance, and everyone has to pay more as a result." I'm sure that waitress with a diabetic child who spends 35, 40, 50 percent of her income on health care every single year so her child can live would disagree with you. Under this bill, insurers have to accept her and her child, can't charge her any more than her child's grade school peers, and must cover certain services at a minimum level for her child. In addition, she receives subsidies to purchase health insurance for her diabetic child. But according to seattleeng, "All that happened was it was made a law to require health insurance, and everyone has to pay more as a result."
- jimbomoron
July 20, 2010 at 1:06pm
Jonathan, As you well know, the trend in health insurance has been to move towards wider networks in exchange for less comprehensive policies -- the conservative health care vision. So it is quite refreshing to see possibly insurance move towards narrower networks in exchange for lower premiums and/or less cost-sharing. This is good. On employers dropping coverage, you do have to worry about whether employers are selecting against the Exchanges -- those with the healthiest workforces keeping their plans, and those who have more trouble getting health insurance dumping their employees onto the Exchange, and setting off an adverse selection death spiral on the Exchange. Which is why I think ultimately we will replace the entire employer tax exclusion with a tax subsidy to purchase health insurance on the Exchange. The minimum standards of insurance will be much, much higher; insurers will no longer be allowed to vary premiums by age or smoking status (insurers aren't allowed to vary premiums by smoking status here in Massachusetts, and have a 2:1 composite age and geographic region rating); and the subsidies will be much, much stronger both in their reach and in amount.
- jimbomoron
July 20, 2010 at 1:21pm
Jonathan, con't: Per my last paragraph, I should add that changing the tax treatment of health insurance by putting everyone in the Exchange will dramatically reduce the adverse selection problems with having equal tax treatment of employer-based/Exchange health insurance. Another item to minimize adverse selection would be to eliminate the interstate compacts, or at least require all regulations in nationwide plans -- including mandated benefits -- to apply to the state of residence of the purchaser. Even the slightest deviation will set off an adverse selection death spiral. Yet another item to minimize adverse selection would be to have one benefit package -- rather than an infinite number as under current law -- and prohibit the services in the minimum benefits package from being sold outside of the Exchange and prohibit the services not required to be covered from being sold inside the Exchange. Again, even the slightest difference in benefit packages will set off an adverse selection death spiral.
- jimbomoron
July 20, 2010 at 1:47pm
Typical Cohn. Vague generalities. No numbers. No economics. Takes forever to get to the point. Send this guy to The Nation.
- cpfoote
July 20, 2010 at 4:12pm
jimbomoron writes: "Under this bill, insurers have to accept her and her child, can't charge her any more than her child's grade school peers, and must cover certain services at a minimum level for her child." And getting this was a 5 page bill that both sides would have agreed to a decade ago. What you just described is that a medium Iced Tea costs $1, and a large Iced Tea costs $1.50. And we are really thirsty...so we get a large Iced Tea. Where is the reform is this? Where is the difficulty in getting that simple act passed? Everyone is fully aware they could get in a car wreck or be diagnosed with cancer tomorrow and ring up $500,000 in medical bills. But this is what was promised. What was promised was radical reform.
- seattleeng
July 20, 2010 at 8:46pm
You like your insurance! You can keep it! Must be true. The man wouldn't tell a fib.
- lsernoff
July 21, 2010 at 11:04pm