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Sunday, April 11, 2010

How I Learned to Stop Loving Health Reform and Start Worrying Again

In my last health care post, I was pretty excited about health reform. Our current health insurance has not working for some time and reform offered some initial improvements. Also, I thought that I would haven't to worry about any of the changes until 2014. However, there are some seemingly minor changes that need to be implemented by October 2010 that have me worried. They hit me out of nowhere like the feeling you get when you see your ex-girlfriend for the first time in a while and see that she got even hotter since you dated. Like that ex-girlfriend, I'm no longer loving health reform and there's no quickie involved.

One would think that a 2,400 page document would provide pretty extensive instructions. However, it's really a lot of broad principles. Other agencies like Health and Human Services will have to provide specific guidance to health plans for the implementation. These principles are primarily for the small employer group and individual insurance markets. These are the most dysfunctional insurance markets and in greatest need of change so they are well targeted. Health plans will have to decide how to implement these very gray shades of principles. Now, there are some black and white principles, like children under 18 will no longer be denied health insurance which I think makes us a somewhat more humane country. Adults will have to wait until 2014 for this option primarily because they're not as cute as children.

Some of the grayer shades is that health plans can no longer apply a lifetime or annual maximum benefit to different classes of "essential" benefits. These essential benefits include hospitalization, surgery, doctor visits, drugs, lab work, preventive services, maternity, and mental health. That pretty much covers 99% of what an average health plan covers. However, health plans generally place benefit limits on durable medical equipment (like crutches or wheel chairs), ambulance rides, or the mysterious and hard to pronounce temporalmandibular jaw disorder (TMJ). It's unclear what will be considered essential and what will not. That answer will probably be determined by how strong the TMJ lobby is.

Another shade of gray is that preventive services must be free or health plans must cover them in full. As one can guess, there is no clear list of preventive services. A measles vaccines is probably obviously a preventive service but what about a travel vaccines for purple fever in Mongolia? Health plans could argue that the easiest way to prevent catching purple fever is not go to Mongolia so it's not as clear. Most health plans cover preventive services for $10 or $20 so I would question if these services really need to be free in order to be more effective. Great in theory but that means individuals and small businesses will be paying more upfront in the form of higher prices so they can pay less when they use the services.

The game theory for health plans is to not be the only plan covering TMJ or Mongolian purple fever vaccines in full. If that happens, that health plan will get more people who want to use those services, incur higher costs, and need to charge more for their plans. This will drive out people with perfectly health jaws and no interest in traveling to Mongolia and is known in the industry as "adverse risk selection" or "death spiral." Some readers might be completely unsympathetic to the insurance companies in their efforts to figure out how to figure out ways to do the minimum required or exploit loopholes. Or they're thinking about their friend who's life was changed by Mongolian purple fever and how their insurance company who wouldn't cover it.

These reforms make insurance more straight forward and move it to a product where someone can just say, "I'll take 2 insurances please." The purchaser will know that preventive services are covered, loopholes closed, and they will be covered. Insurance companies will learn to compete based on service, smarter provider contracting that pays on quality of care, and value adds like gym discounts and magazine subscriptions.

The primary drawback is that insurance will get even more expensive. Other bloggers have put forth such dire predictions of the cost of insurance that it's getting hard to take these claims seriously. However, prices will be greater than than the price increases that are incurred from higher medical costs. This could easily result in annual insurance price increases of 15% (compared to today's 9%). None of these reforms will make insurance any cheaper nor address affordability. With limited ability to make adjustments with benefit designs and the insurance plans will become more commodities, and the price will continue to rise. Consumers will realize that the cost of medical care, doctor visits, drugs, hospitals, and other services were the main driver behind the rising cost of insurance. Profits, CEO salaries, and administration were a very small factor in the annual 9% premium increase. As a result, our country (meaning politicians) will have to make hard decisions about health care costs and providers will have to change their practices.

Which is not a bad outcome either and I'll go back to loving health reform. Change is easy as long as someone else is doing it first. People are going to get hurt and it's going to look like this health care reform wasn't such a great idea. However, people are getting hurt today and at least this will put us farther down the path of making hard decisions and addressing health care reform.

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