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Tuesday, May 11, 2010

What happens when a Market Innovation becomes a Mandate

One aspect of health reform that looks great on paper is that preventive services must be covered in full by insurance companies. Mammograms, pap smears, well baby visit and other services listed on the US Preventive Task Force list as receiving an A or B rating are now free. A $1.50 will get you a cup of coffee and immunizations that are on the Center for Disease Control list.

It seems like a good idea. Preventive services are low cost and prevent disease or prevent chronic disease from getting worse. It also helps make health plans more uniform, easier to understand, and get closer to the ability to just purchase "1 health insurance". Insurance companies should have been doing this on their own. They were. It's called value-based plan design and it was gaining traction. Employer purchasers coalitions were promoting these plan designs and providing input for insurance companies. They are growing almost as fast as Health Savings Account plans which inject consumerism into health care.

Not all companies were interested in buying value-based plan designs that covered preventive services at not or low cost. Preventive services were generally available for $20. Some companies would switch insurance every year to take advantage of insurance companies who would try and buy their business. Some companies had mostly young men who thought a preventive visit involved using a condom and had no need to go to a doctor. These companies used to have the choice to not pay more upfront in the form of a higher price for plans. Now, they do not.

The problem with mandating a broad benefit design is that they no longer become a market innovation for a particular segment but instead become a cost. I support the mandate of coverage for benefits that a particular potentially vulnerable population needs like hearing aids for children. Mandating preventive services eliminates choice and adds cost to those who may not value it. Or creates a gold rush as providers or manufacturers will try to get their services classified as preventive. A former Medicare administrator told my MBA class a story of how Medtronic tried to get pacemakers classified as a preventive services so they could preemptively implant them in half the population.

One of the more obscure provisions in health reform involves grandfathering of existing plans. This is Obama's "If you like your plan, you can keep it provision." It will allow companies to avoid some mandates like the coverage of preventive services in full. This will provide a test of the market response to the coverage of preventive services in full. In a year, we will see if companies grandfather their health plans in order to avoid these types of mandates.

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