The Inmates are Running the Asylum: The 1st steps of Health Reform

The first parts of health insurance reform will start in a little over a month (Sept 23rd to be exact). One of the more significant pieces is that children under the age of 19 will no longer be denied coverage for an individual insurance plan due to pre-existing conditions. Overall, this is good and makes us a more compassionate and humane nation. This change also shows how tightly connected every piece of the health care system is as the details behind this change are getting really complicated. Just like the directions for assembling Ikea furniture, what seems simple is getting really difficult.

The Obama administration is turning the details over to the states who are in turn asking the insurance companies for guidance. This is how much of health reform will be implemented as the state insurance divisions, Medicaid offices, or other agencies will be making hard decisions based on a federal framework. To fully appreciate it, picture what would happen if the federal reserve turned interest rate setting and trade over to the states. Actually, that sounds too hard to visualize. Picture what would happen if parents turned the house hold management over to their 4 year old.

No longer denying children under 19 insurance seems simple to do. When someone who was born after 1991 applies for insurance, they get insurance. The only option is to say Yes, here's your insurance.

This is also called guaranteed issue. The difficult part is that in order for an insurance scheme to be viable in a world of guaranteed issue, individuals must be required to purchase insurance to eliminate what economists call the Free Ride. This is also called the individual mandate. If you want to sound like an insurance executive at your next cocktail party, you can say, "Without an individual mandate, you can't have guaranteed issue." Combine that statement with urinating in the ice bucket and you'll be the hit of the party.

As a result, children under 19 can just get insurance when they go to the doctor, then drop their insurance, and pick it up again when they need to go to the doctor again. Sounds great except that makes insurance more expensive and pretty soon unaffordable. This loophole is big enough to undermine the whole program. As a result, states are offering insurance companies concessions to avoid the collapse of the insurance market for children. Some include only allowing children guaranteed issue one month out of the year (called open enrollment) or requiring children under 19 to stay on an insurance plan for a certain period of time with penalties for leaving early.

Insurance companies are threatening to no longer allow only children to purchase insurance but requiring parents to be on the plan, too. Ultimately carriers could stop offering individual insurance to children under 19 at all so the states do have to offer possible concessions.

The Obama administration has allowed the states to offer concessions, mainly the open enrollment option, to address the situation. However, this puts the states in the awkward position of negotiating and trying to determine which concessions to offer. It gives insurance companies an opportunity to develop their own concessions. The final result of guaranteed issue for children could be very different than what everyone envisioned.

When I worked in previously worked in psychiatric facilities, I noticed that the only difference between the inmates and staff is who had the badge and keys. This may be the case with the future implementation of health reforms as the state divisions and insurance companies are being handed the keys and badges.