Wrestling with the Individual Mandate or We still Don't Know what kind of Health System we Want

As a nation, we do not know what we want our health system to be when it grows up. We are still using our health system as a source for our own fantasies and shortcomings. The fantasies are on such a grand scale that we expect our health system to be like James Bond with better abs when it grows up.

Allow me to step down from my somewhat random analogy. We still have the illusion that we can provide health coverage and access to care for everyone, keep it affordable, and not make any sacrifices like increased wait times for services, no longer offer the most invasive option possible, or not have an individual mandate. We have delayed tough decisions under the delusion that wellness, better chronic disease management, and Electronic Medical Records will result our health system being affordable, high quality, and with access for all. The reality is that health systems can usually only offer two of the three.

The sacrifice of the individual mandate is the topic of this blog post. Those who are still reading, probably realized that from the title and are now glad that I finally got to the point. Economists have explained that an individual mandate is required in order to have affordable universal health coverage. The healthy, like James Bond, has to pay into the pool to support the sick and those who are not really really really ridiculously good-looking. However, politicians continually look for a way to remove the watered down individual mandate that is included in health reform. This shows a continued inability to make tough decisions about what we want our future health system to look like. The current individual mandate is a $700 fine which should hardly dissuade the die hard libertarian from not buying insurance. That individual can continue to not buy auto insurance, not wear a helmet while riding a motorcycle, not pay taxes, or refrain from bringing samurai swords on a plane or any of those other things that individuals are currently mandated to do by law.

This post on the individual mandate is mainly driven by Senator Ben Nelson's request to the Government Accountability Office (GAO) to see alternatives to the individual mandate. Now, given Nelson's history with the Cornhusker Kickback, his request for this analysis could be driven by a desire to fry up some more pork for his state or campaign contributions. Nelson never seems to have a position that he doesn't use to gain some benefit for himself. However, I'll assume that Nelson's inability to make hard choices about our health care system matches others. The GAO alternatives to the individual mandates can fall into the following categories:

Just another form of an individual mandate that will maybe convince those who aren't paying attention that it's not an individual mandate. It's kind of like reducing the number of uninsured by just changing the definition of uninsured to those whose religion forbid accessing medical care.

1. Impose a tax to pay for uncompensated care (How is that different than the current $700 fine other than it's called a tax?)


2. Restrict access to some federal benefits to people with insurance (whose value might be around $700?)


3. Require or encourage credit-rating agencies to factor in insurance status in credit ratings (and the impact could be greater than $700 for those whose credit rating results in a higher interest rate for their loan)

General proclamations and principle like "We support preventive medicine and ice cream for kids on hot days" that don't really mean anything. The only thing they offer is something that everyone can agree on.

1. Conduct a public education and outreach campaign


2. Provide broad access to personalized help with health coverage enrollment by creating access points such as pharmacies, schools, and grocery stores (How about bars, shooting ranges, and casinos which is where those who won't buy insurance are more likely to hang out and be drunk enough to maybe sign up?)

Ideas that insurance companies really like but don't really help the public or solve the problem.

1. Modify open enrollment periods and impose penalties for late enrollment (Insurance companies love this provision because it creates an incentive for people to preemptively sign up for insurance and stay enrolled longer. However, it doesn't work for the average citizen because this would mean that all of us who have insurance through our employers should start thinking about enrolling in individual insurance just in case we lose coverage. Open enrollment works in Medicare because the market is static. Once someone has Medicare, they always have it. The individual market is much more fluid since people will switch between Medicaid, Employer, and Individual insurance.)


2. Allow greater variation in premium rates based on the enrollees' age to get more young and healthy people to sign up (Insurance companies would love to have lower prices for the young and healthy which means higher prices for the old, sick, and those who are not really really really really ridiculously good-looking. The problem is that it's hard to get the price low enough to be appealing to the young and healthy while keeping the price affordable for the old.)

Ideas that don't really have anything to do with the individual mandate but address other issues.

1. Facilitate auto-enrollment for employer-sponsored coverage (If employees are not signing up for their health insurance, it's probably because they can't afford it or don't want it and are the type that need an individual mandate.)


2. Pay insurance agents and brokers a flat fee rather than commissions to help people enroll (The Exchanges and brokers' inability to demonstrate their value proposition may eliminte the entire broker and producer industry. This provision is a life preserver for the industry. It is also duplicates the Exchange and doesn't address the core problem of individuals who don't want to enroll in insurance. The flat fee should be given to the young and healthy who enroll instead.)

Every country has struggled with balancing access, cost, and quality. The United States believes that it is exempt from those struggles which is why it wrestles with tough choices like an individual mandate. However, these 9 alternatives are not really alternatives at all. When we finally realize that we need to make sacrifices and tough decisions, the United States' health care system will be all growns up.

PS If anyone has been wondering where Roll Away the Dew has been in the month of February and March, I got hooked on the Office and spent my free time watching the series. I have watched 131 of the series 136 episodes so I am preparing myself for life after the Office. Thanks to those who are still reading.

The Balance between ideal health reform solutions for the Insurance Industry and Consumers

A health reform solution that consumers and the insurance industry could agree on is as precarious and unstable as straddling 2 sides of a canyon. Everyone's groin starts to hurt after a while. Former insurance industry executive and blogging curmudgeon, Bob Laszewski, wrote a piece on what he saw as reform that could truly receive bipartisan support. What I saw is an example what best meets the needs of insurance companies and not those who purchase the plans. Here are Mr. Laszewki's arguments in contrast with my thoughts on actual consumer need. The reason that I am contrasting with consumer need is that the insurance company that figures out how to truly meet it will gain market share at the expense of others. Even the insurance industry needs to focus on its customers every once in a while.

1. Replace the individual mandate with a one-time open enrollment period: The individual mandate or requirement that individuals buy insurance is a contentious part of reform. However, if no one can be denied insurance, it's necessary to have everyone buy insurance in order to keep it affordable. Laszewski's solution is a one-time opportunity to buy insurance otherwise that individual could be denied insurance in the future. He calls it "freedom of choice and responsibility." I call it the status quo. Insurance companies love one time enrollment periods because they both bring in new customers as the same folks who always change their oil every 3 months will jump on the one time opportunity. Those folks who are too disorganized to maintain their health let alone their cars are more likely to miss the opportunity and be denied if they don't pass a health screen when they get around to applying for insurance.

The individual insurance market is very fluid. Most stay on a individual plan for a year at most before getting an opportunity for public or employer insurance. Therefore, a one-time opportunity will not be relevant to the vast majority who don't need individual insurance at that time period. For the average consumer, they want to be able to purchase health insurance when they need it not when insurance companies are willing to offer it. Health insurance has become the one industry that will refuse to sell their product to someone who has the money to buy it. That is not sustainable and needs to change or a new entrant will change it for the industry.

There is no real solution to balance affordability and access other than an individual mandate. United Healthcare developed the best alternative with an option, like a stock option, to buy insurance in the future without a health screen. While there probably isn't a true solution that consumers would embrace, Laszewski's solution mainly appeals to the insurance industry. The insurance industry's lobbying group, AHIP, has pretty effectively destroyed its reputation as a voice of reason or good ideas in health reform with ill-timed reports on cost or attacking ACO's to prevent the entrant of new competitors.

Eliminating mandated plans: Health Reform will limit insurance carriers to only 4 plan designs that are sold in formal health care exchanges. These plan designs are cleverly named platinum, gold, silver, and bronze because calling them Tweedledee, Tweedledumb, Tweedledumber, and TweedleAngryInsuranceExecutive was probably too obvious. Laszewski wants their to be only one mandated design (the silver or Tweedledumber option) and allow insurance companies the latitude to design other plans to provide more consumer choice. Again, this is the status quo as most states already require an insurance company to offer one basic plan design.

When I talk to consumers, they do not want the current level of choice because it's overwhelming and confusing. They have to study the plans to figure out what features are included, what are not, and conduct a personal conjoint analysis to figure out what they should buy. Most just want to be able to buy one standardized health insurance and not need an owner's manual to figure out how to use it. Offering 4 designs gives this ability to buy a health insurance at 4 different prices. This "choice" that Laszewski reference is really insurance speak for benefit eliminations of services not widely used by the public (but heavily used by a few) to lower the price. However, the price can be lowered by making universal changes to all 4 plans that are clear and transparent to the consumer.

In closing: The rest of Lasewski's points were improvements in subsidies to buy insurance and change in tax policy that don't really divide insurance companies and consumers like those other 2 issues. The gap in consumer vs health insurance industry appeal of those 2 issues is why the first wave of health reform focused on the insurance industry. Subsequent waves will continue to focus on the insurance industry until we learn how to better listen to consumers. At least half of my assumptions on consumer interests are overturned when I survey them or talk with them on the phone. Talking with consumers is not nearly as painful as dealing with fall-out from getting it wrong. It's also much easier on the groin.

The Guards take over the North Gate: The battle for the Asylum of Health Reform Rages On

In the battle for the implementation for the first provisions of health reform, I will continue to beat my inmates battling for control of the asylum analogy like an actual inmate probably used to be beaten in an asylum. In the latest battle, the guards or the government agencies like the Oregon Insurance Division have beaten back one of the craziest inmates.

This inmate in question is Lifewise of Oregon, a subsidiary of Premera, the Washington Blue Cross/Blue Shield company. Lifewise typically acts like Oz's Ryan O'Reily. They don't look very strong, kind of wiry, but are devious and will not hesitate to do whatever they need to win. Lifewise's interpretation of guaranteed issue for children 19 and under or no longer denying coverage due to pre-existing conditions was that they could wait until September 2011. However, the law states that this provision must go into effect September 23, 2010. The Oregon Insurance Division informed Lifewise that all new sales of individual insurance plans would be suspended until they complied with the law. Lifewise also needed to comply by the end of October so they could participate in the first open enrollment period for children 19 and under.

Lifewise's defense was "that it is in alignment with the “good faith” provision of the U.S. Department of Labor FAQ (dated 10/8/2010),which provides issuers a reasonable period of time to come into compliance with the requirements of the Act". In other words, they would be happy to comply but would do it later. This is the same defense that young children use to avoid cleaning their room, high schoolers use to avoid doing their homework, and college graduates use to avoid moving out of their parents' house. I think that only college graduates are moderately successful with this defense.

Technically, Lifewise files their individual plans in September which is why they though that they could wait until September 2011. They planned to continue to deny coverage to children under 19 with pre-existing conditions until that date. However, there is nothing in the law or general field of logic that supports this conclusion.

Forcing an insurance carrier to not flagrantly disregard a health reform provision should not seem like a victory. However, if Lifewise's behavior was allowed to continue much longer, it would have been much worse. It would have provided every other insurance carrier with a complete disincentive to comply with health reform or made the future riots even worse.

Riots in the Asylum: Part 3 of the End of Pre-Existing Conditions for Children

When we last left this series of health reform implementation gone wildly badly, it looked like the inmates had built a roof top hot tub and organized a spa day. The state insurance divisions appeared to be overwhelmed trying to set up a system to ensure that insurance carriers would provide insurance for those under 19 without denying coverage to anyone with pre-existing conditions. This is also call guaranteed issue for children.

Insurance carriers had been defining their own rules or not participating. It had gotten even worse as insurance carriers started introducing perfectly legal ways to charge people even more money for insuring children in response to this legislation. This new method was to change the "underwriting tier" or how they classified the price based on the type of family unit that was applying. Most insurance carriers have a family tier that is the same whether a family has 1 child or 12. Only 5%-10% of families have even more than 2 children so it's not like John and Kate + Eight are getting a free ride. However, insurance carriers announced that they would no longer offer a family tier but would now charge families per child. When one thinks of Jon and Kate + Eight or OctoMom, this doesn't sound like a bad idea. However, for a family with 5 children this could triple the amount of money they pay for health insurance.

Regence Washington announced this change and attributed it to health reform. While nothing in health reform was related to underwriting classifications, it did cause insuring children to become more expensive. As a result, insurance carriers are moving away from any pricing strategy that makes it attractive to provide insurance to children. This probably represents the peak of the inmates' control over the asylum and showed just how many perfectly legal strategies they could deploy to not support guaranteed issue for children.

However, the insurance divisions sent in the riot squads, cut the electricity, drained the hot tubs, and poured out the exfoliating cremes and cucumber wraps from spa day. In response to Regence's Washington decision to stop selling child only policies, the Washington Insurance Division charged them with age discrimination. The California and Maryland state legislatures have introduced legislation to require insurance companies to offer child only plans. It's gearing up to be a siege on the asylum.

However, given how easily insurance carriers have short-circuited this legislation, I am not optimistic that the guards will regain control. The hole in the logic of any of the state insurance divisions or legislators, especially Washington's, is that the child only plan was an invention of the insurance industry. When insuring children was an attractive prospect, insurance companies developed new ways to insure them. A child only policy is not an inherent right of citizenship (except in Ohio, New York, and Virginia where this was mandated into state law a while ago) but a private sector innovation.

When the courts would probably rule in favor of the inmates, the Obama administration might need to rethink it's health reform implementation approach.

Oregon Health Insurance CEO Forum: Lame and Lamer

Last year I attended, the Oregon Health Insurance CEO Forum and noticed some excitement in the air around some new developments such as cost transparency, value-based benefit design, and the importance of caring for children. This year, despite their very industry being turned upside down, they talked about popular health care topics from the 80's and 90's. That was the lame part. The lamer part was four CEO's including the CEO from local Blue Cross, Regence, which used to have the largest market share, didn't attend. Considering the unpopular decisions their plans were making around not providing access to insurance for children, it was not very likely that their absence was because they were receiving humanitarian awards elsewhere.

First, the Lame:

• The popular topics from the 80's were around capitated arrangements with providers where the primary care physician manages medical costs and how 10% of the population uses 70% of health care costs. The Cigna Northwest Region CEO, Chris Blanton, still wanted to talk about how employer groups should play an active role in driving health insurance change. The only thing that was missing from his 90's flashback was flannel as employer groups are either currently pushing the innovation to the limits of what their employees will accept or scrambling to understand the post-health reform environment.
• To further underscore the stock shorting performance of Cigna's Blanton, he did a poor job of hiding the smirks on his face when questions were asked such as what did everyone think about Health and Human Service's (HHS) assessment that health reform would only increase insurance prices by 1%-2%.
  
• Robert Pallari, the former CEO of the Portland-based Legacy Health System and architect of the Oregon Health Plan was the moderator. He was also formerly colorful and bombastic as he lobbed soft ball questions like "Look into your crystal ball and tell me what you see in the future?", "How will health reform influence your organization", and "What type of partnerships are you pursuing with providers?"
• Actually Pallari did blatantly insult the Kaiser Permanente CEO, Andy McCulloch, by pointing out that the Kaiser system has been as much about setting up barriers to health care as it is about providing care. Perhaps, McCulloch was too distracted by Banton's smirking or thinking about who play 3rd base for the Cleveland Indians in the 80's since his expression didn't change at all. Nor did he respond.
• During this forum, the battle for the future of the individual insurance market was raging, the payment process for Medicare and Medicare Advantage is being completely revamped, and the new health reform provisions had been effective for 5 days. Three of the CEO's were trying to decide if their individual plans should remain open to children while Cigna and their Chief Smirking Officer had already decided to close their plan to children. Yet not one question was asked about insurance for children. Last year, CEO's couldn't talk enough about how important it was. I badly wanted to ask the question but I recognized that it would a CLM (Career Limiting Move). Next year, I'll find a plant in the audience to ask questions like this one.
  

There were some bright spots:

• ODS CEO Robert Gootee did have the great line of pointing out that we "can't drink our bath water and call it champagne" about some of the more egregious performances.
• Gootee also called the Secretary of HHS and Middle Finger Extending Kathleen Sebelius by the name, "Kathleen Celibate". That would explain a lot. Actually, I talked with someone who worked at HHS who did vouch for Celibate's er I mean Sebelius's administrative skill. That person also pointed out that just because she has been launching the political attacks doesn't mean that she wrote them or necessarily believes in them. It's just politics.
• My main conclusion from last year's forum was that we should let our children grow up to be actuaries. This conclusion was proven again by the presence of the PacificSource Chief Operating Officer, Sujata Sanghvi, who is a Harvard educated actuary!
  

And the Lamest Aware goes to:

• While the CEO's that did show up gave lame performances, at least they came. Well, Cigna's Blanton could have just sent a 12 year old boy to smirk for him so I don't give him credit for attending.
  
• On the other hand, Lifewise, Health Net, United, and Regence sent no representatives. They all have announced that they are no longer offering child only coverage in the individual market in the last few days so their lack of attendance is probably not a coincidence.
  
• Lifewise's membership has been dropping like acid at Woodstock, Regence has lost their 2 largest group accounts in the last 2 years and 40% of their group enrollment, Health Net is trying to sell itself, and United is well, still United. Given how badly these plans are currently doing, I can't imagine that they would have many great ideas to share. Perhaps it's best that they did not attend.
  

The Inmates have taken over the Asylum: the 2nd step of health reform

When we last left health reform, one of its most significant early changes was dangling over the cliff. Guaranteed issue or the practice of no longer denying health insurance for children under the age of 19 was scheduled to start on Sept 23rd. Health insurance plans or the inmates in this analogy were expected to change their practices but there was a trouble brewin' on the horizon. The insurance companies pointed out that with this provision, children could drop their insurance whenever they didn't need it and then enroll whenever they needed it. This would be expensive and individual insurance could become even less affordable. The Obama administration was so concerned that they gave the state insurance divisions flexibility to negotiate and offer concessions like a limited period of time when children could enroll or open enrollment period.

How did the state insurance divisions and Obama respond in this crisis when it emerged in early August? Late and ineffectively. If they were super heros, school bus would have toppled over the cliff. If they were Austin Powers, they would have been eaten by sharks with frickin laser beams.

Children were supposed to stop being denied insurance on September 23rd. As that date approached, the two state insurance divisions in my area (Oregon and Washington) had yet to issue any guidance or rules to respond to the insurance companies' concerns. In response, the insurance companies steadily began to announce that they would stop offering insurance to children. First, national carrier Health Net, stopped offering individual insurance to anyone. Other national carriers like Cigna, Assurant, and Aetna pulled out of the child or dependent only market. This means that a parent must both pass the health screening and enroll in the individual insurance plan in order to purchase coverage for their child with these plans. In Oregon, the nail in the coffin was when when Regence, the local Blue Cross plan who sells almost half of the individual insurance plans in the state, announced they were leaving the child only market. When there is market uncertainty, the market seeks certainty. The main result of this health reform provision has been the disappearance of the option for children to purchase insurance without a parent.

There was great hope that reform would stop insurance companies from sinking to the lowest common denominator. It was thought that there would be vigorous and clear enforcement by the regulatory bodies that would convince all insurance companies to participate in guaranteed issue for children under fear of fines, exclusion from future opportunities, or even sharks with frickin laser beams. The biggest fear that insurance companies had is that they would be the only ones participating, receive a disproportionate share of unhealthy children, and be at a competitive disadvantage that they couldn't recover from. This fear was not allayed.

Instead, the Obama administration and Health and Human Services (HHS) did not provide sufficient support and guidance to the state insurance divisions. The state insurance divisions to not have the resources nor bandwidth and were overwhelmed by the issues with this implementation. Insurance companies filled this leadership vaccuum by announcing their own interpretations and intentions for how they would implement guaranteed issue.

The Washington and Oregon insurance divisions finally issued draft guidelines on open enrollment periods and other provisions that would apply on Sept 23rd which was the day that they were supposed to be implemented. Insurance brokers have reported that some insurance carriers like Lifewise, don't intend to comply until Sept 2011 when they have to refile their plans. However, that's actually fairly irrelevant since the insurance division haven't been able to provide guidance and ensure compliance for the insurance companies that have expressed an interest in following the rules.

I had higher expectations for reform then this.

Moving Away from a Middle Finger Relationship in Health Reform

During one of the many webinar's on health reform where I was multi-tasking (or looking at youtube videos of water skiing squirrels), there was a presentation on the evolution of the relationship between insurance companies and regulators. The speaker described it as an arm's length relationship that needed to move towards a hand shake or hug for the industry to be more successful. I disagree with this. The relationship is not currently arm's length but rather a middle finger relationship that may involve orifices shortly. The worst part is that the Obama administration has a model in place that could move the insurance industry and regulators to a friendlier position.

Health and Human Services Secretary and prominent middle finger extender, Kathleen Sebelius, fired off a statement last week accusing the insurance industry of blaming health reform for a 1%-9% increase in prices. Sebelius felt the price increase attributed to health reform should only be 2% at the most. The insurance industry pointed out that removing maximums on lifetime benefits, making preventive services like colonoscopies free for everyone, requiring that children under 19 never be denied insurance, and other provisions are not going to make insurance any cheaper and defended their numbers.

Implied was that insurance companies should reduce their profit margins which average 3%. While that is reasonable (and expected given the current viewpoint that the only difference between insurance companies and a horde of pillaging Vikings is that the insurance companies have moderately better personal hygiene), the insurance companies have been losing profit margin with other reform provisions. There are billions in new fees and a requirement that medical expenses be at least 80%-85% of revenues which has taken a few percent off profit margins already. Additionally, the reduction in Medicare Advantage payments will increase the cost that employers and individuals pay for insurance. Medicare Advantage was most of the profit margins for insurance companies the last few years.

Insurance companies are prepare to give the middle finger right back by refusing to participate in the coverage of all children under 19 by not offering individual insurance to any children at all. There has been some movements in that direction and it's increasing in my home state. Individual insurance covers 9% of all Americans and children make up around 1/3 of that group. Therefore, it's a very small line of business and insurance companies are signaling that they may leave it entirely rather than follow the new rules. Individual insurance may stop being sold to any child no matter how sick or how healthy as a result. I was initially surprised at the speed in which insurance companies deployed a nuclear option. However, given the Obama approach towards the industry, it's not like insurance executives were going to be invited to play pick up basketball anytime soon.

The state regulators are in no position to enforce rules as Sebelius has promised they would. In my state, the email around a proposed open enrollment period as a solution to this issue had the subject line, "Please disregard previous email, this is the correct version." If state regulators can't even send the right attachment with a very important email, they are not in a position for this volatile and tricky negotiation.

What makes this situation even more unfortunate is that the Obama administration has a way to avoid all these dueling middle fingers. That way is the much maligned Medicare Advantage program. This is the program that Obama has said doesn't work since it overpays insurance carriers since it pays 15% more than the federal government pays for traditional Medicare.

The private Medicare Advantage program used to be called Medicare + Choice and it paid 5% less than traditional Medicare. Not many insurance companies and only 7% of the seniors participated in it. I listened to a webinar with Tom Scully, former administrator of Medicare, where he explained that they needed to pay insurance plans more for participation. This increased payment did result in 25% of seniors participating and a lot more insurance companies. However, he agreed that 15% more was too much which is why Obama should have cut the payments (despite the impact on employer and individual insurance which I describe above). With the payment cuts, there are quality bonuses that plans can earn for demonstrating good customer service, medical management, and ensuring high quality care. To earn these bonuses, plans have to cover preventive services for free, pay 85% of revenue on medical expenses, and similar requirements as health reform. However, insurance plans are not fighting these provisions because of the Golden Rule. Medicare has all the gold so they make the rules. Insurance plans will be paid more for following these provisions and less if they do not.

This supports a future health insurance model of the government contracting with private insurance plans which is the current Medicare Advantage model. It's the simplest incentive plan in the planet. If the government controlled all payments for health insurance, insurance companies would have to follow the rules. There are no middle fingers given in Medicare Advantage. In fact, Tom Scully's advice for how insurance companies could form a successful relationship with Medicare regulators was:

"Suck up, suck up, and suck up some more. Take a nap, then suck up, suck up, and suck up again. Medicare likes working with good plans and doesn't like working with plans that don't follow the rules."

Still Selling Snake Oil or Non-insurance Health Insurance Options

One of the providences of blogging is that I get more interesting solicitations. I wouldn't call them spam since they tend to include my name, flatter me about my importance in the blogosphere, and offer their goods. Actually, it's market research coming to me which makes it useful.

From talking with insurance agents, I've learned that you can buy insurance for anything. For example, you can buy a policy for cancer only that would provide payments for medical bills or give you a lump sum of money to either spend on medicine or the most debacherous acts that you ever fantasized about.

In the individual insurance market, there's also some options that look like insurance but are not technically health insurance. Kind of like the Aflac duck that looks like a duck, walks like a duck, but quacks like your angry paranoid uncle during the State of the Union address. I learned about these through the unctuous solicitations through my blog, unsolicited phone calls from private numbers, or just keeping my eyes and ears open. However, right now, readers are probably checking out my use of a word "unctuous" that I still remember from SAT preparation! Before I digress anymore, here are the 4 individual insurance options that aren't technically insurance but might work or in most cases won't work:

1. No Insurance Club or All the primary care doctor visits you want for an annual fee: No Insurance Club found my blog and sent me some information about their services. From reading that information, I realized that the No Insurance Club marketing team doesn't know the difference between Medicaid or Medicare. I don't suppose that they should have to know the difference since their focus is on the absence of insurance (but hopefully not the absence of fact checking).

No Insurance Club offers 12 primary care visits/year with a doctor that is a participant in their plan and some lab testing for an annual fee. No hospital, no Emergency Room, no drugs, and nothing if your doctor doesn't want to participate with the No Insurance Club. Some large primary care practices offer similar arrangements as this is becoming more common. It's not a bad value since a doctor visit generally costs $100-$150. A $300 annual fee would pay for itself with 2-3 visits and will ensure that the doctor will see you even if you don't have insurance.

My biggest concern with No Insurance Club and other non-insurance options, is that their name is misleading. It should be called Unlimited Doctor or Annual Physician Membership since it has nothing to do with insurance. It's like me selling membership in the No Calories Cake Club. However, it does provide great access to primary care for those who just want to be able to see a doctor whenever they need one and don't need or can't afford health insurance.

2. Mini, Limited, or Defined Medical Benefit Plans: These are the plans whose representatives cold call me at work. While most insurance plans define their benefits by what you will have to pay for services (like you pay a $100 for a colonoscopy and the health insurance plan pays the rest), these plans define their benefits by what they will pay (they will pay the doctors $100 for the colonoscopy and you pay the rest). They often have limits to how much they'll ever pay out in services.

Purchasing these plans should be a calculated decision. Since they will very clearly describe what they'll pay, you should take out a calculator, add up what services you will use, subtract the cost of the plan, and see if it's worth it. Their benefit should be fairly clear as they generally cover the more common services. I could see this being valuable for young children who typically go to the doctor every few months, get immunizations, will likely get a few colds or the flu, probably fall down and cut something open, or eat something they shouldn't. For someone who gets it just in case something happens, these won't be helpful since they don't cover extensive hospitalizations or surgeries.

These plans also tend to look like health insurance so they are also fairly misleading. From my cake example above, I would call these the Chocolate Cake Plan with a footer that the cake contains no chocolate, sugar, or butter.

3. Discount Medical Plans or the Costco Plan: Getting an insurance plan at Costco should either really appeal or really frighten (especially for those who saw the movie Idiocracy) someone. However, discount medical plans are basically like Costco plans where you get discounted services at participating doctors and facilities. The discounts are the same as what insurance companies typically negotiate with providers. Just like Costco can get you a pound of cheese for under $10, a discount plan might get you 15 minutes with your doctor for less than $100.

This is another calculated benefit as you should be able to think about often you're going to need to go to the doctor for this plan to be worth it. The more you use it, the more you save, but that is not a good thing with health care and can get very expensive. I also don't know if doctors who typically don't see patients without insurance or require deposits would waive those requirements for a discount program. I suspect not but anyone interested in a discount plan should ask.

Discount medical plans have become heavily regulated and have the most straight forward and clear explanations of what they are and what they are not. You're getting some real cake but it's only a sliver.

4. Short-term Medical Plans: This is truly the "What if you get hit by a bus" insurance plan. It is actually a type of insurance plan so it almost doesn't belong in this category but it's a fairly good option. For about $1/day, you will get covered for a major hospitalization or surgery. It won't cover routine care and there is a clause for pre-existing conditions that vary by state. In Oregon, the pre-existing clause goes back 5 years but in Idaho it's only 6 months.

Given they're called short-term medical, it's fairly straight forward that it's a temporary plan. I have read about some people getting confused by the description but I think that it's more straight forward than Mini or Limited Medical plans. For my cake analogy, with short-term medical, you either get nothing or you get to eat the entire cake. Burp!

Whither the Individual and Family Insurance Market?

Today was a bit of a spreadsheet day as I was looking at the fourth quarter insurance market numbers that the Oregon Insurance Division thoughtfully provides. I pulled out the numbers, put them into my spreadsheets, and will spin them into power point graphs for everyone's bullet pointed enjoyment.

I like spreadsheet days. My biggest surprise is that more people like spreadsheet days (where you spend a few hours adding numbers, formula, and tables to an Excel spreadshhet) than I had thought judging by responses to my Facebook status updates. At the end of the day, there is a finished product that gives concise answers. Plus, I can geek out by changing model assumptions and watch the sensitivity run wild. Looking back at that sentence, it's really a shame that the models that I am talking about are on the computer.

My spreadsheets clearly told me that despite the fact that there are 12% fewer Oregonians who are getting health insurance from their employers at the end of 2008, there are not more people buying individual and family insurance. In fact, 5% fewer people are buying individual insurance. That means more uninsured people.

While I know that health insurance is as popular as a cold sore outbreak at a nudist colony, I didn't realize how unpopular it is until I saw these numbers. 180,000 people in the state of Oregon who lost their employer insurance decided not to buy an individual plan. Additionally, 5,000 people left their individual plan. These numbers are through the end of 2008 so they don't take the COBRA stimulus factor into account.

While my product manager colleague was forecasting a decline in the group insurance market that he works on, I thought that his loss would be my gain as the individual insurance market would grow. Instead it's shrinking as people are choosing not to spend $100-$200 per month on health insurance. The fact that pre existing condition has become a dirty word might be a factor as every plan has some restrictions around covering these conditions. Or what else could it be?

I can't turn back to my spreadsheets for an answer to why the individual insurance market is shrinking when its customer base should be growing. I know that everyone has less money but they are some cheaper plans available. Or is buying health insurance the last thing on their mind as they probably tried to stock up on medical work before their insurance expired at the end of the month. Some of my thoughts are:

1. They think that they will find a job with health insurance soon. That's possible but I think that it's unlikely. Everyone hears about the severity of the recession and how it's even being called a depression now (which makes me think that now is a great time to put Prozac in the water supply). Unfortunately, I don't think that people are that optimistic.
2. The Value Proposition is not there for Individual Insurance. Comprehensive plans have either gotten too expensive and/or people don't feel that the cheaper plans cover enough health care for the price. They do the math, think about the cost of services they use versus how much they would pay per month and it's not worth it. The market has been moving towards cheaper plans that cover less.
3. They are buying short-term insurance policies or figuring out other options like negotiating for care. Short-term policies (which are temporary policies that typically cover major medical conditions) might be the interim step before spending more money on a full individual insurance plan. It does make sense because you can spend a lot less and put off the decision to have to buy health insurance for 6 months. I have also heard that people are starting to negotiate with their doctor or hospital. They will ask for the discounted rates that insurance companies will pay or they will just offer to pay in cash upfront in exchange for a 30% or take their business elsewhere. One unanticipated consequence of making consumers pay more for health care is that providers are facing individual negotiations for payment rather than having one negotiation with a health plan. Providers are starting to counter these negotiations with requiring upfront desposits for those without insurance.

Overall, I think that people are looking seriously at alternatives before buying individual health insurance so it's a combination of #2 and #3. Since the value proposition is not there and consumers are starting to negotiate for their health care on their own or look for alternatives, I've got to figure out a way to make individual insurance plans more attractive. I've been launching surveys and asking anyone who will listen about how easy it is to buy insurance from us. Our lower cost insurance plans have lots of extra features that we think are important but I think that their added cost dissuades people. It's difficult to experiment in the individual insurance market due to our own risk aversion and regulations but the market is talking to me loud and clear.