Health Insurance Reform: God (Or The Devil) Is In The Details II

Health Care Co-operatives: The Senate Finance Committee's reform plan allocates $6 billion ($300 million per state) to establish statewide non-profit health insurance purchasing co-operatives by 2013. To qualify for federal start-up funds, the co-operatives must meet fairly stringent criteria. The organizations applying for the funds cannot be in the insurance business, or be related to insurance companies (this will be a disappointment to mutual insurance companies). They also must not be organizations currently offering insurance, though it's not clear whether that would include Chambers of Commerce or trade or professional associations currently offering health insurance coverage to members. Co-ops must be in the primary business of providing access to health care services to their members, and any excess revenue generated by the co-ops would have to be returned to its members, or invested in other health care-related activity. The would also be self-insured, and would be expected to stand on their own within one year of being established.

The co-op idea is meant to be a more politically palatable alternative to a "public option" health plan. It's certainly a less disruptive concept than a public health plan, and so much more palatable to the insurance industry. But as one who's had a good deal of experience in the health insurance co-operative business, I'm not sure that's the best idea.

Even with a compelling value proposition (substantial savings for participating companies and individuals), it takes considerable time to build sufficient critical mass within a co-op to enable it to be competitive with private insurers already in the marketplace. And co-ops will have to expend a lot of resources on marketing, sales and underwriting, just like their commercial brethren. Nonetheless, a well-run co-op could produce some economies of administrative scale, and if run solely for the benefit of their members, could be a player in the marketplace over time.

Both co-ops and exchanges will also be encouraged to enter into interstate "compacts" for the purposes of purchasing services more efficiently. This is a back-door entryway into a national market for health care coverage, a necessary innovation to enable true competition to develop in the health insurance market, where large insurers have the ability to use their economies of scale nationwide.

Elements of this part of the bill are bound to change significantly. I'd certainly expect to see some sort of "trigger" introduced to the bill providing that, after a substantial time had occurred to permit insurance reforms to work and co-ops and exchanges to be established, a public health plan could still be introduced if all these reforms had NOT resulted in better access and more controllable costs for group and individual consumers.

Legislators will be counting on the threat of the introduction of a public plan to be sufficient motivation to persuade insurers to play fair.

Don't panic just yet; should such a "trigger" be pulled, it wouldn't be till 2018 at the earliest.

Mandates: Beginning in 2013, every American would be required to have health insurance coverage, whether through an employer or through an exchange. Tax credits would be available to individuals who might need help in obtaining coverage, up to 300% of the federal poverty line.

Companies with 200 or more employees would be required to enroll all their qualified employees in a health plan. Companies with more than 50 employees would have to enroll their employees or pay a fairly modest penalty for those employees who must purchase coverage on the individual market. Companies with fewer than 50 employees would be exempt from any mandate.

Seems to me that, no matter what you call it, the bill imposes mandates on employers and individuals to provide or purchase health coverage under most circumstances. As I've written before, if the voluntary market can be demonstrated to be working as well as it can, and everyone who wishes to purchase coverage can do so at a reasonable cost, it might make sense to enact a mandate to cover thee outliers who have refused to purchase coverage, even when it's available.

We're by no means there yet. And I fear that, in the face of a looming mandate, insurers will merely bide their time and do fairly little, because the clock will be ticking toward a date when everyone will be required to buy their product, no matter what the price.