How Health Insurance Reform Is Like A Soap Opera: Meditations On A Price Point

My 26-year-old son got good news from his health insurer recently. His non-group health plan will not be increasing in price this year: he'll continue to pay about $155 a month for a pretty decent individual health plan. (It helps that he's in excellent health; a little utilization would have kicked up his rates significantly.)

He maintains this coverage, even though he works for an employer that offers group coverage, because for a guy his age, his employer's plan provides less generous coverage at a MUCH higher price.

Before we started celebrating as if he'd won the lottery, his news got me thinking about how much has changed...and how much hasn't changed...in the health insurance market over the past couple decades.

I'm so old that the first group health plan I was exposed to was a guaranteed-issue, community-rated UCR health plan that cost (no joke) six dollars a month for an individual employee and fourteen dollars a month for a family. Over three years, the cost of that plan increased 140 percent...to $14.50 for a single employee and $33 per family.

In the 1970's, commercial insurers began to "compete" with regional Blue Cross/Blue Shield plans for business. Mostly, these companies were life insurance companies, which sold heavily-underwritten health coverage to groups as a "loss leader" in order to obtain a company's group life business, which was much more profitable.

BCBS plans responded to commercial insurers' "cherry-picking" by introducing health underwriting, which undercut their credibility as community insurers. Their theory: they didn't want to become "dumping grounds" for customers in bad health who couldn't qualify for "good" coverage elsewhere.

This created a bad deal for groups with less-than-perfect health conditions, but provided some security to groups which qualified. So we all kept our mouths shut.

Consider all the changes which have been attempted over the last 25 years in an attempt to control the rising cost of health coverage, from managed care to "managed competition" to "integrated delivery systems" to HIPAA to PPACA.

The results: coverage for my 26-year-old son in excellent health is nearly 2600 percent higher than it would have been waaay back then.

For an old guy like me, the cost could be 10,000 percent higher...IF I qualified for the coverage in the first place, which I probably wouldn't since I have a little high blood pressure (treated with medication costing $1.99 a month) and a little asthma (treated with an inhaler that costs $35 dollars every three-four months).

So...how have all these machinations, strategies, policy changes, regulations, and legislative initiatives contributed to containing the cost of health coverage?...Not much, that I can see...

Now...Supposedly, come 2014, insurance rating schemes will revert back to modified community rating. That will probably double my son's rates, to roughly what they'd be in New York or other community-rating states. There are those who'd say that my son is getting screwed. I don't agree, of course. Because, theoretically, he and all his friends will be paying higher rates to offset the rates charged to old guys like me; that should reduce my premiums a little. And when HE gets to be an old guy, his premiums will be partially subsidized by those younger than he is.

This is the essence of "community rating:" allocating the cost of health coverage more fairly across populations. It's how health insurance started eighty years ago.

For nearly two decades, insurers have gotten fat off the strategy of selling non-group coverage only to the young and healthy who don't particularly need it, and violating the principles of community rating in the name of "cost containment." How has it worked? Last time I did the numbers, the cost of small group health insurance has grown by 150% in the past decade alone; the cost of non-group coverage, sold only to younger, healthier people, has grown faster than that.

Not that there isn't plenty of blame to go around. My son's renewal letter blames the "unholy trinity" of health care cost inflation: an aging population; increasing provider costs due to improving technology; and higher utilization of services. If you read a rate renewal letter back in 1980, it would have said the same thing.

And it's largely true: the largest portion of insurance rates is attributable to insatiable provider costs.

But in general, there's little evidence to suggest that insurers have been particularly tough with providers. Insurers see themselves as facilitators and transaction processors, not as consumer advocates.

And insurers' administrative costs have continued to hyper-inflate, in real dollar terms, just as fast as provider costs. Pretend for a moment that administrative costs really do average ten percent of premiums. In 1980, when insurers were doing minimal underwriting, and claims were paid largely manually, that ten percent would have averaged 60 cents per contract per month, or $7.20 per year. Given all the innovation in IT systems, the "economies of scale" that are supposed to come from insurer consolidation, and other "aggressive" cost control measures, the average cost of employee benefits is a little over $10,000 per employee per year; so at 10% of premiums, insurers' administrative retention has increased to $1000 per employee per year...about a 14,000 percent raise.

The core problem is that, in our cockeyed health system, no-one...not hospitals, not insurers, not physicians...have any incentive to bring the cost of health care...and therefore, the cost of insurance...down to some more reasonable level. All their incentives run in the opposite direction.

The only people really being squeezed are those who pay the tab: employers, large and small, and individuals...who have no power in the political process.

This is the reason that my long career of health insurance reform activism seems so much like a soap opera: the players may change, the specifics of the situation may be different, but the themes, and the plot likes, are always the same. Looking back over many years, it's depressing how often we've heard the same players saying different things, and cloaking their machinations in different rhetoric...even though their actions have produced the same results: more pain for the folks who really pay the bill.