Why "Rate Shock" Is A Bullshit Term...

I've been perversely amused at the writing and speculation which has appeared in both popular and industry publications about the potential changes in health premium rates which will occur come January 1, 2014, when the bulk of PPACA-mandated market changes are scheduled to take place. Most of what appears is, of course, propaganda generated by partisans.

The rates for California's exchange will be lower than expected, the California experts say. Nonsense! Apples and oranges and cantaloupes, industry partisans say. There will be "rate shock" for younger insureds.

Prepare for 80% increases in premiums in Ohio, political hack (and technical dim-bulb...and proud of it) Mary Taylor, Ohio's Lieutenant Governor and Insurance Commissioner, warns Ohioans. Beware Obamacare-induced "rate shock." Nonsense! says the Kaiser Foundation, in this article in The Cleveland Plain Dealer (which, unfortunately for the public, gave up on "plain dealing" long ago)...http://www.cleveland.com/open/index.ssf/2013/06/obamacare_to_make_rates_soar_s.html#incart_river.

Clearly, the industry and its apologists have decided to use the term "rate shock" to inflame and confuse the public. Their p.r. people are certain that if they just go around shouting "Rate shock! Rate shock! RATE SHOCK! RATE SHOCK!!! often enough and loudly enough, it'll scare people and make headlines. And also, they hope, divert the public's attention that the "rate shock" they'd like to blame on PPACA is actually the un-doing of practices in which the health industry generally has been engaged in for decades which have not only been unsuccessful in keeping premium rates and health costs under control, but also kept millions of people out of the health insurance system...to the benefit of insurers' bottom lines.

It also shows the importance of, and the slipperiness of, language in the debate over health insurance reform.

Insurers scream "rate shock" to re-inforce the perception of PPACA as a boogeyman. If insurers were engaged in the same practice, some bland-looking p.r. people would be describing the phenomenon as "re-calibration of our rating formulas."

Because that's what the phenomenon really is: a process to re-align premium rates in response not just to new federal regulations, but also to re-inforce the policy objective of turning health insurance coverage from an exclusive thing available to some, to an inclusive process available to everybody.

Let's look at a few of the phenomena that this "re-calibration" seeks to un-do:

-The erosion of health insurance as a "community" good and responsibility: When group health plans were initially established, their rating processes were based on "community rating," the idea that everybody in the pool would pay the same amount for the same coverage. In the 1970's, the rise of self-insurance took a big chunk of the working population...those who worked for big companies...out of the community pool. And as commercial insurers began to encroach upon then-mostly-not-for-profit Blue Cross & Blue Shield plans to compete for group business, they introduced the concept of medical underwriting; that is, using the health of group members to set rates and rules for participation in their plans.

When it became clear that this tactic was robbing community pools of groups which were younger and healthier, and leaving behind groups which didn't qualify (setting up a cycle of "adverse selection" against those community insurers), BCBS plans were forced to utilize health underwriting to defend themselves. This led to:

-The exclusion of groups and individuals which represented potential health risks: The health underwriting "arms race," when carried to its extreme, meant that some groups, even those with relatively good risk profiles, could be excluded from coverage. In a continuing effort to keep prices under some control, and keep group coverage profitable, insurers further undermined the notion of "community rating" by applying their risk-avoidance strategies more and more stringently to smaller and smaller groups, thus creating an increasingly large pool of "uninsureds:" people, and groups, whose health status in insurers' eyes rendered them too risky to cover.

And with the "community" being diluted further and further by perceived health risk, there were fewer large purchasing entities which had the market presence and technical know-how to call "bullshit" on these practices and push back on insurers. This led to accelerated risk segmentation, especially among small groups and individuals. And all this led to:

-HIPAA and the "ghettoization" of small groups and individuals: After the failure of the Clinton Administration's own health care reform strategy, the Democrat President and a Republican Congress moved to "fix" problems in the small group and individual insurance markets by enacting the Health Insurance Portability and Accountability Act (HIPAA), which established a complex web of "rating corridors" and other rules for small group health coverage. It also famously forbade insurers from excluding any small groups which applied for coverage based on the group's health condition. Insurers were required to provide coverage to any group which applied.

An "unintended consequence" of those "guaranteed issue" rules (largely crafted by the insurance industry's lobby
itself) was that, while the "guaranteed issue" rules wouldn't let insurers refuse coverage to any group for health reasons, the rules didn't stop health underwriting. So health underwriting became not a gateway for coverage but a factor in pricing. So the differences in costs for similarly-sized groups could differ by as much as 80%, based on the health of the groups' applicants. So, indirectly, health underwriting led to group exclusion based on price. So the owner of a 10-employee business wanting to cover his/her employees could face a cost ranging from $100,000-180,000 for doing so, based solely on the ages and health conditions of the group's members...something over which the business owner has little control, and which it's illegal for him/her to do anything about, since discriminating in employment based on an employee's health is against the law...

Worse, HIPAA specifically excluded individuals (including self-employed professionals) from participating in group coverage. This led to a non-group insurance industry which made a lot of money by selling coverage primarily to young, healthy individuals who would be less likely to use it than their older, less healthy counterparts. Insurers were free to apply any sort uf medical underwriting screens to individual insureds, which meant that they could engage in a conscious strategy to develop rates and rules which would favor young, healthy insureds and exclude individuals with a wide range of health conditions of even modest severity, such as high blood pressure or cholesterol. In addition, there were no limits set on rates for these individuals, so the difference in rates between those charged to young, healthy people and older, less-healthy folks , if they qualified for coverage at all were virtually unchecked...again, using price to screen out undesirable risks. This created the "crisis" in individyal coverage which was a major impetus for PPACA, and to still greater numbers of those for whom coverage was not available. As insurers rushed to make a lot of money in this segment, there was a "race to the bottom" in the ratings wars, which led to:

-Tithing on the altar of the health insurance industrial complex: One of the "geniuses" behind HIPAA was a guy named Patrick Rooney, who was Chairman and CEO of Golden Rule Insurance Company, and a big contributor to the Republican Party. He was also one of the nation's foremost advocates for "Consumer-Directed Health Plans (now more popularly...and accurately...known as "High-Deductible Health Plans (HDHP's)." The purpose of these plans (which are insanely profitable) is to reduce premiums by shifting an increasing amount of financial risk to the insured. A HDHP with a $10,000 family deductible is relatively inexpensive to buy, but a an Ohio family with a median $42,000 annual income could be exposed to a deductible which is the equivalent of nearly 25 percent of its annual income...a "double tithe" to the health insurance system.

Lieutenant Governor/Insurance Commissioner Taylor in Ohio approved an HDHP design which incorporated a $25,000 family deductible. And it was against such plans that she compared the new rating structures to be established for use after 1/1/2014. Of course premiums for PPACA mandated health plans will be more expensive than a $25,000-deductible HDHP...They'll actually cover something...

So let's sum up, shall we? The rates for new PPACA-based health plans must accommodate:
-a return to something more closely resembling community rating (my 25-year-old son will pay more for his health coverage, and I'll pay a little less, but over time he'll benefit from this "subsidy" at his own son's "expense");

-a guarantee that any individual or group will be able to purchase coverage at a cost comparable to any other individual's or group's cost;

-a restoration of sanity to the cost of individual health coverage, and;

-a re-design of HDHP's to include no more than a $4,000 annual family deductible.

And that's to overlook the premium subsidy program designed to make coverage more affordable for young people, and lower-paid individuals and families.

One can certainly expect a short-term spike in total "community" costs, as those who've been excluded from health insurance coverage because of often-minor health conditions seek treatment they've been forced to put off. But over time, utilization will even out.

But it would be helpful to the continuing health insurance reform debate to recognize that nearly forty years of insurance industry practices have contributed to the mess which exists in our health insurance system, that virtually every "cost containment" strategy employed by the industry has been employed not to control premiums (which, even if it were true, would have to be acknowledged as utter failures), but to enable insurers to retain profits through increasingly egregious risk-avoidance practices, and that any "shock" to the health insurance system relates directly to the correction of insurers' behavior.

This makes it...disingenuous...on the part of insurers, and their political enablers...suddenly to act as if they were victims...or as if their carefully-rehearsed outrage has anything to do with their concern for consumers.

I've said many times that I'm no fan of Obamacare. The insurance reforms necessary to move the market back to inclusiveness and some sense of community could have been enacted without a lot of the other nonsense contained in the law. And an unfortunately critical component of its eventual success is dependent on the effective operation of these mythical creatures called exchanges/marketplaces, which still exist mostly in the imagination of their architects and the code of a bunch of very-highly-paid consultants.

But if the President were really the socialist many of his detractors would like to characterize him as, he'd have said to the insurance industry, "All this effort is necessary to correct forty years' worth of highjinks which you've foisted on the marketplace to boost your profitability. You've made lots of money doing it. Now. you're going to fix those problems, and you're going to eat the cost."

Then, insurers' wailing and gnashing of teeth would, at least, have been genuine...