Marketplaces for the Affordable Care Act open for business this Tuesday. Companies will begin selling health insurance on open exchanges to people who don't have coverage through their employer, the VA, Medicare or Medicaid. The launch will mark a major milestone in the historic (though admittedly imperfect) law's long and rocky road to implementation and while many Americans are still opposed to "Obamacare," those who have for too long been priced out of the market or discriminated against based on pre-existing conditions, are breathing a collective sigh of relief.
I worked as an executive in the health insurance industry for several years, as Vice President of a multi-state firm that marketed private-sector health plans to individuals who didn't have insurance through an employer or the government. That experience has informed my opinions on health care deeply.
Our clients consisted mostly of small business owners, the self-employed, children and spouses of workers whose plans didn't cover dependents (or were cost prohibitive to do so), early retirees needing a policy to bridge the gap before they were eligible for Medicare, low-wage workers who didn't get coverage at their job and workers who'd lost coverage and were looking for something less expensive than COBRA until they found a new position which offered insurance.
I quickly learned that the unfortunate reality of nearly every individual health insurance product on the market was that they either provided reasonably good coverage and were ridiculously expensive, or costed less and ranged from nearly useless to very poor. If a client had a pre-existing condition like mild hypertension, they either paid through the nose (often with exclusions in their coverage) or went without. If they had something more serious, such as diabetes, no one with an even mediocre plan would touch them with a 10-foot pole. Those that would, charged them exorbitant rates and covered almost nothing.
My years in that industry convinced me of one thing – the system was badly broken. The quality insurers (a term which I'd nonetheless use loosely) wanted only, to use the lingo of the agents, the healthy and wealthy – people unlikely to file a claim, who were willing and able to pay big premiums. The discount insurers took nearly everyone else, but their low prices masked smoke and mirror policies that were so riddled with small print exceptions that they rarely paid anything more than a small portion of the average claim.
In too many instances, those without a so-called Cadillac plan were better off keeping that premium money and using it to try and negotiate a lower cash settlement with a provider when they needed care. For far too many patients, the prospect of paying the uncovered portion of their bill was pretty much nil, forcing them into a world of collection agencies, bad credit scores and in many cases, default – none of which was good for the system at large.
I left the industry convinced that like electricity and other limited goods and services that didn't function under normal market dynamics, free market principles did not work effectively in health care. These are the scenarios where sensible regulation are not only a good thing, but essential. Short of converting to a national health care model (which I am in favor of), coupling mandatory coverage with sensible regulation is the best model to contain costs – costs which have outpaced tabletop inflation by about 300 percent and choked off economic growth in our country more than any other factor.
The idea of mandated coverage was ironically developed by the Republicans, many of the same ones who recently went up in arms over the concept. Back then they argued that until the costs were spread across the system, the escalation would never be contained (something that has indeed proven true). Insurers have long argued that without such mandates, they could never blanketly underwrite both the sick and healthy in individual pools. Most of the critical insurance lines from automobiles to property insurance have some sort of legal or practical mandate that puts almost everyone into the pool, allowing costs for the worst risks to be subsidized to some degree by the best, thus creating a sustainable marketplace.
The reality is that people who need insurance the most (and are most likely to purchase it) are also the worst risks. If they're accurately underwritten based on what their true costs are likely to be, they'll almost never be able to afford coverage. Likewise, the young and healthy are least likely to need insurance and therefore the least likely to obtain it as well. However, they're also most often the least likely to be able to cover catastrophic expenses when they do incur them, and if they fail to pay, their costs are then spread out among other users of the health care system.
That's where we find the trick bag in health care and insurance. If someone was able to just not get treatment if they didn't have coverage, creating viable markets would still be a challenging endeavor. But because the uninsured are still treated – and almost always in the least efficient and most expensive manner – they can stick the rest of the system with the bill, a bill that always flows downhill to the average patient, via higher insurance premiums and increased fees per service from medical providers.
These compensatory adjustments are all one-sided under the current system. The users are penalized for the inefficiencies, while provider and insurance profit continue to soar, along with physician and executive salaries. The reason? For starters, you too often cannot make informed and strategic decisions because of the nature of the product. When you have a heart attack or a stroke, you are obviously not in a position to shop the market or attempt to negotiate fees prior to procedures – same when you have an accident and are in need of an ER.
And as the new law is quickly demonstrating through required transparencies, market prices are so disconnected from anything resembling sensible pricing mechanisms, that it would be an exercise in futility anyway. Unless it is dealing with a leveraged adversary (someone with a very big checkbook and lots of patients like Medicare or an insurance giant) hospitals simply charge whatever they want, with procedure prices varying wildly from one to the next, and the biggest bills too often being heaped upon those least able to pay them (and who usually don't). The individual mandate will help level this playing field, bringing down costs for all, not just those in the exchanges.
Drivers are forced to carry auto insurance, because even though someone can file suit to recover losses from an accident, the reality is that without insurance that money will be spread out and absorbed unfairly, which we already see from those who break the law and drive without a valid policy. Any auto insurance broker will tell you that if it were completely optional, the cost to those who chose it would be considerably more than it is now and quite possibly prohibitive. Those who oppose national health care should welcome mandated coverage in the same spirit, as it is one of the only arguments that there is an alternative, given the utter failure of our current system – one of the worst in the developed world in terms of quality returned per dollar spent.
On Tuesday, many of the people who were once turned away outright or quoted a premium that effectively did the same, will be able to get coverage that is affordable because their risk is effectively spread out among many more individual policies, the way that it has always been for those fortunate enough to have high-quality, employer-sponsored benefits. Many others who would have continued rolling the dice in a casino where everyone else often pays the house when they lose, will soon finally have skin in the game. That will be a very good thing for all of them, as well as for every other participant already in the system. There are many things that could be fixed and tweaked in the new health care law, but exchanges and mandated coverage aren't on that list.
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