By Michael Z. Stahl
With Senate committee hearings on the individual insurance market in full swing and two competing health care bills being pushed — one proposed by liberal Bernie Sanders, the other from conservatives Lindsey Graham and Bill Cassidy — now is a good time to think about how we can work together to increase the effectiveness of the health insurance marketplace.
But the question isn’t “can’t we all just get along?” It’s “how can we stabilize the market so that it benefits both agents and their clients?”
Insurance companies are exiting the individual marketplace. Premiums are increasing. Consumers are anxious and uncertain. That’s why the most urgent task at hand is to right the ship while long-term marketplace remedies are being sought and implemented.
But where do we start?
Aggressive carrier pricing created challenges when the marketplace first opened. Those challenges included a risk pool that was sicker than expected and losses from underwriting expenses that weren’t fully covered by the risk corridor program. Carriers raised prices to compensate, and healthy consumers responded by moving to short-term insurance, indemnity plans and faith-based coverage, all of which put additional stress on the market. So carriers started leaving.
A combination of legislative and regulatory incentives and disincentives is needed to address exiting carriers. There are four actions that, if taken together, could help make this happen:
- Have the federal government cover claims beyond a certain threshold, either through reinsurance, a publicly funded high-risk pool, or an extension of the Medicare program. Carriers could lower their premiums significantly while the government could take advantage of the larger risk pool and its access to low-cost capital to provide coverage at a lower system-wide cost.
- Add groups and employers with fewer than five lives to the individual risk pool. A larger risk pool is critical for maintaining affordability in any guaranteed-issue framework.
- Tighten the rules for carriers reentering the market after they’ve left, perhaps by treating on- and off-exchange markets separately with respect to eligibility for returning to a given state.
- Mandate and regulate commissions in the individual and small group markets to enhance consumer access and lower costs just as Medicare Advantage commissions are regulated to avoid perverse incentives among carriers.
Control costs through improved price transparency
Health insurance is expensive because health care is expensive. In the long run, the only way to inhibit the cost of health care is to lower its consumption and/or its unit price.
Other ways to control costs include solutions that have ethical, cultural and political challenges. These ideas include reducing the scope of essential health benefits, limiting coverage for certain conditions, and restricting reimbursement to evidence-based medical care. Would these measures work? Perhaps, but their implementation may not be practical or conscientious.
Get the young and healthy to enroll
Young, healthy consumers often don’t see enough sufficient value in their health insurance options to purchase a policy. The reasons why include cost of the plans, high deductibles, narrow networks and simply taking their good health for granted.
Getting more of this demographic into the marketplace is imperative to stabilizing premium costs. Eliminating some of the barriers that make insurance unpalatable to this sector could help. Here are some recommendations.
- Increase the maximum age band rating ratio from 3:1 to a figure as high as 5:1. This move would raise the premium for older insureds in the short run, but it would improve overall enrollment, improve the risk pool, stabilize the markets and limit premium increases.
- Expand basic services before deductibles. Including services such as telehealth, primary care and low-cost generic medications could have a profound effect on the value equation in addition to avoiding some of the more costly services.
- Use health reimbursement arrangements (HRAs) or health savings accounts (HSAs) to expand the definition of excepted benefits. This could encourage Insurance companies to create first-dollar primary care products and enhanced health care services.
- Make health insurance more consumer driven. Instead of providing cost-sharing reductions, HRAs that are funded in part by premiums could empower consumers with an incentive to shop for the best price or quality.
- Reduce the grace period for nonpayment to 30 days to further prevent consumers from gaming the system.
Balance group and individual tax treatments
The tax advantage of group insurance over individual insurance reduces the size and health of the individual market risk pool, contributing to its instability. The tax treatment of group and individual insurance should be harmonized to eliminate its distortive effect and allow the individual insurance risk pool to assume a more natural character.
Given the complexity of legislation, no transformation of the health insurance industry can be designed, approved and implemented this year. That’s why stabilizing existing markets should be an immediate health care reform priority.
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