Health Care: Pre-existing Conditions and Cross State Insurance

The US Health Care debate has turned on a curious combination of compexity and obscurity. But the bitter reality is that current health rules of the road are quite complex, the resulting care quite variabl[this is a must read link] and the costs keep escalating. Kaiser, one of the major players in health care provision, is blunt about costs:

Health care costs have been rising for several years. Expenditures in the United States on health care surpassed $2.2 trillion in 2007, more than three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980. Stemming this growth has become a major policy priority, as the government, employers, and consumers increasingly struggle to keep up with health care costs.

In 2007, U.S. health care spending was about $7,421 per resident and accounted for 16.2% of the nation’s Gross Domestic Product (GDP); this is among the highest of all industrialized countries. Total health care expenditures grew at an annual rate of 6.1 percent in 2007, a slower rate than recent years, yet still outpacing inflation and the growth in national income. Absent reform, there is general agreement that health costs are likely to continue to rise in the foreseeable future. Many analysts have cited controlling health care costs as a key tenet for broader economic stability and growth, and President Obama has made cost control a focus of health reform efforts under way.

Although Americans benefit from many of the investments in health care, the recent rapid cost growth, coupled with an overall economic slowdown and rising federal deficit, is placing great strains on the systems used to finance health care, including private employer-sponsored health insurance coverage and public insurance programs such as Medicare and Medicaid. Since 1999, employer-sponsored health coverage premiums have increased by 119 percent, placing increasing cost burdens on employers and workers. With workers’ wages growing at a much slower pace than health care costs, many face difficulty in affording out-of-pocket spending.

This is the problem facing health care reform – it is a hard problem to completely comprehend, yet easily amenable to political manipulation by fear-inspiring misinformation [think “death panels”]. And it requires Americans to acknowledge that they don’t have the best health care system in the world. This is a stinging rebuke but Kaiser has acknowledged that US health care is one of the most costly as only a wealthy and/or a fortunate few can get “House” quality treatment while overall costs at 16% of all US spending is “among the highest of all industrialized countries” [Kaiser quote just above]. And worse, the general quality of US Health care is suspect as pointed out by William Brody, John Hopkins University Hospital President

American health care as a system performs poorly. A RAND survey of 30 common medical conditions in a dozen American communities found that patients get appropriate treatment only about 55 percent of the time.

These are two bitter pills [high health care costs and only about a 50-50 chance you will get the right treatment] for Americans to swallow in the current period of self-inflicted economic wounds.


So lets consider two of the most contentious issues in the healthcare debate.

The following is a telling quote from the NYTimes on the consequences of opening up Cross State Insurance given the huge disparity in rules among states that the Health Care Reform Bill is trying to correct. These are the words of a small business woman and how her company is coping with health care:

Unrestricted competition across state lines would destroy the lives of many New Yorkers. We in New York have “community rating” for both small business and individual plans. I hope that none of our representatives will vote to erode our protections.

I am the plan administrator for a small business and we employ a cancer survivor, someone who takes high blood pressure pills and a smoker. We also employ two people over 50. Our insurance company has made a profit insuring us, but probably not as amuch as they would if we employed only healthy people under 30.

Our insurance costs would go up maybe five fold or ten fold if there were competition across state lines. The young healthy people in New York and the small businesses that employ only healthy young people could buy in states that permit age and pre existing condition discrimination. And all the older and sicker individuals and businesses that hire older and/or sicker people will come to New York to buy coverage.

Our rates will skyrocket. I will be forced to drop coverage. If we New Yorkers lose our community rating protection thanks to our “friends” in Washington I don’t know what I will do. Maybe small businesses will only be able to employ young healthy people.

This is the insurance death spiral problem described by Paul Krugman here:

Indeed. Sky-high rate increases make a powerful case for action. And they show, in particular, that we need comprehensive, guaranteed coverage — which is exactly what Democrats are trying to accomplish.

Here’s the story: About 800,000 people in California who buy insurance on the individual market — as opposed to getting it through their employers — are covered by Anthem Blue Cross, a WellPoint subsidiary. These are the people who were recently told to expect dramatic rate increases, in some cases as high as 39 percent.

Why the huge increase? It’s not profiteering, says WellPoint, which claims instead (without using the term) that it’s facing a classic insurance death spiral.

Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on. ….. Finally, there have been calls for minimalist health reform that would ban discrimination on the basis of pre-existing conditions and stop there. It’s a popular idea, but as every health economist knows, it’s also nonsense. For a ban on medical discrimination would lead to higher premiums for the healthy, and would, therefore, cause more and bigger death spirals.

So California’s woes show that conservative prescriptions for health reform just won’t work.

As one can see insurance companies are playing dodge ball trying to duck out on coverage for pre-existing conditions lest they become hit with higher payouts or absorbed in local death spirals as in the case of California insurers. This is the fundamental problem. You must have a complete national pool of health insurance payers or local and different markets will create constant and debilitating games of dodge ball among heath insurance companies and health care users while health care in form of prevention and sound, consistent delivery suffers. This is the contradiction that the US has an ever worsening yet privileged health care system which costs more, delivers less and makes the US less competitive in international business. Not a good competitive situation  let alone well being diagnosis for the US … and as the late great newscaster, Paul Harvey would say – “thats the rest of the story”.