Over the past few months, a politically-diverse group of health policy experts has been pondering a key question: what are the “specific, feasible steps” that policymakers could use to reduce the growth of health spending? In short, how can we bend the curve?
The fruits of their labor were published by the Brookings Institution on Tuesday as Bending the Curve: Effective Steps to Reduce Long-Term Health Care Spending Growth.
I encourage everyone interested in health policy to give it a close look.
The report’s recommendations for fixing health insurance particularly caught my eye:
Governments should ensure proper incentives for non-group and small-group health insurance markets to focus on competition based on cost and quality rather than selection. Achieving this requires near-universal coverage and insurance exchanges to pool risk outside of employment, augment choice, and align premium differences with differences in plan costs.
[Therefore, these insurance markets should be restructured to] focus insurer competition on cost and quality through requirements for guaranteed issue without — or with very limited — pre-existing condition exclusions; limited health rating, such as those related to age and behaviors only; and full risk-adjustment of premiums across insurers based on enrollees’ risk. For market stability, these reforms must be undertaken in the context of an enforced mandate that individuals maintain continuous, creditable basic coverage.
In short, the report recommends a combination of an individual mandate and reforms that eliminate both the ability of and the incentive for insurance companies to try to enroll only the healthy and low-cost.
In a series of thoughtful posts over at Capital Gains and Games, Andrew Samwick has argued that such reforms could form the basis for bipartisan health insurance reform. I think he’s right, in the sense that there are numerous Republicans as well as Democrats who favor these changes. How that fits into today’s much larger and heated debate over health policy, however, is anyone’s guess.
Also, as Keith Hennessey emphasizes in a lengthy post on legislative strategy, an individual mandate almost certainly requires new subsidies for low-income folks who would otherwise have difficulty purchasing insurance. Paying for those subsidies could be problematic.
One of these days, I will find time to write about what I think is the obvious solution to the budget question: the subsidies should be paid for by rolling back the current tax exclusion for employer-provided health insurance (a change, by the way, that’s also included in the new Brookings report).
But rather than get into those details, I’d like to close by elaborating on the rationale behind the recommendations for an individual mandate and insurance reforms to eliminate selection.
From the individual’s point-of-view, the problem is clear: If they develop a costly, chronic disease, they may not be able to get or keep health insurance. That undermines the entire point of insurance (and is the source of some of the worst individual horror stories about our current system).
From the insurer’s point-of-view, the problem is also clear: If individuals have the ability to go without insurance when they are healthy, but then demand insurance when they become sick, the insurance rolls will be dominated by the sick and the expensive. That adverse selection drives up the average cost of insurance (making it less affordable for healthy people), and thus undermines the entire point of insurance from the other direction.
The way out of this box is to eliminate the ability of individuals to wait until they are sick (e.g., via an individual mandate), to eliminate the ability of insurers to decline coverage for sicker beneficiaries (e.g., by limiting or forbiding exclusions for pre-existing conditions), and to eliminate the incentive for insurers to find subtler ways to screen their enrollees (e.g., by using risk adjustment to offset the costs of serving different populations).
Put these together and, at least in principle, you are left with a private insurance market in which essentially everyone is covered and insurance companies compete on cost and quality, but not selection.
That solution isn’t perfect (not least because risk adjustment can be difficult and making any such changes will create losers as well as winners), but it’s almost certainly an improvement from where we are today.