• So close, but yet so far

    Sec. Sebelius has an op-ed in the Washington Post that Ezra Klein notes is absolutely an answer to Gov. Daniels’ in the WSJ from a few days ago.  In Gov. Daniels’, he asks for flexibility in how the states can implement the PPACA. In Sec. Sebelius’, she claims that flexibility already exists.

    This is one of those situations when both are correct. The problem is that the “flexibility” that each is talking about is different.

    When Sec. Sebelius is talking about “flexibility”, she means the following (emphasis mine):

    States have discretion, for example, to offer a wide variety of plans through their exchanges, including those that feature health savings accounts. Utah and Massachusetts already operate exchanges but take very different approaches: Utah allows all insurers to participate; Massachusetts has stricter standards. Under the law, both approaches could work.

    States also have the flexibility to decide what benefits plans must offer. They can choose to require basic protections, based on the typical benefits people get through their jobs, or set higher standards.

    Gov. Daniels, on the other hand, says this:

    All the law’s expensive benefit mandates are waived, so that our citizens aren’t forced to buy benefits they don’t need and have a range of choice that includes more affordable plans.

    Ezra is heartened by the fact that since they seem to be be talking about the same thing, these are issues that can be worked out.  On many of their points, I agree with him.  They are close in terms of desires for Medicaid, for administrative support, and in terms of states’ ability to select plans for the exchange.  On this one issue, however, they are miles and miles apart.

    It all comes down to the benefits.  The PPACA sets a minimum, and it’s much more robust than many plans that are offered right now. Sec. Sebelius says states can choose benefits from that minimum on up.  Gov. Daniels wants to allow plans that are significantly below that minimum. Such plans would obviously be cheaper, and more palatable to many insurance companies as well. They’d also be more attractive to healthy, young people who might not want to purchase comprehensive plans.

    But this was the crux of the debate of health care reform. Supporters wanted to make sure everyone has access to comprehensive insurance without fear of higher prices or denials of coverage for chronic conditions. The only way to do that (short of scrapping the private market) was to set the regulations, add the mandate, and subsidize. Opponents – or at least many of them – don’t want to do that. They appear to fine with selling a range of insurance, from mini-med on up, and letting people buy what they can afford/choose.

    This isn’t a tiny difference; it’s the whole enchilada. If you allow cheap and potentially crappy plans, that’s what many people, especially healthy people, with limited means will buy. That plan will cost less, but it will accomplish less. It will also fracture the risk pool.  If you’re OK with that, so be it. But it runs entirely against the meaning and purpose of PPACA, and what those who pushed for health care reform wanted.

    I’m thrilled if Gov. Daniels and Sec. Sebelius, and others, can have rational conversations and negotiations on how to improve PPACA to benefit everyone. But I would not expect there to be much agreement on this essential point.

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    • Quick question: why would it “fracture the risk pool” to allow people to buy cheap plans? Are you implying that those plans would not be underwritten?

    • Fantastic post. One that needed to be written.

    • @pipster Most young and healthy people will opt for the crappy but cheap plans leaving the sicker and older people to be stuck on more comprehensive but expensive plans. This will fracture the risk pool because the risk associated with sicker people and older people are not spread across the healthier people. Another way to look at this is that a young person when opting for a crappy and cheap plan is not spreading her risk across her lifetime. Doing so will greatly weakens the intent of the ACA, which was to spread the risk and costs more effectively.

    • @logan,
      I understand that much. My point is that a properly underwritten policy will price the risk into the premium. In Aaron’s example, the individuals in the pool aren’t changing, just the benefits that they choose. As a corrollary, the probability distribution function of their medical expenses over time isn’t changing either. The only thing that’s changing is how much of those expenses are being paid by the carrier, and how much is paid by the policy holder. So, if Aaron’s claim is true that the risk pool will “fracture” when people choose plans with leaner benefits, it implies that the pricing is incorrect somewhere along the way. I’m curious to know where.

      Allow me to shift from an actuarial discussion to an economic discussion: I believe that Aaron has things completely backwards in his argument, at least with respect to health care costs. By forcing people into expensive plans with rich benefits, you will encourage people to “consume” more health care than they would otherwise. Thus, eliminating mini-med plans and catastrophic plans will necessarily drive up health care costs. Imagine, for a minute, that your auto insurance was mandated to cover oil changes and tire rotations. The consumption of these services would skyrocket, and so would the prices.

      The fix for our health care system in this country is to get people to think of their health plan as *insurance* instead of a payment plan. Doctor visits and most prescriptions should be in every family’s monthly budget, and insurance should only be used for hospitalizations, car accidents, and the like. This is the only sure way to drive down costs. PPACA does the opposite of this, and that’s one of the reasons why it is destined to fail.

    • @pipster

      A properly written policy will price the risk into the premium – but only for the risks that policy is covering. If young and healthy peole opt out of comprehensive policies and opt into mini-med policies then those policies will only price the risks that those policies are covering – which will not include the comprehensive risks. Those comprehensive risks will still exist and some otherwise young and healthy people with mini-med policies will encounter them.