• Benefits mandates

    I thought I had a post in the archives making certain points about the value of benefits mandates, but it appears it was only in my mind. Since that’s not a safe place for long-term storage, I’ll mind dump here.

    First of all, there are arguments against benefits mandates. A chief one is that they raise the cost of insurance for everyone, including those who would prefer a product without the mandated benefits. Fundamentally, it’s a constraint on the market, which under standard economic theory, generally means its a less efficient market. Point granted!

    There are, however, some good reasons to like benefits mandates, or at least some of them. I do not claim that these reasons, individually or collectively, offset the reasons to dislike benefits mandates. I do not claim there aren’t other things one can do to offset some of the following issues. You can make up your own mind.

    1. Mitigation of risk segmentation. In the extreme, people who desire a certain type of coverage (e.g., for mental health or a rare form of cancer) might not be able to purchase it because any policy that includes that coverage also attracts higher risk (higher cost) individuals, pushing the premium to an unaffordable level.
    2. Cost effectiveness. Some benefits might not be cost savings for an insurer but might be generally regarded as cost effective. The view that everyone is better off with a universal, lower barrier to access to such a benefit is not unreasonable. (Yes, it raises the premium, which itself is a barrier to coverage, which I’ve acknowledged. Again, you be the judge.)
    3. Behavioral economics. Perhaps we know we will be more likely to avoid unpleasant, but cost effective services (colonoscopies?) if the price at the point of service is high. But, we really think we are better off getting those services. So, we wish to constrain our choices so that we have to pre-pay for those services (via a premium, with all the loading, of course).
    4. Redistribution. Mandates force the non-users to subsidize the users. For some this is a virtue. For some this is “fair.”
    5. Maybe it’s cheaper. Apart from what’s already mentioned above, this isn’t an argument for a mandate so much as an argument for coverage: even for the little, predictable stuff, it may be cheaper to “insure” than not.
    6. Health incentive plan. “Health insurance” is a misnomer, though it need not be. We could have real health insurance, which would only cover unpredictable events. The fact is, we don’t. It’s possible that’s a good thing, to the extent health care is cost effective or even cost saving. In any case, I once proposed we call these plans health incentive plans.
    7. People demand it. It’s not so implausible that some people want to be told what to do in the realm of health. That certainly seems to be the case. Not all people. Some.
    8. Creates a more effective market. When plans are more similar to one-another, they’re more substitutable as well as more comprehensible by consumers. As such, they must compete more vigorously on price and other dimensions in which they’re permitted to vary. This is one of the principles of managed competition. (In the limit that all plans must be identical apart from premium, price competition would be fierce.) Obviously there is a trade-off. With plans more similar there is less ability for people to find a plan that uniquely suits them.

    Got any other pros and cons? Let me hear them.

    • >>Fundamentally, it’s a constraint on the market, which under standard economic theory, generally means its a less efficient market. Point granted!>>

      If a market isn’t working as it should under standard economic theory, then a constraint may improve things, even if the constraint would normally mean a less efficient market. The general concept behind this is the theory of the second best. http://en.wikipedia.org/wiki/Theory_of_the_second_best

      Healthcare is clearly a case of market failure. Arrow wrote the classic paper. http://www.who.int/bulletin/volumes/82/2/PHCBP.pdf

    • The flip side of 4 is that in the absence of mandated benefits taxpayers will be forced to pay for some of the treatment that people receive and for the additional social costs (unemployment, homelessness, crime) that are created when, as you suggest in point 3, people refuse to get treatment that is expensive (e.g. mental health and substance abuse treatment). c

    • The more mandated benefits there are, the higher the premiums.
      The lower the deductible, the higher the premiums.
      The ACA mandates preventive care be covered from dollar one, as well as mandating unlimited annual and lifetime benefits.
      There seems to be no way around expensive health insurance plans, unless the mandated benefits plan is part of 2 plans.
      The second plan also provides coverage from the first dollar, but people have the option of voluntarily refusing covered benefits.
      For $300 a month, one can build a $25,000 paid-up policy over 36 months.
      For the same premium, one can build $50,000 of paid-up benefits over 60 months.
      The pricing for the 2 plans would be similar to an increasing deductible plan, thus offering discounts of 60-80% over 3-5 years.
      One thing the ACA cannot change: the mathematics of higher deductibles reflected in lower premiums, even if one has first dollar coverage.
      Don Levit

      • Numbers made up for the purposes of illustration:

        The ACA results in 10,000 people getting a preventive office visit at a cost of $100 each. They would not otherwise have seen a doctor. These office visits result in early detection and cure of diseases in 1 out of 500 people that would have cost $100,000 each to treat.

        Under this scenario, how much has the ACA added to healthcare costs?

        How realistic this illustration might be is a factual question.

        Also, where are you going to find a sufficient interest rate for $300/month for 36 months to equal $25,000?

    • Cons:
      Many of the mandates are driven by interest groups, primarily providers. That doesn’t mean that it is bad policy, but the motivations are suspect.

      Some of the mandates are not driven by real sound evidence. I’ve got a couple that jump to mind immediately if anyone cares.

      Most of the specific benefit mandates add very little to the cost of the policy. Health insurers build plans largely for employers and for the masses and, as a result, they don’t always build benefits for populations that don’t have a significant presence. Example: amputees. Many policies limit DME in a given year to “x” dollars. There have been tremendous advances in prosthetics that would make meaningful differences to people if they had access, but the dollar or product limits prevent them from getting access. From an actuarial value there is almost zero impact and no one is going to cut off their arm to get access to a prosthetic, but many insurers just don’t update those benefit categories.

    • “Health insurance” is a misnomer

      I think that the Government could consider it fraud to call a plan health insurance if it does not cover “a rare form of cancer” and if it covers to much low cost stuff and/or has a low deductible.

    • Another benefit of mandated benefits is people have a better understanding of what is in their plan than without mandates.

    • As a consumer, the biggest reason to have a consistent set of mandated benefits is it allows for comparison shopping.

      With a consistent mandated baseline I can look at a bunch of plans and shop on price (or reputation).

      Without a consistent benefit baseline I have to wade into the fine print to see if any conditions we have (or may someday have) are covered. In reality, I don’t do that. I shop on price and hope there isn’t some unexpected surprise coverage gap that is going to ruin me.

    • foosion:
      Under my plan design, the person has the choice of using the $100 benefit or not using it.
      My point is that if no benefits are used, $25,000 of coverage is built over 36 months, and $50,000 over 60 months.
      You are correct that the money cannot build enough interest, particularly in this environment to come up with $25,000 of cash.
      Insurance, at its basic form, is you pay in x, and we will pay you back some multiple of x for benefits .
      $300 a month over 36 months is $10,800. I cannot provide you specifics due to proprietary reasons (unless you sign a non disclosure form).
      But, in general, for $10,800 of cash over 36 months,, the insurer sets up an “individual reserve” for this person/family which will pay $25,000 of benefits with no further premiums, if the claim is made for the entire $25,000.
      If not, he still has a partially paid-up policy. If he uses all $25,000 of benefits, he starts the next month building his paid-up policy.
      The key is that in lieu of cash, the benefits are strictly medical cash benefits. For giving up the right to surrender for its cash value, the insured is provided an increasing paid-up policy each month.
      Don Levit

    • @Don Levit

      $25K of insurance won’t get you far, if you get cancer. And then after you’ve spent it, you have a pre-existing condition and no insurance.

      • SAo:
        You are correct that one would have no more paid-up insurance if the $25,000 of benefits was paid.
        As far as pre-existing conditions, they would be covered as under the ACA.
        An individual would still have insurance – either through the state exchange, etc. or through my particular design.
        Premiuns are calculated on a fully community-rated basis, so that the unhealthy are paying less and the healthy are paying more (not including the paid-up coverage).
        Don Levit

    • Given that purchasers of “health care” (and to a lesser degree health insurance) are almost always “distressed buyers” does it really make any sense to treat the health care economy the same as that of iPads or automobiles?

    • Regarding point 8, this is exactly how it works in Switzerland. There a mandate to purchase coverage that provides a government-determined set of benefits. Some of those benefits are fairly limited compared to the US (wards, but not private or semi-private rooms, limited choice of hospitals), but others are fairly generous.

      People can switch freely among plans once a year. And they do! Comparison shopping is very easy. As you mention, price competition is fierce. But there is also intense competition on customer service performance as well.

    • To Don Levit —

      If you pay your $300 a month and then get sick and start filing claims right away, do you still build up a $25,000 benefit?

      How can the insurer stay solvent in that case?

      • Bob:
        In that case, with such an early large claim, the paid-up portion would be wiped out.
        The balance of the $25,000 claim would be paid through the gap coverage, which is fully community-rated.
        The next month, the person starts building his paid-up coverage, with an immediate reduction in his monthly gap community-rated premium, to the extent his paid-up coverage has built toward the $25,000 of gap coverage.
        Don Levit.

    • “Mandated Benefits” implies two types of healthcare. One is really a pre-paid expense, and the other represents true insurance. The first represents Basic Health Needs and the second, Complex Health Needs. The first type should be reimbursed through capitation of small physician groups, and the second reimbursed by fee-for-service adjudicated by a withhold through a multispecialty group, aka, ACO. For the “Mandated Benefits,” the definitions should define the minimum standards for Basic Health Needs and the maximum standards for Complex Health Needs. Congress should mandate a semi-autonomous institution that is governed through a connection to groupings of states. This institution then should function through nationally collaborative processes to arrive at a uniform set of “Mandated Benefits” applicable to ALL payors or supporters of healthcare services. The Vision for such a plan should be “Stable Health for Each Citizen” and the Congressional mandate should require this institution 1) to achieve a decrease in the national cost of health care within the first ten years to 13.4% of the GDP (2010 = 17.9%) or less AND 2) to reduce our national maternal mortality rate by 75% (see United Nations report published in 2010). Finally, the Conressional mandate would specifically prohibit this institution from any involvement in the reimbursement of healthcare.

      Increasingly, the technical possibilities for healthcare will outstrip our nation’s ability to pay for it. A tradition for defining the reimbursable units of health care that is based on collaboration, trust and transparency will be necessary for the healthcare of all citizens. This will be especially necessary to achieve the widely supported and acceptable character of any “Mandated Benefits.” The immediacy for developing such a plan is represented by the totally unacceptable problems with accessibility to our nation’s healhcare. This is most vividly demonstrated by our nation’s maternal mortality rate. In 2008, It ranked 41st worst among the 43 developed countires of the world. Even more devastating, it doulbled between 1990 and 2008.

      What I am proposing represents an effort to separate the social goals of health care from the economic goals of healthcare. I suspect that any discussion of “health insurance” will be never-ending without a separation of these two goals. For the discussion, remember that the esential theme surrounding healthcare costs is that a small number of citizens require huge resources. Furthermore, this small group changes significantly from year to year. Small changes in their individual costs will produce huge changes in the over-all cost of our nation’s healthcare. As a result, truly responsive accessibility to healtcare is the “holy grail” for healthcare reform and its cost control.