Health insurance risk pools: high risk for the public, low risk for private plans.
The Senate has taken a big step by announcing that its health care reform bill will include a public option, the details of which we've yet to see. But if we hope to have a fighting chance to reform the system, the public option will have to be more than the weak thing this one likely is.
With Senator Reid's announcement, we appear to be putting the finishing touches on dividing the health insurance risk pool in two:
- The high-risk public pool of elderly, unemployed or underpaid, chronically ill and dying individuals, along with children of low-income families, and
- The low-risk private pool of relatively healthy, employed and decently paid individuals.
The health care costs of the high-risk public pool are paid for with public funds. The health care costs of the low-risk private pool are paid for with private funds.
Here's the makeup of the high-risk public pool, broadly speaking:
- Medicare covers everyone over 65 along with end-stage renal disease patients, totalling about 35-40 million.
- Medicaid covers about 50 million low-income individuals, mostly children, pregnant women, elderly (dual eligible) or disabled. Among those covered by Medicaid are people whose very expensive chronic illnesses have caused them to "spend down" their assets to the point where they no longer have the ability to pay for health care.
- The limited public option, restricted to those qualified to participate in the insurance exchange and estimated to cover about 10 million people. The exchange risk pool will be a grab bag, including some self-employed, some employed by small companies, some unemployed and underemployed, some chronically ill with assets too high to qualify for Medicaid, and so on.
The high-risk public pool will cover 90-100 million Americans. The low-risk private pool will cover 180-200 million Americans. 10 or 20 million will remain uninsured and continue to drain the public and charitable side of the system.
Private health plans will operate in both the low-risk and high-risk pools. Public plans are forbidden to operate in the low-risk pool.
What we have here is reverse cherry-picking. Private insurors may no longer be able to deny coverage for pre-existing conditions, or cancel coverage when you need it most, but they are rewarded by a system that provides no public-sector competition in the lucrative low-risk private pool, and will drive more and more of the highest cost patients into the high-risk public pool.
There is only one risk pool that makes any sense, and that is "everone." Absent a public option that is available to everyone (the "E" in Medicare E) there remain too many ways for private insurors to game the system, skimming the more profitable portions of the pie while avoiding competition where it could truly make a difference.
Rejoice that the Senate can say "public option." Now it's time to be sure the words mean something.
Red - I think your characterization is valid, but only up to a point. What you call the "high risk pool" comprises a mixture of higher and lower risk individuals. They include those not covered by employer insurance who have pre-existing conditions, but also those who are healthy and have decided they don't need insurance (the "young immortals") - a fairly large segment of the uninsured. Both a public option and private insurers will be competing on a level playing field for these individuals.
In contrast, at least in the early years, individuals with group insurance from large corporations will not be eligible, although this might change later. However, these are not all low risk either, but include individuals with pre-existing conditions who are healthy enough to work, as well as many individuals whose risk is somewhat elevated by virtue of the fact that they are over 65 but covered by the group plan rather than Medicare. Furthermore, large corporations have the leverage to negotiate favorable premium rates from the insurers, which is one of the reasons why their absence from the early years of a public option is not as serious as would be excluding the uninsured or those who work for small businesses. For insurers, these subscribers may be "lucrative" (your word) in the sense that there are many of them, but they are not at all lucrative in terms of the lower premiums they pay compared with those paid in the market where the public option would operate.
In essence, the public option would make inroads against private insurers in a population that can now only seek private insurance, at exorbitant rates. It would not, early on, address those of either high or low risk who have group insurance negotiated by corporations at favorable rates. It's hard to see it as anything but a step forward.
Finally, since we're talking about people below Medicare age in each case, do you have any data showing that there are significant risk differences between those covered by large corporation group insurance on one hand, and on the other hand, the remaining mix of uninsured, the self employed, and those insured as employees of small business?
October 27, 2009 12:24 PM | Reply | Permalink
Fred,
I might have characterized it better by calling the two pools the higher risk pool and the lower risk pool, but I opted for brevity.
The high risk pool will certainly include many low risk individuals. Some of those who become eligible for the public option may be the "young immortals," but many of them actually do work for employers who will offer benefits under the new legislation, so they will be required to either join the employer-based plan or pay a fine and remain uninsured. The public option will not be available to them. On balance, the composition of the high risk pool will be weighted toward the population that is at higher risk of requiring more health care expenditures.
The low risk pool will also include some high risk individuals, such as the working disabled, folks with well-managed type 2 diabetes, and over-65 individuals who still work. There's a gradient, though. The more one is disabled by age, chronic illness and other incapacitating conditions, the less one is able to work, and over time these individuals tend to lose the ability to hold steady jobs and slip into the high risk pool. On balance, the composition of the low risk pool will be weighted toward the population that is at lower risk of requiring more health care expenditures. If I'm not wrong the low risk pool will be self cleansing in another way. When a covered employee develops an expensive and debilitating disease, she will lose income and may lose her job due to simple inability to work. Pretty quickly she will be shifted either into the exchange or into Medicaid, in other words, into the high risk pool. (It may be that pending legislation has addressed this and I just am unaware.)
The largest employers do have some ability to negotiate for better rates as you note. But not-large employers have almost no leverage and we're going to be requiring them to provide employer-based plans.
I'm glad you note that "For insurers, these [larger employer] subscribers may be "lucrative" (your word) in the sense that there are many of them, but they are not at all lucrative in terms of the lower premiums they pay compared with those paid in the market where the public option would operate."
That reinforces one of my concerns, which is that breaking the market into separate risk pools is inequitable. Why should small companies and unemployed individuals pay more for their insurance plan than the large employers pay, per family or per individual?
By balkanizing the risk pool we are continuing and reinforcing health care inequities. The playing field may be rearranged, but the game continues.
As I understand it, the exchange will be populated, in part, by the unemployed and underpaid, the chronically ill who haven't yet spent enough of their assets to qualify for Medicaid, and the disabled, who, even though they are unable to hold steady jobs, haven't yet spent enough of their assets to qualify for Medicaid. While I do not, alas, have data to back up my assertion that individuals eligible to participate in the exchange are at higher risk than those working for large corporations, I wouldn't think that the correlations among chronic illness, disability and higher health risk would be controversial. There are numerous studies that link unemployment and underemployment to poor health status. I found this one from the International Journal of Epidemiology using "the Google" and didn't have time to look for more, but in a previous lifetime I was exposed to many similar studies: The interrelationship between income, health and employment status. It concluded:I've also seen studies correlating high risk behaviors, like smoking, drinking, drug use and overeating, with low socio-economic status, but, again, alas, don't have them available to me now.
Also swimming in the exchange pool will be the self-employed, and employees of small companies that do not provide employer-based plans. Being self-employed and associating with many others like me, I can reliably report that some are rich and extraordinarily healthy, while others can just barely drag themselves out of bed in the morning. I'm not saying which part of that pool I swim in.
The exchange pool is a mixed bag, to be sure. A not insignificant sub-group will be quite healthy indeed, but another not insignificant sub-group will be comprised of individuals who cannot currently hold jobs in larger companies due to physical or mental health status, or behavioral issues.
October 27, 2009 7:54 PM | Reply | Permalink
You may be right that even if insured, those currently uninsured would be at slightly higher health risk than those who are already insured, but in essence, healthcare reform is designed to provide coverage for these individuals, utilzing government subsidies if necessary to help them pay premiums. The subsidies are inadequate in my view, but that is not due to the unavailability of a public option for the large pool of individual currently insured via large employers.
The public option is proposed to be self-financing through premiums, but not to be a net source of income. It is therefore not a source of revenue to pay the subsidies. If it were extended to what you refer to as the "lower risk" pool, it would still not be an income source, and would still not help subsidize low income individuals. The revenue for subsidies comes from cost savings (e.g., in Medicare Advantage) and in new taxes. While that might not completely level the playing field, it would in fact be the case that most of the taxes will come from middle income workers in the lower risk pool, and so there will be a net transfer of income, via subsidies, from these individuals to the higher risk individuals at lower income levels. It seems like a good step forward to me.
October 27, 2009 8:44 PM | Reply | Permalink
Implicit in what I just wrote, of course, is that the public option, being self-financed, is not paid for by the taxpayers. Its capacity to save the government money would therefore largely be limited to its ability, through competition, to reduce premium costs for individuals who would need subsidies, thereby reducing the amount of subsidization needed. These individuals are not part of the pool of individuals working for large corporations, and so extending the public option to them wouldn't affect the amount of subsidy money the government would need to spend.
October 27, 2009 8:54 PM | Reply | Permalink
I agree the senate version of the public option is lame on many fronts.
It is designed to fail as it apparently would only be available to be elected by 10 million Americans and that is 'IF' there 'state' does not opt-out of the plan.
This is likely to do very little to bring down costs or create competition.
The president liked to use the example of the US postal service being in competition with Fedex and UPS. Well there are no limits on which we can choose.
The public option should be available to everyone. And as far as I am concerned we should make sure that congress understands that public acceptance of their 'Mandate' is tied to us receiving a true public option with no gimmicks attached. Our acceptance of the Mandate is our leverage.
It was pointed out last night that much of the public imagines that 'they' will have the option of the public option and if they want the mandate to be accepted... I think they 'need' to deliver on this.
I am also heartened to hear that there is talk of making the program effective sooner than 2013. And as you say Medicare E is the best way to go.
October 27, 2009 12:33 PM | Reply | Permalink