Category Archives: Healthcare/Insurance

The Insidious Non-Optional Medicaid Expansion That Further Clouds the Future for States

So much about Obamacare has been “by any means necessary”, from the legislative gymnastics to get the bill through Congress to the current mandatory expansion of Medicaid that is here now even though largely unnoticed.  Here now?  But wasn’t Medicaid expansion optional?  Some yes and some no as it turns out.  This almost unknown stealth expansion was required of the states and imposed on them despite the Supreme Court ruling because it is being funded 100% by the Federal Government, but only for two years 2013 and 2014, after which, funding abruptly ends.  Because a strong constituency is being created (or bought) that will demand this expansion be continued past 2014, and no one can predict the outcome of those likely demands, further possible complications and risks arise for those states that decide to embrace the optional Medicaid expansion.  Allow me to explain.

Because of current constraints to participation by medical professionals both by low reimbursement rates, 1800+ pages of cumbersome rules, and audits that go beyond financial fraud to interfere in actual treatment decisions, there are at present not enough willing doctors to adequately serve those now eligible for Medicaid benefits.  Realizing this, and attempting to avoid making the optional expansion to 133% of poverty and influx of new eligibles a disaster, “any means necessary” was once again deployed.

On November 6, 2012 (surprisingly not a Friday) CMS published a Final Rule to go forward.  146 primary care Medicaid services identified by the ACA would, by regulatory proclamation, be compensated at the higher Medicare rate, starting with 2013 but only for two years.  Since Medicaid reimbursement rates relative to Medicare reimbursements vary tremendously from state to state, the percentage increase covered by Federal funding varies accordingly.  At one extreme are two states that surprisingly pay higher Medicaid fees for the covered services than they do for Medicare.  These states will receive no additional Federal funding.  At the other extreme is Rhode Island, where Medicaid fees will increase 198%.  Five other states will receive boosts of over 100%.  Pennsylvania is number seven on the list and doctors will be compensated an additional 96% to equal the higher Medicare rates.  On average across the nation Medicaid fees for the ACA primary care services will rise 73% at an estimated cost of $11.9 billion, all in an attempt to keep willing physicians on board, expand their willingness, and attract newcomers.

The problem, of course is what happens after 2014.  It is unimaginable that doctors enjoying the higher reimbursements for two years will do anything but lobby stridently to extend the increases and indeed have them made permanent.  Realizing, otherwise, the carrot to participation would no longer exist, this outcome can be considered probable.  The mystery is who would then pay?  Would the increase be included in the ultimate 10% state funding under optional expansion to 133% of poverty or even some formula that would require states to pay more? Would the increases fall to each individual state or be averaged over all the states?  The point is that today no one knows.  While perhaps not being the main reason to avoid the optional Medicaid expansion, especially those states with the greatest percentage “temporary” increases need to consider the possibility of very serious consequences in the aftermath of this two year attempt by the Federal government to buy a loyal constituency for implementation and avoidance of massive failure.  It is also interesting that the current reimbursement increases were only applied for two years, as estimates for the cost of Obamacare have been made over a ten year period, allowing more, for now, to remain hidden from view.

The two main sources used for this post were a policy brief from the Henry J. Kaiser Family Foundation and an article in American Medical News published by the American Medical Association.  More details can be found at these two locations.  Also used was a recent article written by the President of the Texas Medical Association.

Note: This post was shared to WatchdogWire-Pennsylvania on Sep 24, 2013.

Every State Not Expanding Medicaid (and those that do) Needs to Do THIS — ASAP!

Pennsylvania is fortunate to have a governor who has made bold choices in opposition to Obamacare by both declining state insurance exchanges and the more difficult, but entirely correct, refusal to expand Medicaid, but it can’t stop there.  Governor Corbett and all non-expansion states need to explain why their decision was correct and promote alternative solutions asap, or lose the battle for public perception as Democrats are painting the Governor and the GOP as standing against the poor and caring only about the rich, despite it not being true.

Last week on PCN-TV, a Pennsylvania version of C-span,  State Senator Vincent Hughs was practicing his art of indignation by trashing the Governor on Medicaid expansion and demanding to see the figures on Governor Corbett’s fiscal concerns.  He also posted a response on his website.  Senator Hughes seems to have the idea that adding more free stuff from others better off can never go wrong, and because we would in the end retain 90% Federal funding, that Federal money somehow materializes from thin air, rather than from the pockets of people in the states, including Pennsylvanians.

For the benefit of Senator Hughes, and to his credit, we should look at numbers, and outcomes and realities as well, being sure to consider everything we know and leaving indignation, hubris, and emotion at the door.  If Senator Hughes would approach the debate in such fashion and the GOP would learn to articulate their message and promote detailed solutions and alternatives to Medicaid expansion we may find places where we can agree, and even discover ways to provide better care for the poor at less cost to the taxpayer.

Without too much detail, Medicaid is a mess.  Low reimbursement rates that don’t cover costs keep many physicians from participation entirely and must limit the number of eligible patients seen for those who do.  For others a different cost is too great, best summed up in this quote from an article written by the President of the Texas Medical Association, Dr. Michael E Speer :

“Texas physicians are also discouraged from accepting new Medicaid patients because of the program’s 1,802-page rulebook and exasperating, irreconcilable red tape. We need to return to treating the patient, not the administering bureaucrat.”

These constraints to participation create rationing by waiting time, length of visits, and lack of availability to care that result in the much higher cost of seeing non-emergency cases at hospital emergency rooms.  After all it’s better to wait 6 hours to see someone than 6 days or 6 weeks, and those facing such choices cannot be blamed for doing what they perceive is in their best interest.

All this has numbers attached too that Senator Hughes and those deriding the Governor’s decision should be equally interested in seeing as well.  Ask any doctor.  Medicaid patients often fare worse than patients without any insurance.  Expansion of eligibility will do nothing but increase the waiting times of those already attempting to find access from too few professionals who can afford to offer it.  Coverage clearly does not equate to care.  Also, expansion to 133% of poverty forces more people into Medicaid because only  those over 133% will be eligible for subsidies in exchanges.  Many additional people toward the upper end of the 133% will be be forced to drop private insurance they now have to join the ranks of the current overextended Medicaid mess.  Senator Hughes and others, is this what YOU want?

We must look to better ways to provide for our poor, not extend a system of failure.  Various alternatives to providing for the poor have been tried, some with much success and satisfaction.  Successful innovations have been tried in Indiana, Florida, and Rhode Island.  These involve empowering the poor with ownership via their own special accounts or insurance policies that have incentives to choose services wisely.

Perhaps the single best idea I’ve seen comes as a bill that has been introduced in the New Jersey Senate that uniquely looks at a partnership between state government and private charity.  Senate No. 2231, also known as the “Volunteer Medical Professional Health Care Act”, is a brilliant idea that should cross party and partisan lines with appeal to anyone who seriously wants to provide better access at lower cost along with less government involvement and control.

Very simply, New Jersey Senate No. 2231 would grant any physician (primary care or specialist) or any dentist who agrees to volunteer at least 4 hrs per week in a non-government free clinic, immunity from civil liability through the entirety of their medical or dental practice in the state.  These physicians would not need to purchase malpractice insurance and be freed from oppressive Medicaid regulations and scrutiny, creating an almost irresistible incentive for many more physicians to participate than are willing to commit to Medicaid.  Medicaid would never be involved or ever billed for any of this service.  The New Jersey chapter of the Association of American Physicians and Surgeons (AAPS), who inspired the legislation has estimated New Jersey could expect to save $2 billion of a $10.2 billion Medicaid budget or close to 20%, while offering more timely and much better care for those they see.   AAPS itself was inspired by the vision of two members, Drs. Alieta and John Eck, who responded to the needs of the poor and their concerns over the pitfalls of Medicaid by starting a free clinic in their hometown, Zarephath, NJ,  in September of 2003, thus will enjoy their 10th anniversary this year.

Governor Corbett in Pennsylvania and other Governors who courageously declined to expand Medicaid made the right choice and need to stick to it.  Opponents need to open their eyes to existing realities, and all need to come together to find better solutions such as S-2231 in New Jersey as well as others.  AAPS has informed me that similar legislation may soon be introduced in UT and AZ.  It is not enough to decline Medicaid expansion and then do nothing, while being falsely painted as uncaring by those with insufficient understanding.

Resisting Obamacare and Confronting the Dangerous “Other” Complicity – There IS a Way Out

With the deadline for states to convey their intentions on Obamacare exchanges to HHS only days away at this writing, much attention is centered on what they will do.  It is possible that half the states will decline to participate leaving the Feds alone in a task some think may not go well.  The point that the States have the option of participation cannot be lost.  The crafters of Obamacare were in some ways cognizant of the limits of Federal power and, thereby, sometimes reliant on willful submission and complicity to achieve their goals.  In the past few weeks I’ve discovered that exchanges were not the only situation where Obamacare recognizes its potential limitations vis-a-vis the states, opening the door to the potential for significant new legal non compliance options.

On November 29 I received an email from Donna Rovito, fellow Pennsylvanian, National leader in  healthcare freedom issues, and founder of the Lehigh Valley Coalition on Healthcare Reform.  It included a link to a Citizens’ Council for Health Freedom (CCHF) page featuring commentary from its president Twila Brase.  Her topic was a section of Obamacare that drew notice of at least one attorney at the Goldwater Institute.  It’s found in Subtitle G – Miscellaneous Provisions, specifically Section 1555 which reads:

“No individual, company, business, nonprofit entity, or health insurance issuer offering group or individual health insurance coverage shall be required to participate in any Federal health insurance program created under this Act (or any amendments made by this Act), or in any Federal health insurance program expanded by this Act (or any such amendment), and there shall be no penalty or fine imposed upon any such issuer for choosing not to participate in such programs.”

The question raised was whether Section 1555 leaves individuals the right to opt out of Obamacare or is restricted to issuers of insurance, accepted as understood.  I hope to show why this distinction is of minor concern.

Only a few more pieces of this puzzle need to be considered to understand its importance, mostly falling under the heading of what I’ve been calling the “other” complicity.

The other complicity is the unchallenged acceptance of Obamacare coverage mandates and regulations into policies as they even now exist before the exchanges are set to begin.  This would include everything that defines how health insurance must look, from the phony deceptive “no cost sharing” first dollar mandates (including “free” contraception) to the age 26 requirement and bans on exclusion of preexisting conditions, from minimum loss ratio requirements to actuarial value restrictions and more.  All this defining by the feds is in a direction 180 degrees from anything that makes sense and will add hugely to health insurance premiums within the exchanges.  Michael Cannon at the blog Cato @ Liberty just presented some stunning information on the magnitude of these premium increases.  We are looking at 30-40% and in some cases more.

While the Federal Government may be able to define the parameters of insurance within Obamacare there still exists a world outside, separate and apart, or at least there can and should.  That world is the authority and responsibility of the states to regulate insurance sold within its borders granted to it by the McCarran-Ferguson Act of 1945.  Under McCarran-Ferguson insurance was exempted from Federal anti-trust law and its regulation was left to the states, and remains in effect to this day.  There is nothing about Obamacare that strips states of this right and insurance companies cannot claim that they are bound to participate in the dictates of Obamacare, as Subtitle G-Section 1555 makes clear they are not.  Insurance companies were given the choice to partcipate, but states, through their insurance departments, and the authority of McCarran-Ferguson, reserve the right to require the continuance of non Obamacare compliant health insurance outside the exchanges, no matter what form the exchanges take.  So long as states do NOT go for the purchase of health insurance across state lines, they have the defense, even in the face of the modern skewed interpretation of the Commerce Clause, to keep it this way.  States must see Obamacare not as an imposition upon them but as a federal program layered over them for those who want it.  They hold the keys to the maintainance of the availability of sensible health insurance policies, outside the federal program, firmly in their hands.

States, by using the authority they have, can even require a movement to true high deductible insurance where everything covered conforms to the deductible, among its choices outside Obamacare, thus setting the stage for many to pay the tax for non participation in the exchange, purchase sensible real insurance outside it, stash money into a HSA, and still have money left over in the end.

My take is that Obamacare is so reliant on willful complicity as to be a paper tiger that only gets teeth that are handed to it.  All of the above along with the adoption of Healthcare Freedom measures as 17 states so far have, will determine how far states will permit the federal power grab that is Obamacare to go.  A tradition of states exerting those powers they have needs to be rekindled, and there is no better time than now, on this issue, to do it.

I Want to be Thankful for My Governor – An Open Letter to Tom Corbett of Pennsylvania

Honorable Tom Corbett, PA Governor

Governor Corbett, this holiday season I want to be especially thankful for my governor.  Governors are uniquely positioned to defend and protect a prime reason why America has thrived as it has.  The concept that in the United States a predominance of power would remain with the States and the People was central to our founding.  Violations of this concept are yours to resist and defend your state’s citizens against.  The notion of state and individual sovereignty in America must be fought for under any circumstances forever.

We currently stand at a point of decision.  Obamacare is upon us.  When I called your office and raised these Constitutional and Founding issues your staff agreed in theory, but then went straight to a strange position of passivity, an acceptance that Obamacare is inevitable.  I was even told that “come 2014 Pennsylvania will have an exchange”.  Governor Corbett this is not the kind of leadership I am looking for.  Yes, how setting up Obamacare exchanges will affect the finances of the state is an important consideration, but overriding that is Obamacare’s assault on freedom.  As Attorney General you brought PA into suits against this Federal power grab.  Where will you be now with things you still can do to protect us?

In the last few days two highly instructive articles have appeared on why states should refuse to set up exchanges.  One comes from Michael Cannon at the Cato Institute.  Another, written by James Capretta and Yuval Levin appeared in the Wall Street Journal.  Both suggest that the 30 Republican governors can gum up the works of Obamacare by simple legal acts of non-complicity.  Neither suggests any advantage for states or their citizens by setting up exchanges even if they ultimately become a reality.  Questions remain if the law itself provides the framework to be implemented without the cooperation of the states.  Almost 35 lawsuits remain to be decided.

Governor Corbett, the Federal Government has extended the deadline for states to make their decisions on exchanges and Medicaid expansion to December 14.  Twenty-one other states, so far,  have said they will not be setting up exchanges.  A majority of states standing in opposition is very possible.  According to the two articles I cited sufficient disruption may ensue to at least delay Obamacare if not cripple it.  Development of and having at hand alternative market based reforms, such as those suggested in other posts on this blog, may then find an opportunity to at least be demonstrated.

Governor Corbett, this is a time that requires exceptional courage.  By taking the side of freedom and liberty, on December 15 I will be able to say that I am especially thankful that you are my Governor.  Say NO to Obamacare Exchanges and the expansion of Medicaid also.  Thank You!

Happy Thanksgiving Sir

Todd Keefer

PA citizen and writer of

Why Employers Should Embrace a Requirement to Offer the HDHP/HSA Choice

Get around business people and mention requirements coming from government and chances are good that there will be a usually correct knee-jerk reaction against almost anything being proposed.  I’ve run into this with a suggestion to require every employer, public and private, who offers health insurance as a benefit, to include the choice of high deductible plans with health savings accounts.  Far too many employees still do not have this choice available to them even as evidence exists that such an approach is clearly win-win for the employer and their employees.  Most of this can be attributed to resistance caused by misunderstanding that has become very entrenched over time.  In this regard, even though employers are free to offer high deductible plans without any government requirement to do so, the requirement itself can be a benefit to many in providing cover for them in the face of employee, or especially union, resistance.

The proposal to require all employers to offer high deductible health insurance has the solid backing of a 30000+ person case study in the state of Indiana.  Starting in 2005, by way of the leadership of Governor Mitch Daniels, Indiana offered all its state employees the high deductible choice with health savings accounts, while maintaining the currently offered PPO plans.  Bucking initial resistance, the state human resources department backed the new choices with education.  From only 4% participation in the first year, by 2010 over 70% had moved to the high deductible choice, and today it is over 90%.  At the 70% level, when Gov Daniels wrote his March 1, 2010 op-ed in the Wall Street Journal he estimated that taxpayers in Indiana would save at least $20 million because of their high enrollment in high deductible plans.  Importantly this is after  the state shares the savings by partially funding health savings accounts, in the case of family plans, $2750 annually.  These savings are primarily due to employees spending their own money ahead of that of others, slashing overuse, unwise use, and incentivizing finding the most value.  Governor Daniels never doubted the free market or the critical importance of direct payment in the restoration of necessary market forces that have been disrupted by unnecessary third-party payment, and the overwhelming results should have precipitated a flood of followers both in the public and private sectors.  As noted in the op-ed though, “Due to the rejection of these plans by government unions, the average use of HSAs in the public sector across the country is just 2%.”  Adoption has been slow although has been accelerating in recent years.  Still after 9 years of eligibility HDHP with HSA represent only about 10% of the total health insurance market.  Total consumer driven plans, which include HRA accounts are close to 20%, but only HSAs represent the property of the employee, an important consideration in partially solving the portability problem.  Again, a requirement to offer HDHP as a choice provides cover against initial misunderstanding of how or why high deductible is most often in the best interest of both employer and employee.  All existing plan choices can remain, additionally easing concerns of those who may have doubts or face unusual circumstances.

What will motivate the business community to back any requirement to do anything is substantial evidence that the regulation or requirement is indeed in their interest.  A quick back of the envelope calculation, making very realistic assumptions is rather eye-opening.  Let’s start with the realized savings on 30000 state employees in Indiana, make the assumption that similar savings would occur elsewhere, then extrapolate to a larger private sector population.  My state, Pennsylvania, has about 5 million private sector employees.  Since the regulation would only apply to employers who already choose to offer health insurance, this number needs to be reduced by that amount.  Latest figures show health insurance is offered by 61% of employers.  Since this is not employees and to err on the side of caution, I’ll use 50% as the factor not offered health insurance and reduce the potential pool by half to 2.5 million.  This then needs to be further reduced for the approximate 10% of the population who already have HDHP and HSAs, reducing the pool further to 2.25 million.  Since we are looking for similar savings at the 70% level as reported by Indiana with 30000 employees, dividing 2.25 million by 30000 gives us a projection factor of 75, which when multiplied by the assumed savings of $20m yields an expected annual injection into the private sector economy of $1.5 billion for Pennsylvania after attaining the 70% participation level, achieved by Indiana in five years.  Now, does that make a regulation sound better?  Keep in mind also conservative assumptions present the chance that even greater results can be produced.  This is one government requirement that business should request rather than resist.

While it is easy to claim that savings could be even higher without Indiana’s pre-funding of Health Savings Accounts, this sharing of savings directly to a HSA rather than, or in addition to, including in wages is important in two regards.  First, the incentive to take the high deductible choice is strengthened.  Second, studies have shown poor HSA funding habits by a significant percent of employees when left on their own.  Matching arrangements like those with a 401k could represent an additional way to incentivize employees to do what is right for their future and the future of market driven cost controled healthcare reform in general.

Prescription for Successful State Healthcare/Insurance Reform–Simple and Focused

Let’s begin with the question, What would be the single most effective thing any state could do legislatively to produce the most positive outcome in healthcare/insurance reform?  Is there such a thing?  Belief in the Pareto Principle or the 80-20 rule of problem solving would suggest such effective prioritization of effort should likely exist and in what follows I’ll make the case that not only does a simple focused solution exist but fits state based healthcare/insurance reform especially well.

While running for President, Herman Cain, as a career problem solver, would often say that the number one thing about problem solving is to make sure you’re working on the right problem, then caution that this is not as easy as it sounds.  Einstein is attributed to have said, “Not everything that counts can be counted, and not everything that can be counted counts.”  All three citations  say essentially the same thing, that knowing where to focus effort can and should result in greater efficiency and less wasted time in solving almost any problem.

Fortunately on the healthcare/insurance issue, in consideration of all the separately identified component problems, there exist a few select studies and one highly successful, sufficiently large real world example that, taken together, reveal proper focus that fits the significant 20 in the Pareto Principle, the right problem Herman Cain speaks of, or what really counts according to Einstein, leading to clear and simple solutions.

Any consideration of the healthcare/insurance issue that does not start with, or misses entirely, the 1994 CATO study by Stan Liebowitz, titled simply and directly “Why Healthcare Costs Too Much”, risks missing the stark reality that unnecessary third-party payment is the central culprit both in terms of cost and the disruption of a normally functioning marketplace that requires the direct interaction of provider and consumer, according to what one is willing to accept and the other is willing and able to pay, in order to efficiently set prices and allocate resources.  It is the illusion of free or almost free caused by low or non-existent deductibles and low copays that incentivizes massive overuse that Liebowitz estimated to be, including administrative costs, $333 billion in 1994, easily making unnecessary third-party payment the number one source of excess cost in the system.  The lesson of the Liebowitz study is simple.  The solution lies in focusing on methods that increase direct payment and reduce third-party payment.  This is the central issue and required for reconnection to market forces long abandoned prior to Obamacare or Obama.  The Executive Summary states, “The use of medical savings accounts needs to be promoted.  High deductible health insurance should be encouraged.”

Following Liebowitz in 2001 Milton Friedman wrote “How to Cure Healthcare“, which featured a cartoon depicting unnecessary third-party payment via employer-provided health insurance as dumping money down a rat hole.  The conclusion was the same, again pointing to the basic need to increase direct payment relative to third-party payment, which today represents about 5 of every 6 dollars spent on healthcare services.

The two cited studies alone clearly identify the single source of greatest waste, the acceptance and growth of unnecessary third-party payment.  Neither argues against the proper use of insurance to protect assets against expenses that would be unaffordable otherwise.  In addition, achieving more direct payment coincidentally lessens the effects of other identifiable problems, namely largely negating the considerable costs of coverage mandates so long as they conform to a high deductible, curbing the use of defensive medicine by raising questions of necessity, bringing consumer demand for pricing transparency, lessening the opportunities for fraud, and restoring the doctor-patient relationship as nothing else can.  It also provides partial portability as the health savings account component always remains the property of the insured employee.  These positive effects on other component problems not addressed lends confidence that the focus on unnecessary third-party payment is the 20 of Pareto, the root of the overall problem.

Following Liebowitz and Friedman, in 2003 Congress passed the act that established Health Savings Accounts with the requirement that they be associated with High Deductible Health Plans (HDHP).  Starting with 2004 such plans became available, alone setting the stage for significant reform with their adoption, but there was a problem.  Widespread adoption did not happen.  Years of embracing the false comfort of third-party payment along with limited understanding of personal finance and economics and the disconnect from cost caused by employer provision had conditioned the majority of the public to not see the advantages of high deductible plans.  Employers were slow to offer as employees and unions were quick to resist.  By the start of 2012 after 9 years of availability less than 10% of Americans were covered with high deductible plans that included health savings accounts, although as the reality of Obamacare approached and costs continued to soar these plans have been increasing in recent years.

Fortunately there is one glowing exception to the slow adoption of the high deductible approach that should be the model for the entire nation, both in its simplicity and results.   When Mitch Daniels took office as Governor of Indiana following his 2004 election, such was his understanding of and faith in the free market that he had no concerns that the path he decided to take would work.  All 30,000+ state employees were offered high deductible health insurance plans alongside the existing PPO plans most employees are routinely provided.  Then the state made the commitment to back the new choices with education.  Human resource personnel met with employee groups to explain how the high deductible approach would be to the benefit of most who chose it.

The results speak for themselves.  In the March 1, 2010 Wall Street Journal, Governor Daniels laid it out.  By that time state employee participation in high deductible had reached over 70%, up from 4% only five years earlier and the state estimated taxpayers would save in excess of $20 million.  More importantly, this projected annual savings is after the state funds health savings accounts  $2750 each year for family plans and proportionally less for individual plans.  As compared to the PPO plans, spending in the high deductible plans was only  65 cents on the dollar.  Emergency room use was down 67%, showing that even the insured will use an emergency room for non-emergency when the out-of-pocket cost is low enough and it is a situation of convenience.  Importantly, satisfaction was high, with only 3% going back to the PPO plans after choosing high deductible.  Since 2010 the situation has improved even more, with the participation rate in the high deductible plans now in excess of 90%, all by free choice of the employee.

There is no reason to believe that the Indiana results cannot be replicated everywhere.  This could be accomplished by legislation in any state to simply require all employers, public and private, who choose to offer health insurance to their employees, to include the choice of high deductible plans with health savings accounts.  No current offerings would have to change.  In Indiana they remained as they were.  It was individuals coming to the realization that the high deductible choice is in their best interest that led to the changes and the savings and the satisfaction.

Business normally resists regulation but should consider embracing this requirement.  In a world where third-party payment has been so widely accepted and its evils to the marketplace so little understood by so many, an external requirement would give managements cover to put before their employees that which may likely be, and often is, resisted at the outset due to lack of understanding.  The key is choice rather than coercion, and results are clearly win-win, with the potential to slash costs for employers and empower employees with spending their own money ahead of that of others who then gain control in the transaction.

Indiana accomplished so much by doing so little.  All they did was a justifiable function of government to assist the proper working of the free market by insuring each consumer information and choice, both necessary to market efficiency.  If all this seems too simple, think Pareto, Herman Cain, and Einstein.  Think also Ronald Reagan who said in a 1964 stump speech, “There are no easy answers, but there are simple answers.”

Restricted Community Rating vs High Risk Health Insurance Pools

High risk pools are suggested to make insurance affordable for those with previously existing conditions.  Making affordable involves the money of others either through government subsidy or allowing insurance companies to artificially deflate higher risk premiums by shifting the cost to others, thereby letting the government fool folks into thinking they’ve protected them by making those bad insurance companies pay, even as everyone else kicks in higher premiums costing the insurance company nothing.

While allowing the insurance company to cost shift premium to the non high risk as a subsidization seems more efficient than creating additional government to administer such transfers, it still imposes a fee or tax (or whatever) on everyone indirectly in this attempt to make insurance affordable for all.

This is where the connection to community rating enters the picture.  Community rating can be a real disaster if applied across all age groups as youth will crash the system with non participation.  But what of community rating by 5 year age groups?  Would not this bake in those high risks directly in the premium charged to all rather than having to make other arrangements to effect the transfers we seek to make anyway?  Why not then simply make the transfer right up front, eliminating the need to create other mechanisms that carry their own added expenses?

A couple last thoughts for this post: Community rating by 5 yr age groups would also include the behavioral caused illnesses of others along with their genetically caused or unexplainable misfortune.  While this is somewhat unfair, in a system that moves to high deductible based real insurance where the majority of individuals spend enough of their money ahead of that of others, the incentives to avoid such situations by better diet and exercise will impose on many as they do not today and is the preferable alternative to finding healthy living than by fearing to have to use a system of rationing and long wait times.

Also age-group-limited community rating will impose large premium increases later in life.  Again, in a market based system using higher deductibles and expanded health savings accounts not necessarily tied to insurance, most individuals will have achieved significant balances in their health savings accounts over the years to the point they will then be able to offset the rising premiums by moving to higher deductibles, so high they do not even exist today.  Considering that a health savings account with a $150,000 balance (not at all an unexpected outcome for many) can completely cover a $30,000 deductible for five years makes this a sensible option and would carry a greatly lower premium.  Insurance is about the necessary limitation of risk and owning too much is as bad for one’s personal financial situation as owning too little.

Notice something else in a world of widely dispersed health savings accounts of significant value.  A large portion of the population starting from an early age will reach retirement with no need whatsoever (at least initially) for Medicare.  What other approach has the power to do that?!!