Health Insurance Co-op / Exchange. The Debate for Next Week

Next week President Obama will address a joint session of Congress in an attempt to get some form of health care legislation passed.   It’s reasonable to believe that liberal democrats will be miffed that President Obama may not publicly support the Public Option anymore.  Instead he may press forward with a more limited scope plan that will address some of the major issues.      


Likely to get enough support to pass will be, even with some bipartisanship, will be:

  1. Elimination of the preexisting condition clause.  (In general a good thing, but will raise costs for all since less healthy people will now have easier access to coverage.   Some form of non-enforceable mandate to have coverage will accompany it.   If structured incorrectly or without meaningful enforcement, there could be substantial incentive to go uninsured until you need it, counteracting    In addition, it may create an unfunded mandate to States.
  2. Revocation of upcoming Trigger reductions in Medicare reimbursement rates to providers.  Effectively killing the Medicare Modernization act of 2003. (Again, a necessary reality.  Designed to moderate Medicare growth rates equal to the rate of overall inflation, the principals were ill-conceived and have resulted in cost shifting as opposed to cost reductions)
  3. New Federal Subsidies for lower income people to get health insurance.  (With the higher cost of coverage, will it help?)
  4. Higher Taxes to pay for items #2 & #3.


If the “public option” is abandoned in favor of, THE HEALTH INSURANCE EXCHANGE, the savings in premium will be offset by non-covered expenses.  The argument that opening up insurance across State lines will lower cost, is virtual certainty.  The reason that the cost would be lower probably won’t be as openly discussed. (At least not by Republicans)   In an interstate insurance situation, the States with the least amount of benefit protection and greatest amount of tort regulation are sure to dominate.  (A sub-desire of conservatives to impose tort reform)  For example, If Illinois mandates mammograms with maternity and fertility coverage and Nebraska has none of those mandates, the Nebraska plan would be much cheaper.    Continuing that line of thinking, if you have guaranteed access to coverage, people will flock to the lower coverage parameters.  If higher-coverage insurers only attract only high-users there is no base of membership to spread risk around and the cost of better coverage will become unaffordable or disappear altogether.  Liberal Democrats are sure to argue against an Exchange, and they are probably right to do so.


The second new term, also favored by Republicans, would be buying Co-ops.   The Congressional budget report showed that total insurance Administrative costs range from 7% for large groups to as much as 32% for individuals.    The 32% number is skewed to high number because of the minimum fixed cost involved in maintaining a single policy.   When you see an ad on TV showing a premium of $60 per month, an administrative cost for that policy @ 32% is about $19.   Conversely, if a group premium is $1200 per month for the family, 7% is $84 per month.    Individual plan premiums are consistently priced, significantly below the average premium of a group health plan.      In a new structure, those rural areas and areas where the average income is lower may have more limited access to benefit advisors who can no longer afford to provide them information on choices available.   Co-ops also would offer more opportunity for abuse and misrepresentation of fees.  For example a Chamber of Commerce could form a co-op, charge management or association fees in addition to administrative expenses from the insurer, providing less visibility on the true administrative costs to the member. 


If limited to a choice between the Public Option, The Insurance Exchange across State lines, or the Co-op, I favor the co-op.  I make that choice because it would not diminish a State’s right to protect its citizens. Ultimately, none of the options above are going to lower costs of healthcare, although all the plans offer some legislative correction to some market issues that have not effectively self corrected.     

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