You Need To Control The Growth Of Premiums

The Los Angeles Times has good piece addressing one of the most underreported problems with the Baucus bill. The Baucus bill lacks sufficient mechanisms to slow the out of control increase in premium.

Democrats have shied away from regulating premiums in the face of charges from business leaders and Republicans that controlling what insurers charge would be meddling too much in the private sector.

As a result, while states have long supervised what companies charge for mandated automobile and homeowners insurance, the idea has been largely banished from the health care debate...

Nor are lawmakers seriously considering any proposals to regulate what doctors, hospitals, drug makers and other health care providers charge -- a strategy used by several European countries to control health care spending.

There are some countries that have universal health care provided primarily by a regulated marketplace of private insurers (Switzerland and Netherlands). These countries use a variety of heavy handed regulations to slow the growth of premiums.

A robust public option was meant to be the mechanism to control health care cost instead of pricing regulation. The idea was to have a public option that would not dominated the market, but would dramatically reshape the marketplace. A strong public option which could sell insurance plans at cost would provide the competition needed to discourage private insurance companies from gouging costumers. A public option would also allow the government to introduce and encourage the adoption of delivery system reforms which could hopefully produce high quality, low cost health care. If the reforms work for the public option, the hope is that they will be copied by private insurance companies.

If you don't have a robust public option than the system needs strong heavy handed cost control and pricing regulation. Baucus's plan has neither. Under the Baucus bill, everyone would be forced to buy insurance from private insurance companies, the government would foot the bill when the cost of premiums go over some percentage of income, and there is no regulation preventing insurance companies from raising premium as much as the can get away with. No one should doubt that this is a recipe for a costly disaster.

The Swiss Amendment

The Swiss Amendment as I define it would force every insurance company to sell “basic qualified” health insurance on a non-profit basis. Premiums collected for basic minimum insurance can't be used for profit or executive pay. At minimum 90% of the premiums collected for basic insurance must be paid out in claims. Insurance companies could sell for-profit “complimentary coverage” (this would cover dental, optics, non-generic non-life saving medication, etc...) only to costumers that it already provides non-profit basic insurance for. Only funds from complimentary coverage could be used for profits or executive pay.

Background

Switzerland has a universal health care system. It uses something similar to a regulated health insurance exchange for people to select a private plan. Insurance is sold using community rates. There is an individual mandate that people must buy basic health insurance (In Switzerland this is called, “social health insurance”). The government provides people with subsidies to help buy private insurance. There is not a government run public option for people to choose. But Switzerland has a very important law that makes their private health insurance system some whate workable. All social health insurance plans must be not profit-making. Additional "complimentary coverage" can be sold to costumer for profit.

Ideally, I do not think the Swiss health care system is one that we should replicate. While Switzerland does have a universal system and pays less than us per capita on health care, it is still one of the most expensive systems in the world. If we are trying to reduce health care spending, copying another very expensive (but much less expensive) system does not seem like a smart move.

I do think that if we are going to have a health care system that relies heavily on private health insurance we do need the copy the Swiss amendment. If the government is going to provide some people money to help afford health insurance, it should subsidize health care, not corporate profits.

If there is a public option the Swiss amendment would be very important but not critical. There would at least be a comparison to help Americans determine if the for-profit insurance companies are ripping off costumers and the government.

Without a public option the Swiss amendment is essential to avoid a complete fiscal disaster. An individual mandate and subsidies based on the average price of the cheapest plans offered in an area would create a perverse incentive for private insurance companies to increase premiums, gauge costumers, and rip off the American taxpayer. Competition would be insufficient to control cost for many years.

Most health insurance markets are highly concentrated and it is very difficult for new insurance companies to expand into new markets. Creating provider networks requires a large costumer base, but costumers won't sign up for a plan unless there is significant provider network. Doctors also won't sign up with insurance plans that don't have customers. It is a classic catch-22. That is why a government backed public option is so important.

If there is not a public option at minimum there must be the Swiss amendment to avoid disaster. There is no ideological reason that Republicans or conservative Democrats should oppose the Swiss amendment. It is unconscionable to force everyone to buy insurance and provide government money to help people afford minimum insurance without at least the Swiss amendment. Without it, health care reform is a massive transfer of money from the taxpayers to health insurance profits and their millionaire executives.