Memorandum

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					 ProDev Associates, Ltd.
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Memorandum

Date: December 23, 2010
To:   Health Reform Readers
From: David Weinschrott
Subject: Getting Started with the Health Reform Debate

This memo provides an introduction to the health reform debate in 2009. All resources listed here are
found on the Health Reform Page of ProDev Associates, Ltd.

I am including a variety of materials – some of it defines some concepts in short briefing papers (4
pgs). Other pieces are a longer description of the kind of plan that is being proposed and why the set
of necessary components selected make sense (at least to me!). Also I have included a chart that
compares the current Senate and House versions that would go to reconciliation if they are passed in
their respective chambers.
In addition – there is a shorter version of the necessary components below and the alternative offered
by Republicans.

Documents:
1. What is a health insurance exchange: describes how a “managed” market for health insurance
would prevent discrimination against individuals or small employers. (4 pages)
2. What are payment options: describes various options for paying for comprehensive health care
coverage. It is important to distinguish between sources from within the health care system (e.g.,
taxes on existing health insurance premiums) vs. sources outside the health care system (e.g.,
surtaxes on personal incomes). Sources within the system are likely to grow at the same rate as
health care costs, while those from outside the system will likely grow slower. (4 pages)
3. What is employer play or pay: describes how employers can continue to provide health care or pay
a fixed fee to help support other options for health care insurance for their employees. These
systems would have exemptions for small employers. (4 pages)
4. Compare Senate-House Versions: compares current (before the congressional break) democratic
sponsored Senate and House versions. The differences appear minor. Note, however the categories
(or features) of the comparison especially the “Create Health Insurance Pooling Mechanisms,” which
relates to the Health Insurance exchange issue described in the first document. (13 pages)
5. Market Approach to Health Insurance reform: This is a longer document by Paul Fronstein from the
Employer Benefit Research Institute – This paper discusses how the various pieces of a health
reform like those being proposed fits together. I have a similar piece below but not as detailed.
Knowing how the various pieces fit together is crucial to understanding the debate. Opponents know
if they can create opposition to a crucial component (e.g., the public option) they can make the rest of
the program fail.

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Brief Overview of Reform Plan Components

Introduction
As I noted in email conversation with some of you this past month, the Democratic plans working their
way through Congress are not single payer plans. In fact today (8/10) Obama said that the
Canadian model would not work in the US. The proposals before congress are modified market
models that primarily change how health insurance enrollment is determined.
The objective of the reform (the administration is using the term “Health Insurance Reform” rather
than Health Care Reform to highlight this issue) is to intercept the ability of health insurance firms to
discriminate by age and health history in their plans and premiums.
The first bullet point in document 5 above says that health insurance exchanges will have this impact.
      Now employer groups as a whole are “experience rated” so that a higher premium can be
         charged for more risky groups. The impact of such rating on premiums everybody pays is
         smaller the larger the group. Individuals who have health history in the group are not rated
         individually – everyone pays the same premium.
      Now persons who attempt to buy individual coverage face individual experience rating. Age
         and past health history can have a dramatic impact on premiums or whether coverage is
         even offered.
      Attempts to combine small employers or individuals in associations, to get “large group”
         treatment have not worked since insurance companies still discriminate base on age and
         health history.
      In a health insurance exchange an individual or an employer can choose coverage from a
         “menu” of options available in their region. They will be able to purchase that coverage at the
         same price as anyone else – there is no way the insurance firm that supplies that coverage is
         able to discriminate, i.e., charge different prices, or offer different levels of coverage.

The plans are constructed of several elements to achieve this result.

Components
  1. Restrictions on insurance market:
         a. Guarantee issue: no one can be denied coverage
         b. Community or Modified Community Rating: either there is a single premium for a plan
             for all consumers or there are just a few categories of prices (probably determined age
             but not health condition)
         c. Minimum or defined benefits: a list of identical plans are offered by different companies
             – they can’t play with the benefit structure within a region
         d. Risk adjustment – insurance companies who obtain a high risk group will receive extra
             payments from the exchange (or government). Reduces incentive to discriminate by
             other means.
  2. Individual or employer mandate or both. In order for insurance companies to submit to 1.a.
     above, virtually everyone has to be enrolled. You won’t be able to wait until you have a heart
     condition before you enroll in an insurance plan. (So item 2 depends on item 1)
  3. Health insurance exchange: enrollment process is removed from insurance firm. The
     exchange is placed between the purchaser (employer or individual) and the insurance
     company as a broker. Premiums for any plan are the same to all comers and there are a
     variety of tools to assist in making choices among plans. (Item 3 helps guarantee the end of
     discrimination)
   4. Public Plan Option: Another means of “disciplining” the market. If some individuals are unable
      to negotiate a suitable private insurance plan at the exchange, there will be a public option.
      This will provide further incentive for insurance firms to compete on price and quality of
      service rather than risk. (Item 4 helps guarantee the end of discrimination)

Each of the components 1-4 act together to achieve the desired result – they are a package.
Nevertheless how each of these components are implemented is open to debate. Document 5
addresses some of these complexities.
Beyond the plan component is the question of achieving cost containment – that is bending the
projected cost trajectory to a lower rate of growth. Again that is a bundle of different strategies that
are hard to quantify. Nevertheless, significant cost containment must be a serious objective, the
current trajectory is unsustainable.

Them other guys:
This is my summary of the options supported by Republicans along with my comments:

Republican Components
Republicans are hoping to bring the whole process down – even demonizing the idea of getting all
persons enrolled – the basis of tentative support by the insurance industry. The alternative offered by
Republicans (per Sen. Boehner, R-Ohio) contains these components: (1) Opportunities for small firms
to band together to gain “big company” discounts, (2) tax credits to business to help them purchase
insurance for their employees, (3) tax credits to the uninsured to help them purchase insurance, (4)
end bias of insurance companies in enrolling persons with health problems, and (5) promote health
savings accounts – that is high deductible plans. This combination of elements is the same collection
that has been offered for the last decade – some parts have been implemented and have not begun
to solve the problem.

Critique
(1) Research shows that insurance firms still discriminate against small employers with sick
employees even if they are in a cooperative. (2)Tax credits do not solve the problem for employers
facing such discrimination since they come to all employers – even their competitors. The insurance
companies do this because they can and because it adds to profits. (3) Tax credits to the uninsured
(or the self employed) are a hollow promise since the tax credits being offered won’t cover the cost of
premiums being offered (often $1500/month) when they have health problems. Most times insurance
will just not be offered at any price. (4) How will bias be ended among insurance companies if nothing
is done to take the competitive battle line, noted above, off the table? (5) Health savings accounts
work fine for persons who are healthy, but the high deductibles hinder access to preventive care for
persons with chronic disease – often causing their conditions to get worse.

Web Resources:
     Kaiser Family Foundation: http://healthreform.kff.org/ ( User friendly array of resources)
     Commonwealth Fund: http://www.commonwealthfund.org/Health-Reform.aspx (Similar to
      Kaiser)
     Employee Benefits Research Institute (EBRI)
      http://www.ebri.org/research/hrep/index.cfm?fa=hlthpub (Technical studies and policy
      reports)
     Center for Health System Change: http://www.hschange.com/index.cgi?func=pubs&what=2
      (Short empirical studies on important topics)