Obamacare and Insurance Companies - the Oped

 

The Affordable Care Act (Obamacare) designers were compelled to make the health insurance companies part of the deal.  No industry so rich and powerful can just be abolished. 

But the risk was high.  The behavior of insurance companies was part of the health care problem.  They profited by denying policies to those it judged poor risks, by revoking policies when subscribers got sick, and by tailoring policies with exclusion after exclusion, among many other tactics.  Under the ACA those practices would be outlawed – all applicants would be accepted at one price, with standard provisions, and no cancellations allowed.  Plus, importantly, profit and overhead rates would now be capped; if exceeded, the companies would need to rebate premium dollars to subscribers.  Companies would retain the power to enter or exit markets at will and to price every product freely, but they couldn’t cherry-pick their subscribers anymore.

The ACA, however, left the insurance company-provider relationship untouched.  The companies for years kowtowed to powerful high-priced hospitals, pharma, and large physician organizations, while dividing and conquering smaller physician groups, particularly primary care.  Thus arrived the increasingly prevalent High-Deductible Health Plans (HDHPs), which will continue under the ACA.  HDHPs represent terrible health policy: higher patient payments, disincentives for relatively inexpensive primary care, but continued support for high priced hospitals, procedures, and end of life intensive care.

With the new rules of the road, economists predicted the insurance companies would compete on the basis of efficiencies, service, and lower prices.  But were the changes enough?  Corporate behavior experts observed that a company’s culture tends to be persistent.  Would the predicted beneficent behaviors indeed emerge, or would other unpredicted ones, sly explorations of design flaws perhaps, take their place?  And also importantly, would the government be able to adjust rules and regulations nimbly as needed? 

The eventual outcome is unpredictable, but the early transitional period is alarming.  The insurance companies at this stage need to avoid catastrophic mistakes, even at the cost of initial market share.  So they cancel grandfathered policies for their own convenience; enter only selected exchanges to decrease risk; and charge high prices for profit safety, even if they might need to rebate consumers at the end of the year.  Moreover, they have created “narrow provider networks,” paying the included providers miserably, even if that leaves out the best doctors and compromises doctor-patient continuity.  Needless to say, the high-priced areas remain untouched. 

Obama erred in giving up so easily on the Public Option, which could have provided a safe haven for many in this interim period with uncertain choices.  He also erred in not providing a transitional plan of incremental changes for those who would be facing higher prices.  That would have been better than ignoring the problem.  He also erred severely in not altering the insurance company-provider axis.  Above all, he erred in not assembling a united, high-quality health care executive team.

While the short-term challenge is coverage, the long-term challenge will be reducing costs in the high-priced areas.  Progress is difficult under the best of circumstances.  Incompetence and venality are constants of life.  The key for progress will be for the government to finally assemble a first-class team, to recognize facts on the ground unstintingly, and to develop a willingness to confront entrenched interests.

budd shenkin

Obamacare -- What A Transition!

 

Early on, the Obama Administration made a decision that was probably correct, although they probably did not understand how compromising it was.  They decided to keep the vested health interests intact as they pursued reform.

How could they have done otherwise?  Who could be more powerful than the vested interests in health -- insurance companies, hospitals, academic centers, pharma?  It was bring them into the solution, or do nothing.  That’s just reality.

But the bargain could be Faustian.  How could the ACA bring in the health insurance industry and still accomplish reform?  The answer was, while they kept the players, they would change the rules of the game.  Up to that time, insurance companies made money by strict underwriting (declaring many people uninsurable, and others insurable only with very high premiums, and yet others insured with exclusions); by enforcing rescissions (revoking insurance when illness struck); by clever marketing and much small print that ended up denying coverage for care in many instances; by negotiating very low rates of payment with primary care physicians (who are consequently an endangered species;) and by many other nefarious tactics.  Many.  There was insurance company competition (inadequate in many markets, however), but collectively insurance companies had few incentives to reduce prices or utilization of care, because their profit was simply a percentage of premiums. 

In addition, to clinicians like me, health insurance companies became a loathed and reviled industry, both for how they treated patients and how they treated us.

The ACAs calculated that a change in rules would motivate a change in behavior.  The ACA got rid of specific underwriting by mandating community rating and abolishing exclusion for prior conditions.  The ACA also regularized terms of insurance so that they were open and fair to patients and wouldn’t contain hidden small print exclusions.  The ACA also set a limit on insurance company overhead and profit.  The intent was to harness competition so that insurance companies would compete on service and price, rather than who could fool the public the most.

So this was the ACA’s great gamble – could a company and an industry be changed by new rules of the road?  Or, since the companies themselves and the personnel in the companies would remain unchanged, would the essential culture and characteristics of the industry prevail in the end?  Would they find a way to perpetuate their old behaviors even with new rules?

And, to fill out the picture, note this: insurance companies stand between two entities in the health care world, patients and providers.  The ACA would change the rules on the one axis, patient to insurance company.  But the rules on the other axis, insurance company to provider, would not be changed at all.  Sometimes the power in that axis rests on the side of the provider, as with powerful hospitals that would be mandatory to have in a network, or large specialist groups.  But sometimes the power rests with the insurance company, as when they deal with the typical small physician group.  Negotiations on the provider side would remain as before.

Given this bet, which way would you go?  Change the rules and change the behavior, or change the rules and see the ways that culture persists?  The economists typically go with rules and change, looking for “rational behavior under changed conditions.”  Me, I generally go with culture, and given my years of experience in the field, I go with my by now well ingrained mistrust of insurance companies. 

Also, think of this: what does change require?  Certainly, it requires a new set of incentives, which were delivered by the ACA.  But change also requires the use of new techniques, either invented or adopted from elsewhere.  What are the odds that any invention or adoption of new techniques by insurance companies will redound to the benefit of the public, or clinicians, or efficiency?  These companies have been imaginative, all right, but beneficently imaginative?  Not so much. 

Many in the field shared my skepticism.  This was the basis for the “public option,” a governmental plan that would compete against the private health insurance companies.  If the private companies sought to game the system, the public option would keep them honest by its competition. 

There is another argument for the public option that I didn’t see made at the time, but which in retrospect seems obvious: even if the privately competitive system would in the long term deliver an efficient result, what about the short term?  Under conditions of severe change, many insurance companies would be very conservative, seeing as their prime concern that they not make a catastrophic mistake.  Many companies would want to stay out of many exchanges, letting others take the risk and planning to ease in afterwards.  Many companies would also want to charge very high prices at first, even if they had to return some of it to subscribers at the end of the year, just to give themselves a cushion.  Companies would want to take the opportunity to divest themselves of policies that were of poor value to them, and thus would simply discontinue that line of business. 

In the short term, then, for transition, there was an argument for a public option as the transitional object for patients without employers.  But to my knowledge no one thunk it.

What We See Now

We won’t know for some time whether or not the ACA achieves its desired results.  We are now at transition, and what we see is the very short-term effects of the ACA. 

In transition, fear and stories of loss will predominate, and that’s what we are hearing.  Most obvious, of course is the catastrophic mishandling of the Exchanges produced by the incompetent Obama health team – they weren’t great in producing the law; they were horrid in standing up to Republican criticism of “Obamacare,” just horrid, which led to their avoidance of making timely progress in implementation for fear of further Republican talking points; and they have been at least as bad in implementing it (see the Cutler memo at http://www.washingtonpost.com/blogs/wonkblog/files/2013/11/Cutler-implementation-memo-1.pdf.)

Also prominent are the stories of losers, those who will pay more.  The ACA failed to account for these souls who would suffer – there should have been a plan for transition, so that they could have their policies stepped up year by year instead of all at once.  The policies they had and didn’t want to leave benefited them in many instances by not paying for services they would not use – obstetrical care, pediatric care.  They are not now persuaded by the need for a community to support these services much as the general public supports public education.  Chickens of incompetence in both design and messaging coming home to roost.  It is indeed so tragic that Obama never assembled a truly competent health team, and continued to stick it, but change of team is an executive skill that is hard-won.

In transition, we also see on the provider side a continuation of the tactics that have so embittered clinicians against insurance companies.  The insurers have been busy constructing “narrow networks.”  These are plans that enroll as providers on those clinicians who are willing to sign up for 70% or 80% of Medicare fees, which are themselves already less than adequate for primary care.  Thus, with only a few misguided practices signing up as providers for these plans, patients are often prevented from keeping their doctors.  Why?  Because this is what insurance companies do.  The independent practicing clinicians are the weakest political actors in the game – after patients – so they are the weak link that insurance companies go after.  Constructing such networks is the least-risky path for insurance companies, as they keep their costs down and premiums still high.

Less noticed at transition is the continuation of the basic insurance plans that we have gradually been accustomed to – high deductibles and high copayments, leading to high out of pocket costs.  These are very regressive plans that economize in the least inflated of all medical services, primary care and other outpatient care services, while leaving intact payment to the very inflated services of hospitals and procedures – see http://static.squarespace.com/static/518a3cfee4b0a77d03a62c98/t/51dfd9f9e4b0d1d8067dcde2/1373624825901/2012%20iFHP%20Price%20Report%20FINAL%20April%203.pdf.

As fear predominates, the absence of the public option is not mentioned.  In fact, however, that is just what is necessary.  In time it would be expected that private plans would be able to out-compete the public option; but right now, what we wouldn’t give for that safe haven.  If only the Obama team had been able to think that through.

In time, we don’t know what will happen.  It is possible that insurance companies will team up with provider groups, all of whom become more efficient together and are able to increase revenues through higher enrollments with reduced prices and higher quality.  Capitalism generally outperforms socialism.  One can hope, and I do hope.  I’m hoping that my pessimism about persistent culture in companies is proved wrong.  I’m hoping that the whole thing does not just land kerplunk.  I’m hoping that the Obama Administration’s having lain down with dogs does not wake up with too many fleas.  I’m hoping.

After all, there is always hope.

Budd Shenkin