Wednesday, June 30, 2010

Good motives and unintended consequences

Facts matter. Here is an example.

Based on comments by some, you would have thought that individual and small business insurance rates have gone up because of payments to hospitals and doctors or because insurers were somehow trying to take advantage of this group. It turns out that a well-intended provision in the Massachusetts universal access law created a moral hazard, a "situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly."

Kay Lazar reports in today's Boston Globe:

The number of people who appear to be gaming the state’s health insurance system by purchasing coverage only when they are sick quadrupled from 2006 to 2008, according to a long-awaited report released yesterday from the Massachusetts Division of Insurance.

The result is that insured residents of Massachusetts wind up paying more for health care, according to the report.

... [T]he gaming in the system . . . is adding as much as $300 million dollars to the health care system in Massachusetts’’ each year, said Tara Murray, spokeswoman for Blue Cross Blue Shield of Massachusetts, the state’s largest insurer.

...When state lawmakers overhauled the health care system in 2006, they combined into a single insurance pool consumers who buy coverage on their own with those who get insurance through their jobs at small businesses that employ 50 or fewer people. The aim was to make insurance more affordable for the individuals buying coverage on their own, who tended to be sicker and therefore had been paying very high premiums. And the hope was that having small businesses and their workers absorb some of the cost of covering this group would raise their premiums only modestly.


Anonymous said...

Inasmuch as Massachusetts is foreshadowing the national situation to come, these rumblings are worrisome. One commenter on the Globe editorial had some insight:

"Its (sic) sort of half-baked socialized, and no one knows what to do. We mandate coverage, set rates, and policy forms, and conscript the insureds, but we don't have the government power to tell a hospital or a pharmaceutical company what they need to spend to staff itself or invent a miracle drug."

I am coming to agree that we have combined the worst of both worlds - it's not really free market, but it's not really a regulated market, either. Perhaps the result is predictable.

(gladly) nonlocal

Barry Carol said...

It seems that the gaming problem can probably be fixed by moving to one open enrollment period per year, with appropriate exceptions for life changing events, newly arrived residents, etc., as the MA Senate President proposed. Two open enrollment periods per year is unlikely to resolve the problem, in my opinion.

Anonymous said...

Paul The Globe story was incomplete and didn't mention the major findings of the report. The report found that the short-term users accounted for 0.5% and 1.5% of premium increases. No debate from me that we need to fix this, and the legislature seems ready to do so. But let's not be under any illusions that this problem is a significant reason for premium trends. Provider price increases still account for most of the increase in premiums and we'll need to do something about them if we want to moderate premium increases. Nancy T.

Anonymous said...

That's not the whole story, either, Nancy. Some providers have been granted increases well above others in recent years, and that was on a base of rates that were already substantially higher. Why is it that policy-makers are unwilling to address that problem?

Anonymous said...

Oh, Paul, I know that. That wasn't germane to the point I was making, which is that the lack of an annual open enrollment, while a problem that needs addressing, isn't a major reason for rising health insurance premiums, a finding of the report that the Globe completely left out of its story. I was referring to rising prices overall, which I know, because I haven't been in a cave, have been much higher for some hospitals and their doctors than others and produced huge and unjustifiable disparities among hospitals and physicians.

And why are policymakers unwilling to deal with the problem? Hmm I wonder....Could it be that they have been persuaded by the folks with the high prices that doing anything to address the disparities will be a "job killer" for the state, even if it's not true? Could they be given distorted reports like the Partner's attack on the AG report, which gets wide press coverage despite being a hack job, while the AG's very thoughtful and cogent response gets much less coverage? Do they get lots of campaign financing from the entities that have the high rates? Has most of the business community has been coopted by the well paid hospitals, who sit on hospital boards and the boards of the business organizations? Could it be that income redistribution is very hard and no one has the leadership or resolve to take it on? May it's because there is a cultural and political opposition to a strong role for government in overseeing provider prices, despite the abject failure of the market to produce a rational and efficient system for the past 20 years of our romance with deregulation? Or it could be that when the less well paid providers look at the disparities they just want more without being willing to help make the case--and then support it--that there needs to be redistribution? Whatever the reason, those of us who think that the disparity issue is important to address are losing the battle right now, so I think the issue is, what are we doing wrong and what do we need to do differently to make change? Nancy

Anonymous said...

More along these lines, Nancy, for our out of town readers: