And so it begins….the Obama administration is ready to venture into hostile territory, the land of health care reform. To be sure, this precocious administration has already seen the likes of financial calamity and rising unemployment and even cast their environmental policy line in the face of both. They have listened to the dying engine rumbles of Detroit and continue to push progressive tax policies in the face of stern opposition. For many presidencies, all of this would have sufficed to “call it a term”, if you will, but for the Obama team, these are all mere fire-starters. Now, they feel prepared to engage the 60 Years War (this one goes back to the FDR-Truman eras). Many have encroached upon this dynamite field before, armed with reasonable valor and intentions, but none came away with much less than a sound drubbing. So, will Obama prove more tactful, more disarming, or more of the same?
As the ballooning budget is becoming evermore disconcerting to the administration, the handful of Congressmen still identifying as Republican, and the general public, the actual “reform” might undergo a metamorphosis into a series of small concessions from all major stakeholders. Perhaps not, but for your weekly dose of skepticism, pick up the recent version of “cap-and-trade”. After its dilution, the only environmental impact that legislation will have is if they manage to send the bill to the paper-recycling bin. There is a critical mass of support (going well beyond the walls of the White House) for the premier element of the Obama plan, the government managed health insurance plan. However, this is also the most contentious reform proposal. I am not fully aware of how they intend to run this scheme (manage asset, equity, and risk portfolios like private insurance companies?), or most importantly, how they plan to garner the necessary marginal support (at least a few fence dwellers will have to take the decisive step). So, in these regards, I will be watching this particular drama in anticipation along with much of the rest of the country (and likely world). But I can make a recommendation for the near-term while they wage battles for the long-term (insurance companies will never go quietly into the night).
One of the strongest criticisms of the private insurance industry is its trepidation vis-a-vis “adverse selection” (the concept that the sickest are the most likely to seek health insurance…and are also the most likely to prove costly for the insurance company and its risk pool). To hedge against these folks, they actively pursue the statistically healthy and try to screen out those with significant pre-existing health problems. Part of the Obama plan’s mission is to offer a health insurance home to these otherwise beneficiary pariahs, as well as attract any others who are looking for a better deal. Assuming the government scheme desires a risk pool, like other insurance schemes, then I suspect they are hoping that enough relatively healthy, inexpensive shoppers cross the line to dilute the intrinsic risk baggage brought with the least healthy. Could certainly work, but there are some hang-ups. For one thing, there will be immense industry push-back (but that is a foregone conclusion, so no need to dwell upon it). But there may also be some financing issues. The private companies work the hardest to attract the most healthy, least risky clientele. Therefore, it might be quite difficult to win enough of this group over, in the near-term. What may happen is the least healthy are the first to join, followed closely by those able to get insurance but just barely due to their not-so-good statistical health (with a significantly marked up premium). This does not make for such a promising risk pool and may be quite expensive in the short run.
To avoid this (again in the near-term, the long-term is for the administration and the public to decide), they may decide to operate in the facet they know best: the Payables Department. If “pre-existing conditions” keep individuals out of private insurance schemes, then make it the ticket into government sponsorship. In this way, it would now be fashionable to divulge such health problems to demonstrate absolute exclusion from private insurance and then qualify for government protection. The government can then negotiate fees for their care with given institutions and providers and pick up the tab. Conversely, if they want such individuals under a traditional insurance plan, they could accept bids from private insurance companies for this group of patients and then top off the beneficiaries’ (the patients) contributions in order to cover the otherwise unaffordable premiums. Either way, the government will write checks, which is what they will ultimately do irrespective of their scheme’s details. This is just one modality that I think could prove useful and not too expensive in the coming few years. Additionally, the insurance industry may even be amenable to it since it does not make them redundant nor coerce them into accepting their least favorite customers. Furthermore, it could help those not-so-healthy individuals with coverage but also high premiums that I mentioned before. Their premiums could actually slide down a bit and/or more of these riskier customers could be offered attractive private plans due to dilution effects: If the riskiest people in the pool are not leaving the insurance company exposed because they are shielded by the government, then the ratio of least risky to risky (but not riskiest) goes up. Meaning the risky (“not-so-healthy”) could enjoy swimming around a safer pool with lower costing flotation devices (premiums).
As I said before, I offer this only in the interest of political expedience. The administration could use something like this, or something fancier if they so choose in the immediate future while still pushing climactic reform for down the road. However, if their fortitude is not in question and their sense of adventure intact, then good luck soldiers….the war is long and the battles many….but then again, perhaps like never before, the troops are in no short supply.
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