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COVERAGE: The Case for Comprehensive Insurance Market Reform is Overwhelming

November 20, 2008 - 11:52am

This post also appears on the National Journal's Health Care Experts Blog. where you can also see what other health policy analysts have to say about insurance market reform.

The point of insurance market reform worthy of the name is twofold: to make markets more efficient and more fair for all, not just for some, and to transition the business model of insurers away from risk selection and toward care coordination and high value care. In order to maximize value per premium dollar, we need to align incentives among insurers, consumers, and health providers.

Guaranteed issue and modified community rating (I would allow age, but not health status rating), along with an individual purchase mandate and the subsidies to make that mandate humane, would enable insurance markets to extend the advantages of large group purchasing to the entire nation. Under this scenario, insurers would still make money, but only if they help us organize access to appropriate care efficiently. Economies of scale in administration and risk sharing should lower administrative loads from the very high levels experienced currently in the non-group and small group markets. But the kicker is the mandate and outlawing underwriting. We do not need to continue to make it profitable to exclude high risk Americans. We do, however, need to make it possible to share in the value created through coordinated health management and organized purchase of necessary and effective health services.

Grace-Marie makes a good point about Mark Pauly’s research over the years (some of which I proudly co-authored with him): the non-group market performs better for some people than some commentators allow. But this does not mean the current model of risk selection and aggressive underwriting—as “across state lines” type proposals would encourage and indeed require—is the best way to organize access to good health insurance. Furthermore, a market organized to the satisfaction of the zealous underwriters can never be made functional for all Americans. An underwriting culture will always punish those who behave humanely. In other words, some kind of publicly organized high risk pool or other safety net insurance mechanism will always be a necessary adjunct to this “partial” insurance market. Why prop up the most inefficient portion of our insurance universe, when we could fix it all with smart rules and organized exchanges? I think the objective case for comprehensive insurance market reform is overwhelming.