HEALTH POLITICS: Truthful—and Helpful—Moments in Presidential Debate
The debate last night touched on health care reform a fair bit, and there were two really great moments, in my view. One was when John McCain said loud and clear that our economic hard times do not mean that people who are hurting should have to wait for help to buy health insurance. That should help silence opponents of reform who are so quick to say we can't afford health reform any more so let's stop talking about it so much. This economic malaise argument is the ultimate attempt to change the subject and divert attention from a real problem. Both presidential campaigns recognize health reform must be addressed early in the next administration. We will not stop talking about it, nor should we. Nor should you.
The second great moment was when Barack Obama explained why McCain's proposal to allow insurers to sell insurance across state lines won't work. This may sound simple to a national television audience, but it's a complicated and flawed idea and it's hard to explain what's wrong with it. Obama did as good a job as I've ever seen within the constraints of a televised debate:
And the reason that it's a problem to go shopping state by state, you know what insurance companies will do? They will find a state—maybe Arizona, maybe another state—where there are no requirements for you to get cancer screenings, where there are no requirements for you to have to get pre-existing conditions, and they will all set up shop there.
That's how in banking it works. Everybody goes to Delaware, because they've got very—pretty loose laws when it comes to things like credit cards.
And in that situation, what happens is, is that the protections you have, the consumer protections that you need, you're not going to have available to you.
McCain's across state lines idea is taken from the old Shadegg-DeMint bill that has been attached to Association Health Plan legislation several times in the House since 1995. Explaining the flaws is so challenging that most politicians and even policy analysts have given this serious issue relatively little attention. That prompted me, John Bertko, our part-time actuarial advisor here at the Health Policy Program, and my colleague Elizabeth Carpenter to write a paper and issue brief on this topic, which we released today.
This part of the candidates' debate was sparked by an audience member who asked, "Do you think that health insurance should be treated as a commodity?" In some ways this helps us get at the core issue with these across state lines proposals. Health insurance may be a commodity, but it is not like other commodities.
Basically, the downsides of "across state lines" are a result of the nature of insurance market competition when there are no requirements (or mandates) to purchase coverage. Insurers will profit from and naturally prefer to sell to the healthy and avoid the sick. Insurance market rules—like requirements to sell (guaranteed issue) and limits on premium variance (e.g., community rating)—force more risk pooling than competitive insurers would ever pursue on their own. Selling across state lines allows insurers to select which state to sell "from" and would permit them to sell "to" residents of any state using the market rules of their "home" state, not the rules of the buyer's state. In other words, it allows insurers to select the most favorable regulations. Insurers in states with guaranteed issue requirements or premium variance or specific benefit mandates would be at a competitive disadvantage compared to insurers domiciled in states with no rules. The shrewdly-located insurer then could undercut prices for the healthy anywhere in the country while systematically excluding the sick. This would in turn drive sicker people to insurers who could not relocate to the lax state (like state chartered non-profit Blues) or force them to pay much more for comprehensive coverage.
The impact on the insurance market would be devastating for consumers trying to find coverage as well as for insurers who do not relocate to states with the fewest regulations. It would push costs and premiums up for millions of people with pre-existing conditions, it would make it more difficult for many Americans to find coverage, and it would lead to less generous insurance options. For the insurers who followed existing rules that are designed to pool risk (e.g., guaranteed issue) and protect consumers (e.g., mandated maternity coverage), their products would become more expensive because they would be covering the people who would be rejected by the aggressive underwriter operating from the lax regulatory state. In equilibrium, insurers in the lax states would drive the others out of business, with few exceptions.
Contrary to what John McCain has been told by someone, across state lines is not a good idea. It will end up with more people in need of a high risk pool. You could in theory make the model work with very well-funded high risk pools. But that would required more money—far more money—than the $7-20 billion the McCain campaign has suggested they would allocate. There are better and ultimately more cost-effective ways of covering all Americans with insurance that gives them meaningful coverage they can count on.