ZIP codes and premiums

Often, California has been in the lead when it comes to legislating for fairness. When a service industry is acting in an arbitrary way and damaging the interests of consumers, you can usually rely on Sacramento to do something about it. So, for example, the Insurance Commissioner instructed auto insurance companies not to rely on ZIP codes when writing policies. The real basis on which to assess risk should always be the individual driver. It’s fair to look at the person’s experience, driving record, how far he or she drives every year, etc. That way you reward the good drivers with lower premiums and hit the bad drivers with higher premiums. This ends the discriminations of higher premiums for people living in predominantly black or Latino communities.

It would be great if we could see this change sweeping across the US, not just in auto insurance, but for all classes of insurance. Unfortunately, the insurance industry has fought the change tooth and nail wherever it has been proposed. Lobbyists with deep pockets have been able to keep the legislators at bay. The ZIP code approach remains the norm.

The most recent piece of research comes out of Chicago and relates to health plans. It seems it’s cheaper to live in the suburbs. The research used just over 3,000 ZIP codes in the Chicago area and, when analysing the rates charged, found that people living in the blue-collar suburbs west and south of Chicago paid almost 25% less for their insurance than those living in the downtown areas. Similarly, the residents of the northern suburbs paid about 15% less. Spread the net more widely and it turns out that everyone living between 15 and 25 miles from the downtown area pays an average of 13.5% less, while those who have moved 25 to 40 miles out of the city pay an average 25% less.

There are obvious explanations. The hospitals and clinics in different areas attract doctors and healthcare providers with different levels of experience and expertise. Operating costs will also change with local conditions. The level of support for public facilities and programs from local government naturally varies depending on the local tax take and political factors. These affect the rates for services the insurers can negotiate with the local provider networks. And then there are all the intangible factors based on the wealth or poverty of an area, the percentage of people without current health insurance, and so on. Put everything together and profiling by geography may produce very different results. This leaves us with an uncomfortable reality. As it stands, the health insurance industry is unregulated. It can charge what it likes using whatever factors it wishes to consider significant. As and when the healthcare reforms pass through Congress, some practices that produce unfairness will disappear, e.g. no more discrimination based on gender, no more discrimination by denying coverage to people with pre-existing conditions, no more caps on lifetime benefits, and so on. But the ZIP code abuse will not be affected. No matter where you live, you will be judged not on your actual health records but the “accident” of your address. Perhaps you should consider relocating to a better area to get the best health insurance rates.

History was made on November 7th when the House of Representatives passed HR 3926, the Affordable Health Care for America Act. Yes, it was a close vote (220 in favor versus 215 opposed). Yes, only one Republican voted for the bill. Yes, the legislation leaves a lot to be desired. At the end of the day, all that matters is that the legislation passed. President Barack Obama’s health care reform initiative remains alive and is closer to reality than the efforts of his predecessors. Given the complexity and controversy surrounding the issue, not to mention the competing demands of numerous, powerful stakeholders, this is a remarkable achievement.

While historic and remarkable, however, it’s important not to read too much, or too little, into what happened. Consider:

House Passage of Health Care Reform Puts Pressure on the Senate: It’s probably hard for Republicans to understand the importance of health care reform to Democrats. I suppose it’s the equivalent of a tax decrease to the GOP. It’s a defining issue, in the sense that the issue differentiates themselves from the other side. When Republicans controlled the White House and Congress they lowered taxes. They could have made a major push behind health care reform during their years in power, but that’s not where Republicans were willing to invest the political capital in health care reform, not when it could be put behind cutting taxes. Democrats now control the Executive and Legislative branches. And they are investing their political capital where their heart is: health care reform.

Which means if you’re a Democratic Senator you do not want to be the reason health care reform fails. No doubt some members of the Senate were quietly hoping the vote in the House would fall short, letting them off the hook. No such luck. Now it’s up to Senate Democrats to keep the dream of health care reform alive.

HR 3926 is Not on the President’s Desk: But what the Senate will pass is not likely to look a lot like the Affordable Health Care for America Act. The politics in the Senate are far different than that in the House. Consider the idea of the government creating – and maintaining – a health plan to compete with private carriers. Senator Joe Lieberman reiterated his threat to vote against allowing a reform bill containing a government-run plan to come to a vote on the Senate floor, according to the Associated Press. Unless his 60th vote is replaced by a Republican (think Senator Olympia Snowe) Democrats will be unable to overcome a GOP filibuster with Senator Lieberman’s vote.

Of course, as noted in an earlier post, Senator Roland Burris is threatening to prevent a bill without a public insurance plan to come to a vote. So Senate Majority Leader Harry Reid has to craft a package that satisfies a diverse and divided caucus (Senator Lieberman is an Independent, but he caucuses with Democrats in order to hold on to his committee chairmanship). Senator Reid has already submitted a proposal to the Congressional Budget Office for review. (That the CBO has yet to issue an analysis is widely taken as evidence the cost of the legislation is higher than Senator Reid is counting on, meaning adjustments will be required).

The Senate Will Pass a More Moderate Bill. Whatever Senator Reid puts before the Senate, it will be more moderate than HR 3926. Moderates hold more power in the Senate than they do in the House. Leaving aside Senator Lieberman, passage of health care reform in the Senate will need to satisfy 17 moderate and conservative Democrats. While several of these Senators have already pledged their support to the legislation outlined (but not published yet) by Senator Reid, there’s enough hold-outs to force concessions that will disappoint liberals. Yet those liberals are unlikely to vote against health care reform and accept blame for defeating this core Democratic issue. (Senator Burris is an exception for reasons discussed in the previous post).

When the Senate Acts Will Be When Democrats Have 60 Votes:  Warner Pacific, a general agency based in California, held a series of town hall meetings last week featuring former Senate Majority Leader Tom Daschle. John Nelson, co-CEO of Warner Pacific, interviewed Senator Daschle for roughly 90 minutes and the result were numerous, meaningful insights which I’ll try to write about in future posts. But one observation Senator Daschle offered is relevant here. When it comes to passing legislation, the Senator described the role of the Majority Leader and House Speaker as shoveling frogs onto a wheelbarrow. Why did the House vote on health care reform now instead of waiting to learn more details concerning the Senate legislation? Because Speaker Nancy Pelosi had finally managed to fill the wheelbarrow with at least 218 votes and the longer she waited the more likely it was one of them would jump out.

Speaker Pelosi had a somewhat easier task than the one facing Senator Reid’s. She needed to muster a simple majority and the rules of the House gives her more power than Senator Reid enjoys in the upper house. Plus he needs to shovel a super-majority of 60 frogs into his wheelbarrow.  Once he marshals the votes, however, expect the Senate to act relatively quickly. And don’t expect a vote to be scheduled until Senator Reid is reasonably confident he will prevail.

It’s the Conference Committee: Getting health care reform this far has required a Herculean effort by lawmakers and the White House. And it’s all aimed at getting two bills to a Senate-House conference committee. That’s where the final deals will be struck, losers and winners defined, and the political calculation made as to what single bill can be passed by both chambers of Congress.

For brokers, one of the issues to watch will be related to the health insurance exchange reform will create. In the Senate bill, at least for now, there’s a provision to require those selling products in the exchange to be licensed by their state; the House bill permits unlicensed entities to sell the products. (Ironically, the House approach, which would let DMV clerks sell health insurance in the exchange is supported by some Republicans in the Senate).

The conference committee will determine the taxes implemented to finance reform, what mandates are in place and how they’re enforced, whether there’s a government-run health plan, what cost containment provisions are included, and whether reform addresses malpractice – among other items. In other words, while everything leading to the conference committee is important, it has all been prelude.

To use a baseball analogy, think of the general discussions and hearings earlier this year as Spring Training. The committee votes were the regular season. The vote in the House was a league playoff and now we await the outcome of one more playoff series. All of this leads to the World Series, known as the conference committee. So there’s still more to come.

Health Care Reform Will Be Worse Than Hoped For, But Better Than Feared:  A  friend from college went to the same law school I did, but a year earlier. As I approached my first day of classes I asked him what to expect. “Worse than you hope it is; better than you fear it will be,” was his reply. (And he was right). Well, the same applies to health care reform.

For example, there’s far less medical cost containment in either the House or Senate bills than most observers believe is necessary to make coverage affordable. But as Senator Daschle noted at the Warner Pacific town hall meeting – and as reader JimK has pointed out – there are some potentially significant cost containment provisions tucked away in the bills. Yes, they call for studies and regulations as opposed to describing details, but perhaps that’s the only way cost containment can make it through the political labyrinth that is Congress. They hold the potential, however, to lead to a significant bending of the cost curve. Of course, for now, it’s only a potential, but still, it’s there.

Consider: When California passed its small group reforms in the early 1990s many brokers and industry insiders feared it would harm the market. Instead that legislation, AB 1672, has been a stabilizing influence that eliminated harmful industry practices without destroying the industry in the process. Yes there were winners and losers (the dominance of Multiple Employer Trusts in the small group market soon ended), but most brokers and their clients will agree it was a net win.

I watched some of the debate on the Affordable Health Care for America Act on C-Span Saturday. To over-generalize, Democrats made the Superman argument: the status quo was leading the country to ruin and only HR 3926 could save the day. Republicans countered with the Hell and damnation offensive: passage of the Democrat’s health care reform legislation would lead to the destruction of all America stands for.

The reality is, the Democrats are overselling what the bill does. And Republicans are exaggerating the negatives. Many of the charges leveled against HR 3926 by GOP members were similar to those their counterparts made against Medicare 45 years ago. Now the GOP positions itself as the protector of Medicare. Apparently not all slippery slopes lead to damnation after all.

What the House accomplished on November 7th is historic. It is neither all good nor all bad. Nor, significantly, is it the final word.

My last post went over some basic information about individual health insurance. This time I’d like to dig deeper into how plans are priced.

How much does an individual health insurance plan cost? Cost is an important consideration when buying health insurance. Running quotes is the fastest way to find out what a policy might cost you. Generally speaking, a plan with more coverage will cost more than a plan with less coverage. You may find the benefits in an individual policy are simpler than in a group plan. And, there is usually a greater cost-sharing element. For example, you might have to pay co-payments, deductibles and coinsurance before the insurance plan pays any claims. But the more cost-sharing you are willing to take on, the less you pay for the insurance premiums.

Most people just want the peace of mind that they have coverage should they be diagnosed with a serious illness or have a bad accident. Many do not want or need an all-inclusive or very comprehensive plan because these tend to be more expensive. That’s why a basic benefit plan works for many people.

Here are a few insurance definitions you might find useful:

Annual Plan Deductible: The dollar amount that the insured must pay out-of-pocket each year before the insurance company will make any benefit payments for claims.

Coinsurance: The percentage an insured is required to pay for a medical claim, after the co-payment or deductible. For example, if you choose an 80/20 plan, you pay 20% of the eligible covered amount and the insurance company pays the other 80%.

Copayment: The amount specified in your plan that an insured person pays to a provider for a specific health care service at the time it is received. For example, an insured may pay a “$35 office visit copay”.

Out-of-pocket maximum: The maximum amount that an insured is required to pay under an insurance policy per year.

Visit Celtic’s Individual Health Insurance Learning Resources page to learn more.

Once upon a time it looked like Congress and the White House would deliver meaningful, comprehensive health care reform to the American people. They certainly started down that path. The talk was of “bending the cost curve.” And of tackling issues like medical malpractice. There was even promises being made of moving toward comparative effectiveness programs and away from the costly fee-for-service provider reimbursement model of today.

Those were the days, but they’re over now. Whether as a result of the August Town Hall ruckuses, lawmaker’s ignorance, or general cynicism, those ideas are pretty much a thing of the past. Yes, there are modest efforts in the current Congressional bills to control costs. But to call them modest is kind. Politicians and pundits. will claim that what’s moving through Congress will make health care coverage more affordable and relieve the burden of medical costs on American families, but few actually believe it.

Over the past few months, the focus of health care reform has shifted to health insurance reform. And while some changes in the way health care coverage is marketed and administered are necessary, those changes will do little if anything to bring down the cost of care. On the contrary, some of the proposals being considered will, it is generally accepted, increase insurance premiums.

This shift by lawmakers from comprehensive health care reform to simply addressing marketing and distribution reform is, to say the least, disappointing. It also shows the challenge in accomplishing major change in Washington. The partisan divide is deep and cynical. The extremes within each party are in ascendancy, making compromise – the life-blood of the legislative process – all but impossible.

So instead of passing real reform, changes to the system that would restrain medical cost increases, the goal seems to have shifted to passing something – passing anything – on which the “health care reform” label can be hung. The result will do little to increase the affordability of insurance coverage or to restrain medical cost inflation. Lawmakers choose to ignore this reality – and to distract attention from it by keeping the focus on whether Congress will create a publicly run plan to compete with private carriers.

Yes, health care reform is hard while taking on the insurance companies is easy. And, as I’ve mentioned, there are some industry practices that need reforming. Given the political realities in Washington it may be that health insurance reform is all that lawmakers are capable of delivering any time soon. 

The shame of it all is that the current health care system is unable to meet America’s needs. The status quo, most objective observers from across the political spectrum agree, is unacceptable. America is the only developed nation in which medical costs bankrupts families. The cost of medical care is overwhelming state governments, threatening their ability to deliver other necessary services. Medical cost inflation is outpacing growth in wages and general inflation, resulting in increasing numbers of families and businesses being priced out of health care coverage.

Meaningful, comprehensive health care reform is critically needed. It’s what the American people desire. But Congress and the White House seem unable to deliver. The fault is not solely with the Democrats nor solely with the Republicans. This is a bi-partisan failure. And hiding behind health insurance reform won’t change that reality.

Your baby’s weight and insurance

There’s a school of thought that says, “the number don’t lie”. The assumption is that numbers are facts and facts are always true. So if someone counts the number of times something happens, this gives you a basis from which to estimate the probability of the same thing happening across a population. This is the basis of underwriting for insurance purposes. Teams of highly trained people called actuaries count how many traffic accidents there are. They break it down into the age, make and model of car, the age, gender and profession of the driver, the time of day, the weather conditions, and so on. We happily accept information that, in the first half of 2009, only 16,626 people were killed in crashes, a 7% drop as against the same period last year. We are not surprised when we read this proves that there are 1.15 deaths per 100 million miles driven. The facts are facts and must be true.

Except when we apply the same approach to health insurance, some people get upset. Perhaps it’s appropriate to be writing this at Halloween but the same actuaries have been counting the number of people who die from various diseases. For the purposes of this article, one of the main areas of interest has been the question of obesity. There are detailed numbers available across the country showing that people who have a high Body Mass Index (BMI) are more likely than thin people to die of heart disease. The medical evidence proves what are called “comorbidities”, i.e. the presence of two or more conditions which, more often than not, suggests a cause and effect at work, or that there’s an underlying vulnerability to both conditions. We are not so unhappy to accept a link between drug abuse and mental illness, but mention a possible link between body weight and disease and, suddenly, people are upset. People do not want to hear a link between their lifestyles and the probability of early death.

The reality is that adults with a BMI of 30 and above are either being turned down for health insurance or charged a higher premium. No matter how politically correct it may be to talk about obesity, insurance companies protect themselves by classifying obesity as a pre-existing condition justifying refusal or a premium loading. So welcome to baby Alex, a newcomer to Grand Junction. He’s four months old and breast-feeding. He’s a happy, bouncing baby weighing in at seventeen pounds. With a length of 25 inches, this puts him in the 99th percentile for the Centers for Disease Control and Prevention’s height and weight charts for babies of the same age. So the health insurance company refused coverage. Their cut-off point is the 95 percentile. When you think about it, this is a dramatic piece of news. It seems you are never too young to be overweight. This is not something to be dealt with through an increase in health insurance rates. This is a blank refusal of coverage. At four months, the actuaries have already decided this baby is too big a risk to insure. The parents are naturally upset. Even though their pediatrician has no health concerns, they are talking about putting the baby on the Atkins diet. They may joke but this may be a real sign of change in the health insurance industry. There is no sentimentality here. After all, the numbers don’t lie, except the insurers changed their mind when the publicity hit. Alex is now insured. Some good news to end on.