The New Health Dialogue

It hasn’t been a good couple of weeks for Anthem Blue Cross.  The health insurance company has become a political punching bag both for its enormous rate increases and now for 700 alleged violations of law announced by the California Insurance Commissioner and gubernatorial candidate, Steve Poizner. 

But in a development that is ironic in the extreme, the rate increases and alleged malfeasance may be more responsible than any other factor for the renewed momentum of federal healthcare reform.  Who would have predicted it?  Voters from Massachusetts, of all places, delivered a vicious body blow to the hopes for healthcare reform only to see insurance company executives and their double digit rate increases help it back up off the mat!

The push for federal healthcare reform has been a wild and unpredictable fight indeed.  This has made it easy to forget some basic facts.  And the most fundamental fact to remember is that this round of reform changes the business model of health insurance. 

It does this through forcing insurers to take all comers regardless of their pre-existing conditions, which is extremely popular among both parties.  This  will be to benefit those insurers that have been working to promote value in purchasing medical services for their members.  It will hurt those insurers that focus on making money by discriminating against the sick.

This shows is that the people who say that federal reform represents a “government takeover” of healthcare have it exactly backwards.  Republicans claim that government interference will hurt a well-functioning insurance market.  The opposite is true.  The current insurance market violates all of the conditions for market competition.

In particular, people are not free to move among insurance companies if they see that another company is offering a better product.  They are concerned, rightly, that they might be denied because of a pre-existing condition.  But federal reform helps to fix this and hence to improve free market competition.

There is another important piece to this: if insurers have to take all comers, you have to guarantee that everyone comes.  This is done through the “individual mandate” to purchase health insurance.  If such a mandate is not in place, only the sick will purchase new coverage which undermines the entire concept of insurance: spreading risk across large groups.  But this too is under attack.

Republican state legislators are pushing so-called “Health Care Freedom Acts” across the country to  block the individual mandate.  This is doubly ironic.  First because the individual mandate is necessary to improve the free market for healthcare insurance, something that Republicans claim to support.  Second, because the individual mandate is a Republican idea, initially developed by moderate Republicans for the George H.W. Bush administration and included in the Republican counterproposal to Clinton’s healthcare reform plan.

It’s impossible to discuss this topic, however, without mentioning a final irony. The “public option,” has also had a recent resurgence. A growing list of Senators is signing on to a petition to include it in the package that Majority Leader Harry Reid now predicts will pass within the next two months. 

The Democratic claim is that the public option will improve insurance market competition. But if we fix the incentives in the insurance marketplace, the public option will just be another actor looking to provide value to its customers.  And if we don’t, the public option will have to act just like another insurer which many Democrats claim to despise.  We have a real life example of a public option here in California that is available among the insurance options available to state employees.  It hasn’t been worse than the other competitors but it hasn’t been better either.

The prize which reformers have to keep their eyes on is insurance market reform.  But it’s been tough to sort through all of the ironies of the political process in order to get at this truth.