JUSIPER

 
Let the Titans Clash

Posted by Peter

Second in a three-part series on health insurance

In Part One, we took a look at the Bush Administration's dubious and massively expensive proposal to add a prescription drug benefit to Medicare. The plan is leading many seniors who kept prescription coverage from their former jobs to worry that they will lose benefits: their ex-employers might just drop them into the new Medicare pool. And we saw that members of Congress are protecting themselves against that outcome, by passing legislation to make sure their own health plan cannot cut back drug coverage for retirees.

Since then, the Census Bureau has reported that the number of Americans who don't have health insurance jumped by 2.4 million last year to a record 43.6 million, or more than 15% of the U.S. population.

Part of the increase is due to rising unemployment, and we might expect a general economic recovery to get some people back onto insurance. But a lot of it stems from the fact that the American tradition of insuring workers' health through their jobs is breaking down. Large companies are shifting costs to employees by raising co-payments and deductibles (and rising prices mean fewer employees can afford insurance). Small companies aren't likely to pay for benefits at all: just 31% of workers at companies with fewer than 25 employees have health insurance through their jobs. And for people who are self-employed or between jobs, the price of individual health policies is obscene.

Insurance companies don't mind the current system. Why should they? It doesn't force them to compete too strenuously. Think about how most people buy health insurance: their company has signed contracts with HMO A and PPO B, so they get to choose between a couple of prepackaged plans. If the plans don't include benefits they need, too bad. And if the premiums are too expensive, well, welcome to the 43.6 million.

Or look at COBRA, the program that allows you to keep your health insurance through your former employer for 18 months after you leave a job. Why does that time limit exist? Exactly whom would it hurt if you remained on your old company's plan indefinitely? Not you, obviously, because you would stay insured. And not your ex-firm, since they could keep you among their ranks for the purposes of negotiating a volume discount for their group rate. The only offended party is the insurer, because it doesn't want you to be able to pay at the lower group rate. And you can't just go out and form a group with 50 of your friends to get a discount, because insurance companies don't like to deal with "risk pools" of self-employed people.

There is in fact nothing much you can do as an individual consumer to disturb the regional oligopolies that health insurers have established.

But if they had to compete for your business, it would be a different story.

We know this, because there is one place in the country where market forces have been unleashed on the insurance industry, and the result has been wider choice, decent prices and high customer satisfaction. Somewhat ironically, that place is within the federal government.

The Federal Employee Health Benefits Program (FEHBP) is the largest group health insurance plan in the world, covering about 8.3 million federal workers, retirees and families. Any insurance plan that meets minimum standards can participate in the program. Individuals covered by FEHBP can choose the plan they like best; the federal government pays 72% of all premiums, and no more than 75% of any individual's premium, for a total cost of $22 billion a year. If you're in FEHBP, you can switch plans once a year, no questions asked.

And that's it.

The whole system is based on competition and consumer choice. If you're looking for a plan with generous prescription drug coverage, you can find one; if you need one with low hospitalization deductibles, you can select that instead. FEHBP uses the leverage of its huge enrollee base to keep premiums and deductibles down. And the insurance companies who participate offer plans that are responsive to the demands of customers, to keep their membership up. Which means that new technologies that people like (such as prescription drugs) quickly get included in at least some plans. And if prices do rise, it's clear the reason is because people want more of a particular kind of coverage.

The result: Surveys show FEHBP members like their insurance (who else in the country does?) and only a small percentage switch in any given year. And FEHBP has kept premium increases in line with those at private plans, which is impressive considering its enrollees are older than the general population.

Now you know why congressmen are eager to protect their own coverage.

Look, there are all sorts of reasons why increasing numbers of Americans don't have health coverage, and why those who do are paying more for it. Public policy can try to address each factor, to tweak every control knob to induce greater coverage. But if underinsurance is a market dysfunction - and it is - then why not set the titans against each other?

Every American who wants to should simply be able to join the federal plan, and choose insurance from companies that are fighting for her business. And the government should subsidize those who cannot afford to enroll.

Next time: The implications of this idea, for public policy and for the 2004 presidential race.

12:01 PM |