Never underestimate procrastination

With only a few days left to go before the March 31 deadline, there was real cause for concern that enrollment on the health insurance exchanges would not come anywhere close to the goal of 7 million enrollees. After all, between October 1 and March 21, fewer than 6 million Americans had enrolled. Some had revised the goals down to 6 million…a major blow. But more than 1 million Americans jumped on, as they often do, at the last minute, enabling the exchanges to exceed the original goal of 7 million. It just goes to show that it’s human nature to procrastinate.

The adverse selection death spiral

Earlier I wrote about how the Obamacare exchanges have failed to attract many young, healthy people — and how the early technical glitches have made the problem worse.

Of course, the older and sicker people who really needed health insurance coverage would have enrolled by hook or by crook — but in order to make all of this work economically, we need as many young, healthy adults as possible in order to prevent the adverse selection death spiral from making the exchanges unworkable.

In order to explain the problem of adverse selection in health insurance, it may be useful to use a different, simpler kind of insurance: homeowner’s insurance.

Suppose you haven’t had homeowner’s insurance for a number of years. Then all of a sudden your house catches on fire, and you have $100,000 in damage. If you walk into an insurance agent’s office the day after the fire and try to buy a policy that will pay for the repairs to your property after they have already occurred the agent will probably have a good laugh and explain why the insurance company would never, ever want to do that.

If there were a law, however, that said homeowner’s insurance companies have to accept all new applications, regardless of the condition of the home at the time of the application, restore the home to its original condition and charge these people the same premiums as everyone else, what do you suppose people might do?

Well, first of all, people whose homes were in good condition would naturally drop their insurance coverage since there would be no incentive whatsoever to keep paying premiums. If the insurer were required by law to accept any application, then people would wait until their houses caught on fire and then apply right after calling the fire department. Why not? And, of course, in order for the homeowner’s insurance company to stay afloat, the premiums would go up — dramatically.

Even if this were somehow workable, which it isn’t, if the fire damage were too extensive, the homeowner’s insurance company could declare the house a total loss and write the policyholder a check to buy a new house.

We sort of inherently understand and accept this in homeowner’s insurance because our home (or our car, boat, motorcycle, etc.) is a piece of property that has a dollar value on it and can be replaced. Plus, a fire at your home is largely an unpredictable event — the kind of event where an insurance market can function well. (Of course, there are some cases where people try to turn unpredictable events like fires into predictable events by deliberately causing them in order to cash in on a claim payout, but this can land them in prison for insurance fraud.)

Pre-existing conditions

But now let’s adapt that analogy back to health insurance. (Disclaimer: I’ve said for a long time that insurance is a really inappropriate paradigm for financing health care…but it’s the one we have in the United States.)

In health care, there are certainly unpredictable events like an accidental injury from playing basketball, but there are also a lot of predictable events. And these are the ones that can really add up like the house fire. If you’re recently diagnosed with cancer, you know in advance that you’re going to need a lot of expensive treatment in the near future. And if you’ve gone without insurance for a while, you might suddenly start to rethink that decision.

But for the insurance company, they don’t want anything to do with you at that point just like the homeowner’s insurance company doesn’t want anything to do with you after you’ve had a massive fire that needs to be repaired. So, just like the homeowner’s insurance agent denying the applicant whose house caught fire, the health insurer would deny that application on the basis of pre-existing conditions.

I wrote earlier that we understand and accept this in terms of homeowner’s insurance, but we feel quite differently when it comes to our health. Obviously for the person with cancer, financing their treatment could be a matter of life and death — and there’s no way to declare a person to be a total loss and just cash out their bodies. (At least not yet.)

On the surface, it may seem like the health insurer is just being greedy by denying this person’s application, but in reality the health insurer is trying to keep its premium rates down for all of the healthy people it has in the pool. If health insurers no longer had this option, then you would see the same kind of dramatic premium increases that you would see if homeowner’s insurance companies had to accept everyone who applied, even if their house had burned.

Finding a counterweight

And yet, we still don’t accept this from an ethical point of view. I know I don’t.

So if we require health insurers to accept everyone at the same premium rate regardless of health status — even someone just diagnosed with cancer — then we need a counterweight to make sure people don’t game the system and buy insurance even when they don’t need it. Along with the requirements for guaranteed issue (no denials for pre-existing conditions) and community rating (no rate increases based on pre-existing conditions), the Affordable Care Act has three counterweights.

First is the individual mandate. This is the part of the law that everybody hates because it’s basically the part of the law where we pay the price for all of the things we want — there is no free lunch. The second, and related counterweight, is an open enrollment deadline — the deadline for this year to avoid the tax penalty is March 31. Finally, there is 3:1 age banding that allows insurers to charge older people up to three times as much for premiums as younger people. (Insurers might prefer something closer to 10:1 age banding, but 3:1 is a lot less of a market distortion than no age banding at all.)

Check HealthCare.gov or your state exchange (where applicable) for yourself. If you compare the price of an unsubsidized health insurance policy with the tax penalty — especially this year — you will see that the penalty is much cheaper. Of course the price of a health insurance policy offered on the exchanges could be reduced dramatically if you qualify for income-based subsidies, but even then the penalty amount for not buying insurance is still relatively small. So many young, healthy people will opt to take their chances and pay the penalty instead of purchasing a policy…if they even realize that they have to make this decision.

If enrollment in the exchanges continues to skew older and sicker, then next year the premiums will inevitably rise higher…maybe much higher whereas the penalties are prescribed in the law without accounting for these actuarial changes. This may even accelerate the death spiral and render the law totally unworkable.

How this all plays out still remains to be seen, but if you’re a young, healthy adult without insurance, I’d like to ask you to at least shop around and see what you qualify for. You may be pleasantly surprised.

Obamacare exchanges: The number of people who enroll is less important than who enrolls

An underwhelming five million Americans have signed up for coverage in the new health insurance exchanges so far. That’s far short of the Obama administration’s goal of seven million enrollments by the March 31 deadline. It’s human nature to wait until the last possible minute, so there’s a good chance that the number will rise significantly in the remaining 10 days. In fact, the Congressional Budget Office projects another one million enrollments before the deadline.

But six million is still one million short of the goal. That gap is disappointing, and Republicans are almost certain to pounce on it as another failure of the Affordable Care Act.

When the exchanges first opened on October 1, 2013, the federal exchange site (www.healthcare.gov) was beseeched with glitches that made it nearly impossible for anyone to sign up. To make matters worse, these hassles disproportionately dissuaded younger, healthier people from enrolling. After all, younger adults tend to be more technically savvy as a group than older adults and have less patience for more traditional forms of enrollment like paper or telephone.

Affordable Care Act is a “burning platform” for change

If you hear the phrase “burning platform,” you probably think it has a negative connotation. Obviously it’s not particularly pleasant or comforting to envision the ground on which you’re standing catching on fire.

But in the case of health care, I think having a burning platform is a very good thing.

I first heard the phrase “burning platform” from Robert Matt, Vice President at Hancock Regional Hospital, who was teaching a graduate course I took called Lean in Healthcare. I bluntly asked him why LEAN principles which had proven to be so transformative in other industries and had even showed value in a few limited cases in health care had not really become the norm in the health industry. His response was that there had never been a “burning platform” that created a sense of urgency for the industry to change. The U.S. health industry was too comfortable (dare I say fat and happy) to change its practices.

But as plenty of research has demonstrated, things are not fine in the U.S. health care industry. We pay far too much and do not receive the requisite value in return for what we pay in terms of safety and outcomes when compared with the health systems of other nations.

Fortunately, it looks like the industry is beginning to notice some warmth under its feet as a result of the Patient Protection and Affordable Care Act, commonly known as Obamacare. In short, the decline in per-patient reimbursement expected as a result of the law is forcing hospitals and physicians to take more drastic steps toward improving efficiency, quality and safety. Indiana University Health, the largest health system in Indiana, is aiming for savings of more than $1 billion per year.

Of course, some of those savings will be the result of layoffs, and I certainly can relate to losing a job through no fault of my own. The health industry is unusually labor-intensive compared to many other industries, and so it’s impossible to cut costs significantly without cutting people.

I’m afraid that these pink slips will create skepticism toward implementing lean principles in other places, but this skepticism is unwarranted. Had it not been for the lean innovations made at IU Health to improve processes, even more people would have lost their jobs in order to reach the $1 billion goal. Lean is not about cutting people, it’s about helping people to do their jobs more efficiently and effectively. It’s about problem solving, not just (or even primarily) cost-cutting.

But think about it this way — when the industry saves, we as patients save. We save on our medical bills and even on our health insurance premiums because health insurance premiums are a function of the cost of claims. Plus, I have a feeling a lot of those people who received pink slips will land on their feet, just doing something different within the industry to accommodate the influx of new patients.

Nobody every said progress would be easy or pleasant all the time, but that doesn’t mean we shouldn’t do it. Sometimes progress forces us to light a few fires and burn a few platforms.

 

Perverse incentives and unintended consequences everywhere

I’m a big fan of the books Freakonomics and SuperFreakonomics, co-authored by economist Steven Levitt and journalist Stephen Dubner. I especially like them in audiobook form because the reader, Dubner, throws his voice into a high shrill to demarcate when he is quoting someone else. But I digress.

The books consist of a series of anecdotes that are shocking, bizarre and occasionally inspiring. In the prologue to SuperFreakonomics, the authors tie all of the stories together with this theme. “People respond to incentives, although not necessarily in ways that are predictable or manifest. Therefore, one of the most powerful laws in the universe is the law of unintended consequences.”

I firmly believe that government has an important role to play in making society more just, equitable and civil than it would otherwise be. Whether it’s a police force protecting citizens from the threat of crime or Social Security protecting the elderly and disabled from the threat of poverty, the government is in a unique position to solve certain problems that might otherwise go unsolved.

Yet both of these books include story after story of well-intentioned government policies that went terribly awry because their authors did not predict how they would play out in the real world. In a scathing indictment of government intervention, the authors point out that Franklin Roosevelt — the progressive hero who brought us Social Security — chose to donate his personal funds to the private sector research on curing polio while he was sitting in the Oval Office instead of relying on Uncle Sam. Roosevelt suffered from polio himself, so his contributions to the organization that ultimately became the March of Dimes were the ultimate example of his personal health incentives outweighing his incentives for political gain. Even though he did not live to see it happen, Roosevelt bet on the right horse because it was a private sector team led by Jonas Salk that ultimately invented the polio vaccine.

If you’ve spent any time with me at all in recent years (or if you have read some of my other blog entries), you will know that I am particularly passionate about health care reform. Indeed I was quite pleased when the Supreme Court decided to uphold the Patient Protection and Affordable Care Act, albeit by the narrowest of margins. I see this as an issue of justice since more than 50 million Americans have no health insurance, and millions more are underinsured.

Yet I am a person who tries to listen to the ideas of those who do not share my views. And I have heard a lot of objections to the law. The strongest one that I have heard, though, was the law of unintended consequences. Levitt and Dubner made the best case for this when sharing stories of other government policies gone wrong in decades past. For example, the authors demonstrated how the Americans with Disabilities Act actually discouraged employers from hiring disabled people because they feared lawsuits if they were to ever discipline or fire a bad employee who happened to be disabled.

So, if government is not the answer, what is one to do when faced with a difficult societal problem — especially one as complex and emotional as health care? Simply accept the problem as inevitable?

PPACA is undoubtedly fraught with problems. One unintended consequence of the law has already cropped up: some insurers have responded to the law’s prohibition against denying coverage to children for pre-existing conditions by not offering child-only policies at all. (This is a temporary problem since the law prohibits this practice for all ages starting in 2014 — insurers surely cannot stop selling policies altogether.)

But why would insurers make this tradeoff, even in the short term? Why would they stop selling policies to the parents of healthy kids just because they will have to cover sick kids too? Because health care itself is expensive, and the sick children who can now qualify for insurance are really expensive to cover.

This turn of events should not have come as any surprise to smart policymakers because when there is a lot of money on the line, rational humans invariably will game any system. This goes for insurers, hospitals, doctors, pharmaceutical companies, medical device manufacturers and patients. There is no way to make everybody happy. Any meaningful reform will have big winners and big losers.

Many smart patients will likely choose to pay the individual mandate penalty and go without health insurance until they get sick because the penalty is less than the cost of insurance and the insurance companies will be required to accept them regardless of health status. The higher premiums these gamers will create for everyone else will become what economists call anegative externality — a consequence of one person’s actions that is borne by another person. At least the penalty provides some counterweight to that natural inclination.

So why doesn’t the law go harder after making health care itself cheaper so insurers won’t have such a strong incentive to deny coverage to sick children? Sure, there are some provisions in the law like comparative effectiveness research, accountable care organizations, and health information technology investments, but I suspect the real reason for the kid-gloves approach to costs in the system is because politicians respond to incentives too.

When President Obama and congressional Democrats started working on this law in 2009, they knew that they would face a tough political fight. It was made tougher by Republicans who decided it was in their best political interests to oppose the law unanimously, no matter what provisions it contained. Plus, as politicians who run for re-election, everyone owed a sort of legislative debt to whoever contributed to their campaign funds if they hoped to continue raising said funds.

Since we have already established that health care is expensive, any attempt to reduce costs is invariably going to lead to some belt tightening. And, as humans who respond to incentives, everybody wants somebody else to do the most belt tightening. Are health insurance companies earning too much profit? Are pharmaceutical and medical device companies to blame? What about those high-paid doctors and huge hospital bills? Naturally, with that much money at stake, the biggest players were willing to sink millions of dollars into lobbyists and advertising campaigns to protect their interests.

So, President Obama struck deals — some might say dirty, backroom deals — with PhRMA, the American Medical Association and the American Hospital Association by shielding them from deep cost cutting provisions in exchange for their political allegiance. The Republicans were no better — they partnered with America’s Health Insurance Plans, the U.S. Chamber of Commerce and the Medical Device Manufacturers Association to campaign against the law since these players had so much to lose and the Republicans. Rather than making deals across the aisle, both sides drew lines in the sand and built up their arsenals for an ugly, televised fight that included phrases like “death panels” and “pull the plug on Grandma.” No matter what your ideology, the second half of 2009 was a low point in American politics.

This is another important concern — is it possible for anyone on either side of the aisle to do honest policymaking anymore? Won’t even the most well-intentioned bill authored by the most honest legislator ultimately be corrupted by the time it reaches the President by lobbyists who have become so endemic to the political process?

Perhaps the federal government has a role to play after all, but it is not the role that anybody on the left or right expects. It is neither a role of command and control and micromanagement nor a role of laissez faire, but a role of creating the right incentives for people to do the right thing.

Maybe we should offer big incentives for health insurance companies to cover people with pre-existing conditions instead of penalizing them for denying it. Maybe the pharmaceutical industry should be required to prove the cost-effectiveness of their drugs before the FDA along with safety and efficacy data. Maybe the government can issue huge award checks for the best ideas to solve the health care cost problem.

Maybe the federal government can dispense money to each state government (proportionate to their populations), give a few simple constraints on the results they must achieve (like covering 95 percent of their residents and not denying people for pre-existing conditions) and then create 50 laboratories for health reform plus regular workshops so that state lawmakers can learn from each other’s successes and failures. If one state can achieve the results at a lower cost than what has been allocated, they get to refund taxpayers the difference. And if you don’t like what your state is doing, you can easily move to another state.

I don’t have all the answers. Whatever the government does — or doesn’t do — there will certainly be some unintended consequences.

Health care reform really is a big @$%!ing deal

If there is a single issue that has defined the Obama presidency, it has been the Patient Protection and Affordable Care Act…also known as health care reform or derisively as Obamacare. On the night President Obama signed PPACA into law, a microphone picked up Vice President Biden saying that “this is a”big @$%!ing deal.”

Every Republican candidate for president — even former Massachusetts Gov. Mitt Romney — has vowed to repeal it immediately if he or she is elected. Many Democrats have downplayed their votes in favor of it. I think the backlash against the law is due less to objections in the actual law and more to mistrust of Washington and misconception about what the law actually does.

As an employee of the nation’s largest health insurance company and a graduate student in health administration, I feel I have enough knowledge of this law to be dangerous and also a duty to address some of the common misconceptions about the law. If you still object to it, that’s fine, but object to it based on facts and not misinformation.

Objections based on misconceptions

Misconception #1: Death panels. Former Alaska Gov. Sarah Palin took toFacebook on August 7, 2009 to attack health care reform legislation that was, as of that time, unwritten. She wrote:

The America I know and love is not one in which my parents or my baby with Down Syndrome will have to stand in front of Obama’s “death panel” so his bureaucrats can decide, based on a subjective judgment of their “level of productivity in society,” whether they are worthy of health care. Such a system is downright evil.

This accusation is totally without merit. The law does not allow anything even remotely resembling a death panel. To overcompensate for Gov. Palin’s lie (dubbed the biggest lie of 2009 by the non-partisan Politifact.com), an important, cost-saving provision was removed from the law: reimbursing physicians for counseling their Medicare patients on advance directives and other end-of-life issues.

In fact, private insurers already ration care through utilization management programs. Ever heard of “precertification?” In many cases, utilization management is a very necessary and important form of rationing. And the appeals panels that insurance companies set up frequently uphold denials.

Misconception #2: Government takeover. PPACA enables the government to do many things, but one thing it does not do is take over our nation’s health care system. PPACA is, at its very core, a set of regulations for private insurance companies, guidelines for states to set up insurance exchanges as marketplaces, subsidies to help people purchase private insurance and looser eligibility guidelines for Medicaid. It is actually quite similar to the law Romney signed into Massachusetts law when he was governor.

In early versions of the legislation, including the Affordable Health Care for America Act that passed the House but died in the Senate, there was a provision for a “public option,” but that did not end up in the final version of the law. There is also no trigger for a public option in the law either, although that was proposed.

Even if those things had made it into the law, there would still be private health insurance, and of course privately owned health care providers. Nothing in this law would constitute the government telling you which doctor to see or rationing care.

Misconception #3: Only good for the poorest. While it is true that the law expands Medicaid eligibility guidelines to 133% of the federal poverty level for men and women, many of the most important benefits will be for middle-income families purchasing subsidized private insurance through state-based exchanges. A family of four with adjusted gross income of $88,000 per year could qualify for a subsidy if they have to purchase individual coverage.

They’ll need it too — with new guaranteed issue (no denials for pre-existing conditions), community rating (no rating based on health) and 3-to-1 age banding (the oldest people will only pay three times as much as the youngest people), healthy people will be charged more for insurance to compensate for the sickest people who will be paying less or even newly eligible for private insurance in 2014.

Earlier in 2011, Rep. Paul Ryan (R-WI) proposed a voucher program for Medicare that would use the Medicare tax to provide subsidies for Medicare beneficiaries to purchase private health insurance. This was viewed as a potential solution to the red ink facing the Medicare program. Considering Medicare beneficiaries are, by definition elderly and/or in poor health, they are often bad risk candidates for private health insurance…but only the rating rules under PPACA actually could have made such a program workable for seniors. I, for one, hope Congressman Ryan’s proposal resurfaces.

A few legitimate objections to health care reform

Objection #1: The individual mandate. The issues of guaranteed issue and community rating raise an important point about the real hot-button issue in the law: the individual and employer mandates to purchase health insurance.

Working in the health insurance industry has taught me about the problem of adverse selection, namely the projected rise in costs when more unhealthy people purchase insurance. The higher the cost, the more likely people are to wait until they get sick to purchase insurance…and that, in turn, raises the cost even more. Insurers have dealt with this problem up until now by denying coverage for pre-existing conditions, but a whopping 82 percent of Americans surveyed by the Pew Research Center say that the government should ban this practice.

So the insurance industry proposed an alternative: a mandate that requires people to buy health insurance. If you own a business or are in sales, wouldn’t it help your bottom line if the government required people to buy your product or pay a penalty?

Unlike death panels and the public option, this mandate actually is in the health care reform law, and it will face the ultimate constitutional test in front of the U.S. Supreme Court in 2012.

We Americans are a conflicted bunch. We support a ban on denials for pre-existing conditions but then most of us oppose the mechanism for making such a ban workable: the individual mandate. Unfortunately this very popular ban costs something, and since there is no free lunch, the individual mandate is that cost.

Objection #2: The federal deficit. The non-partisan Congressional Budget Office projected that, through 2019, the Patient Protection and Affordable Care Act would yield a net reduction in the federal deficit of $130 billion. Of course, the government’s budget projections have been wrong — very wrong — before.

When Medicare began in 1966, the cost was $3 billion, and the House Ways and Means Committee projected (conservatively mind you) that the cost would be $12 billion by 1990. In fact the cost of Medicare was $107 billion by 1990 and $468  billion for FY 2012. Considering that we are talking about health care with its extremely rapid inflation rates, CBO’s projections may need to be taken with a grain of salt.

Objection #3: It’s socialism. One of the definitions of socialism in The Merriam-Webster Dictionary reads, “a stage of society in Marxist theory transitional between capitalism and communism and distinguished by unequal distribution of goods and pay according to work done.”

By that definition, all social programs ranging from Medicare to food stamps to Social Security to unemployment insurance are forms of socialism. Yet people usually like these programs. As Paul Ryan was reminded, Medicare and Social Security are often sacred cows in American politics, and any suggestion of reforming them is certain to draw ire from seniors.

PPACA is on the same plane with Medicare and Social Security. There really is not an ideological distinction between one and the others. The question we should be asking ourselves is not, “Is this socialism?” but “Is socialism a good solution to this problem?” There are some who would never say yes, but most Americans support social programs to some degree whether or not they are willing to describe them as socialism.

While we cannot pretend that PPACA is cost-free, we must also consider the current system as an alternative: a system that shifts the debt from the government to individuals. In 2007, a study by the American Journal of Medicinefound that 62 percent of all bankruptcies filed were related to medical expenses, and 3/4 of medical debtors had health insurance. What’s worse, approximately 50 million Americans have no health coverage. When private citizens go bankrupt and cannot pay their medical bills, those costs get shifted to someone who can pay and usually does pay more…and isn’t that a form of socialism too?

The fact is that the spiraling cost of health care itself underlies both the need for health care reform and the opposition to it. I, for one, am tired of hearing Republicans talk just about repealing PPACA and instead want to hear what they propose as an alternative solution.

My two cents on health reform

Note: This is an archived post from 2009; many things have changed since I originally wrote this, including my place of employment.

Like many Americans, I have been paying very close attention to the news about the health reform debate happening on Capitol Hill and across America. As a WellPoint employee, I have also been paying very close attention to my company’s efforts to frame the debate. The Bill of Rights guarantees freedom of speech, and WellPoint has every right to make its case to Congress and to the American people (as do WellPoint’s opponents).

I must give the leadership at my company (WellPoint) its due credit for offering an alternative solution to what President Obama and congressional Democrats have proposed, although I am disappointed not many of these ideas surfaced during the previous administration, which was much friendlier to health insurance companies. I suppose a Democratic administration has lit a fire under private insurance companies to offer an alternative solution over the status quo.

From a sheer public policy perspective, WellPoint is correct to point out that sustainable health reform must include savings in the health care delivery system, not just a shift in who pays for health care. Regardless of who is paying for the waste and extravagance in our health care system, the root costs are spiraling out of control. Americans pay significantly more for our health care than do our counterparts in other industrialized nations, regardless of whether the cost is paid to private health insurers or to the government through taxes.

However, in my customer service role I have become acutely aware of Americans’ mistrust of insurance companies to reform the health system. According to a Gallup poll, Americans surveyed claimed they trusted President Obama (58 percent) and congressional Democrats (42 percent) more than insurance companies (35 percent) and congressional Republicans (34 percent) to reform the health care system. If the private health insurance companies are willing and able to really fix the problem for all Americans – not just the healthy ones – then more power to them. I just want the problems solved, and I am not that ideological as to who solves them.

Why do Americans mistrust insurance companies despite their proposals to reform the system? The market, after all, requires decision makers at private insurance companies like WellPoint to be accountable to shareholders first. Of course it can be argued that satisfying members will increase profits by preventing them from jumping ship, but since insurance companies are exempt from antitrust laws and many people get their health insurance at work, many patients find themselves without other options even when they are dissatisfied. So even though premiums are rising, policies are leaving patients with higher out-of-pocket costs and increased restrictions. For example, many medical policies don’t cover wisdom tooth extractions (and neither do many dental policies). Bariatric surgery is a common exclusion. Go to an in-network hospital and encounter an out-of-network doctor along the way, and you can end up with a huge unexpected bill.

When the real customer is the employer group, the insurance company is incented to make benefits leaner in order to bid down premiums. Insurance companies, by definition, profit by taking in more in premiums than they spend in claims and administrative costs. And if the insurance companies really want healthier people to purchase insurance in the individual market (instead of just the sickest people), it should be obvious that it’s difficult for a healthy family to justify paying premiums every month on a policy with a $10,000 deductible that offers little tangible benefit for them.

In large part because policies are becoming increasingly restrictive with higher out-of-pocket costs, medical bankruptcies are on the rise even among the insured. A recent study that appeared in the August 2009 edition of The American Journal of Medicine found that, among people who filed for bankruptcy due to medical bills (medical bills were involved in 62 percent of 2007 bankruptcy filings), three out of four had health insurance. That is, of all of the bankruptcies filed in the United States in 2007, 47 percent were the result of medical bills that people incurred even though they had health insurance. The fact that so many people who have been responsible and bought health insurance have gone bankrupt over medical bills is unacceptable.

People who have private health insurance are sometimes lulled into a false sense of security – blindsided by medical bills that they believed would be paid by their health insurance plan. On a daily basis, I speak with people who find themselves in just that predicament. To make matters worse, even when conscientious patients try to understand out-of-pocket costs before they have medical services performed, it is often difficult or impossible for them to find out due to complex contractual arrangements and the unpredictability inherent in health care.

So if WellPoint’s goal is simply to have the government require everyone to purchase private health insurance, too many people will still go bankrupt from medical bills unless many other things change as well. Insuring everyone is a noble goal, but the insurance policies that everyone gets under any health reform plan must be worth the paper they are printed on. The Republican Party’s proposals that allow people to purchase insurance across state lines gloss over the concept that many of the state regulations were put in place to protect consumers from increasingly restrictive insurance policies. And my own Democratic Party’s efforts at reform are incomplete because they don’t do enough to deal with underlying costs (I am particularly disappointed in the Democrats’ unwillingness to pursue medical malpractice reform). To achieve meaningful reform, we should consider the following goals:

• Insist on universal coverage. Anything less than 100% coverage is unacceptable because providers will continue to have high levels of uncertainty about receiving payment. American providers must invest far more in administrative costs than their counterparts in other industrialized nations to collect compensation for their services, and these collection efforts increase costs. Because not everyone can afford to purchase health insurance, the government should either provide it or provide subsidies that enable them to purchase it for themselves. Coverage must be universal and not optional – and the penalties for not carrying it should be substantial (after all, if the government is subsidizing your health insurance, you have no excuse not to carry it).

• Account for the sick as well as the healthy. One of the key sticking points about health reform is what to do about people with pre-existing conditions. Insurance companies have been denying them coverage. Even less healthy people who are eligible for coverage are subject to dramatically higher premiums than their healthy counterparts. One proposed solution to this problem is to ban medical underwriting and treat people the same, regardless of health. Another solution may be to base government subsidies not only on income but also on premium rating status. Two people with similar incomes might have to pay very different premiums for health insurance.

• Pay for performance, not procedures. This includes medical malpractice reform, but it also includes some of the positive things WellPoint is doing to eliminate unnecessary procedures. In-network providers who bill for unnecessary procedures are required to write off the charges, and some often-abused tests such as MRIs and CT scans require precertification. This is a critically important step that the government should consider for its members as well (Medicare and Medicaid), but too often insured patients are still caught in the middle and find themselves with unexpected bills.

• Make health insurance coverage more meaningful. Regulations must eliminate many of the payment gaps that lead to bankruptcies and uncompensated care. Unfortunately WellPoint’s views are completely at odds with this – in order to keep premiums down, WellPoint wants to be able to sell policies with higher and higher deductibles, increased restrictions and larger loopholes that leave members more vulnerable to financial ruin. Combined with its opposition to guaranteed issue, this more or less allows private insurers to collect premiums and pay out virtually nothing for claims…which, of course, increases profits for private insurers but leaves patients susceptible to thousands of dollars in medical bills. Such free wheeling might be acceptable in an individual health insurance market where patients can choose an insurance company on the basis of what its plans pay for, but in the employer market, the only thing that seems to matter are the premiums.

• Expand the use of health information technology. Health IT can be used to not only improve recordkeeping but also improve price transparency. Of course the benefits of portable electronic medical records are many and obvious, but we cannot expect people to behave as good health care consumers if they don’t know how much procedures cost until after the fact. I take calls from people every day who want to know how exactly much they can expect to pay for services, but I am often unable to give that information.

• Encourage people to be smart health care consumers. Consumer-directed health plans are an idea whose time has come. When patients are exposed to the true cost of medical services, they will inevitably be more judicious about using them. However, there are often large gaps between the amount deposited in a reimbursement account or HSA (if any) and the member’s traditional health coverage, leaving members feeling as if they are essentially uninsured. This also leads to increased levels of uncompensated care. So for these plans to be truly valuable, the government should consider a requirement to keep the account funded at least at some minimal level so that providers do not go uncompensated for their services and members are prepared for out-of-pocket expenses. These plans can be very effective at reducing costs as long as they are not misused by employers as a way to give lip service to providing health coverage while leaving their employees vulnerable to devastating liabilities and pocketing the difference. A $5,000 deductible might not seem like a lot to a wealthy person, but that same amount of money may be the difference between making ends meet and filing for bankruptcy for low- and middle-income families.

If we want the private insurance industry to survive at all in this political environment, we as insurance carriers must do a better job of protecting the financial health of our patients, not just the financial health of our company. We must do a better job than we have done of earning our members’ trust and behaving every day with their interests at the forefront. Patients are voters too, and during the last two national elections (2006 and 2008), voters have voiced their frustration with the current system at the polls by electing candidates who promised radical changes. The more financial hardship patients face as a result of medical expenses, the more attractive other nations’ health care systems sound to the general populace.