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February 19, 2008

What does a poor politician do when when there's no tax money to finance his great spending dreams?

Make somebody else pay, of course.

That's the essence of the "key health care initiatives" rolled out by Governer Culver yesterday "aimed at increasing access to health care and lowering health care costs."

Rather than increasing taxes, two of the proposals use regulation to force policyholders to bear the costs of the Governors Plans. From the Governor's press release:

COVERING PRE-EXISTING CONDITIONS: Under current Iowa law, individuals leaving the group health insurance market can be underwritten when entering the individual market. For people who have complied with the system of maintaining health insurance coverage through a group policy (and have coverage for all types of illnesses and conditions) it is a matter of fairness to allow them to move to the individual market without any preexisting condition waiting periods or denials of coverage.

COVERAGE FOR DEPENDENT CHILDREN: Health insurance carriers in Iowa have different dependent age restrictions and requirements. Because these dependents are already on the policy and have been factored into the rating system, maintaining these unmarried, young adults through the age of 25 will provide them with coverage for a time period that may allow them to move into their own coverage options at a later date either individually or through an employer plan.

So: because insurers won't be able to issue policies based on individual risk (unlike, for example, the auto insurance market), they will have to raise the cost of all individual policies to cover poor risks -- assuming, of course, that insurers won't be allowed to charge those with pre-existing conditions a premium in line with their increased risk. This is a hidden tax on everyone else with individual coverage, and it will make it harder and more expensive for everyone now covered through individual policies to find and maintain their coverage.

The same goes for the "adult children" coverage. Rather than letting people and businesses set their own terms for coverage privately, the government will require additional plan provisions. This makes it more expensive for employers to provide coverage, and the cost will come out of the raises the employees will get, or out of other provisions cut out of the employer plan.

The Culver Plan also has some true voodoo economics:

LONG-TERM CARE INSURANCE: Under current Iowa law, rate increases for long-term care insurance must be pre-approved and actuarially justified. Governor Culver is proposing legislation to cap long-term care insurance rates at 12 percent per year to protect aging policyholders. The Governor’s legislation does give the Insurance Commissioner the right to waive the 12 percent cap in light of financial conditions of the insurer or certain conditions within the marketplace.

If we've learned anything in the last 100 years or so, it's that price controls never, ever work. Unless the cap is too high to affect anything, it will chase insurers out of the market, force them to jack up the premiums on newly-issued policies to protect against the caps, or bankrupt the insurance carriers.

Still, there is something to be said for the Governor's plan: it could be a lot worse. In fact, legislative leaders want to make it so.

UPDATE: Hank Stern resonds below in the comments and in a post at Insureblog.

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Interesting post.

I tend to agree with you about mandates: in general, they raise prices for everyone, while benefitting a select few.

And I'm also no fan of a guaranteed issue free-for-all: this has the same effect.

BUT: I'm not sure I have a problem with GI in the group-to-individual scenario. Presuming (and it's a big presumption) that the carrier can still price for the risk, I kinda like the concept.

Here's why:

One of the goals in reducing the (oft-debated) number of uninsured folks is to get folks "into the system." While I'm very much against GI with no prior cover, it does seem penurious that folks who *have been* in the system are suddenly kicked out. Again, the ability to price for the risk must be maintained, but the idea itself is attractive.

One also supposes that they'll have to create a comparable mechanism for individual-to-individual plans changes, as well.

I agree with the previous commenter. It really is unfair to move from a group policy to an individual policy within the SAME insurance company and be denied for conditions previously covered by the group policy. This is what happened to me.

Why can't the insurance company move individual policies into it's own group? They want pooled risk. Why don't they do it?

Actually, one thing people have learned about long term care insurance is that companies which are unable to maintain pricing throughout the life of the policy have failed to underwrite properly and should generally leave the business, so if this proposal does that, good riddance. Long term care is a unique insurance product and the premimums are intended to remain the same throughout the life of the policy. If someone pays several decades worth of premiums, with the full expectation it won't be used until well into old age, it does seem a bit unfair to price them out with massive price increases once old age is reached. Several companies have been able to maintain no price increases pricing, and any worthwhile salesperson will steer consumers to those companies.

Regarding health insurance, heaven help us if health insurance goes the same way as fire protection; that is, from an individualistic, capitalist insurance system of homeowners hiring private fire insurers to a community, socialist system of publicly run fire departments. We all know how that has turned out.

"Long term care is a unique insurance product"

Up to a point: it is most comparable to guaranteed renewable disability cover, in that the plan can't be canceled by the carrier (except in certain very specific circumstances), and one can't be singled out for a rate increase. But the LTCi rates are rarely guaranteed (and then only on specific policy configurations).

"Several companies have been able to maintain no price increases pricing"

Again, true to a point, and only so far. I use only two carriers; they are the #1 and #2 carriers (depending on who's doing the rating), and neither of them "guarantee" the premiums. OTOH, neither has a history of rate increases ("massive" or otherwise).

I absolutely agree with your suggestion that one work with a reputable agent (IOW, this is *not* a candidate for DIY).

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