By ALLAN DOBZYNIAK, MD
One of the drivers of increasing health insurance policy premiums, and especially ACA policies, is the so called “community rating.” This is the concept that requires health insurance companies to offer policies within a given territory at the same price to all persons without medical underwriting, regardless of their health status. This does not account for all premium increases such as coverage mandates and increasing provider costs (almost exclusively attributable to hospitals), but it has become increasingly consequential. For the ACA, as the premiums increase fewer healthy people, particularly the younger, can afford the increasing premiums, or they may voluntarily choose not to purchase the more expensive policies. The result is a greater percent of policy holders are high-risk with significant preexisting conditions. Therefore, there are fewer healthy people to defuse the continuing rise in risk and premium costs as the situation persists and worsens. Huge premium increases have been the unfortunate result.
The novel new definition of “reinsurance” as it applies to health care has nothing to do with the classic definition. Reinsurance has meant the purchase of insurance by an insurance company to cover large unanticipated losses that may be greater than its financial reserves. In healthcare, it is a part of the concept of risk transfer or risk-pooling. None of these healthcare “reinsurance” strategies reduce the cost of healthcare; even though premiums might be reduced at least temporarily.
As mentioned above, adverse selection risk for high-risk individuals, those with serious preexisting conditions, has been driving premiums and deductibles skyward. It has caused multiple insurers to abandon ACA exchanges and some other riskier markets. It is particularly onerous for smaller health insurance companies, thereby limiting competition.
Some states have elected to deal with this problem by excluding high-risk patients from the general healthcare insurance marketplace. These higher-risk patients are then placed in state run “high-risk pools.” These are financed by assessments on private insurance companies, state subsidies or both. The assessments are passed on to the company’s customers as increased premiums and the subsidies are passed on to the state’s taxpayers.
The misnamed “reinsurance” concept is also being used to address the problem, not by exclusion, but by inclusion of high-risk patients with the other members of the general health insurance marketplace. Here a portion of claims for these high-risk patients is pooled, and then compensation for these costs is redistributed back to the insurance companies as subsidies by the states. States can receive reimbursement from the federal government for the costs of their “reinsurance” subsidies.
Any of these risk transfer strategies can reduce premiums at least in the short run. But all of these risk transfer gimmicks only shift or redistribute costs among funding sources. They do not lower health care costs but redistribute the costs across a broader population. Federal funds received by states with larger adverse risk populations are then actually being subsidized by the tax payers in those other states whose risk is less. That this can result in perverse incentives should be obvious.
Inclusionary “reinsurance” does include the introduction of some free market concepts. All participants are free to shop and select coverage and perhaps providers (with restricted networks of course growing) if all insurance companies are forced to participate. The drivers of increasing healthcare costs are not directly addressed, but may be indirectly depending upon financial incentives or disincentives placed on the insurance companies. This is of course one of the worst possible ways to address health care costs being onerous to both patients and their physicians.
Also is to be remembered that Medicare is doomed to insolvency in the early 2030s and underfunded at a minimum of $37-plus trillion with other estimates up to $100-plus trillion. The federal deficit is already at greater than $21 trillion with more than $1 billion a day in federal interest payments. Then add to this the additional federal subsidy payments to states for “reinsurance,” and the incomprehensible financial shortfall becomes even more incomprehensible. The incomprehensible becomes nonsensically ludicrous if “free” college, “Medicare for all” and a universal basic income are added to this. The gigantic pyramid game will then end with fiscal hell to pay. The destructive nature of this type of arrogant virtue signaling makes debate impossible and the tragic outcome more a fait accompli. No amount of taxation can even come close to solving this debt nightmare which at some point in the not too far distant future will likely be an immoral legacy of irresponsible debt for our future citizens. Building more printing presses to multiply the amount of fiat currency is too ugly to contemplate.
Kate Davidson and Daniel Kruger report:
“The Congressional Budget Office estimates interest spending will rise to $915 billion by 2028, or 13% of all outlays and 3.1% of gross domestic product. Along that path, the government is expected to pass the following milestones: It will spend more on interest than it spends on Medicaid in 2020; more in 2023 than it spends on national defense; and more in 2025 than it spends on all nondefense discretionary programs combined, from funding for national parks to scientific research, to health care and education, to the court system and infrastructure, according to the CBO.”
“Reinsurance” seems then only a short term means to health care insurance policy cost reduction, which like Medicare is unsustainable, and only additive to the country’s dismal fiscal future.
The opinions expressed in this column are those of its author and do not necessarily reflect those of Healthcare Michigan or those affiliated with the same.