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Busting The Health Insurance Exchange Myth August 19, 2009

Posted by Kate Ryan in Health Care, Health Care Co-Op, Health Care Exchange, National Politics, Politics, Public Health, Public Option.
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fehbpRaging through the current health care debate is this idea that if the government supported not-for-profit health care cooperatives and insurance exchanges, there would be adequate market competition and no need for public health insurance.  I have heard countless Republicans say that the uninsured should be allowed to purchase insurance across state lines or buy into one of the largest health insurance exchanges – the Federal Employees Health Benefit Plan (FEHB).  These arguments seem to be gaining traction as public support for a public health insurance option seems to be dwindling.

 Last night, Joe Klein of Time Magazine appeared on The Ed Show on MSNBC.  The host, Ed Schultz, has been crazy over the Obama administration’s giving up on single-payer health care and seemingly caving in on a public insurance plan option.  Schultz spent yesterday’s show railing against health care co-ops.  Indeed, studies have shown the effectiveness of cooperatives at controlling costs and improving access to be limited, at best.  Klein said that the public insurance option could be eliminated from health care reform in favor of these exchanges.  He stated – with Schultz strongly dissenting – that  they would achieve the goals of improving access, improving quality of care, reducing cost, and potentially provide universal coverage.  Perhaps this is possible in the parallel universe that Mr. Klein lives in, but here on this earth, not so much.

FEHB is an enormous health insurance exchange plan where federal employees have the “choice” of picking the plan that best suits their needs.  The costs are based upon community ratings and nobody can be denied for pre-existing conditions.  The choice, however, is an illusion.  In the FEHB program, the employee gets to choose during one open enrollment period per year.  So, if the insurance stinks and doesn’t suit your needs, you are stuck living with it and cannot change until the next open season. 

Usually the lowest-cost options are HMOs and other individual-practice plans.  The employee is presented with a set of “options” specific to the state and/or county or city in which he lives.  In New York, where I live, there are 20 plans set out in the state.  Because of where I specifically live, however, my choice is narrowed down to 5 plans.  Of those 5 plans, the employee portion of a family premium can cost anywhere from $67.73 to $107.36 bi-weekly for high-deductible plans; from $194.06 to $449.33 bi-weekly for zero deductible plans.  All of the plans include co-pays for doctor visits and prescription drugs.  All of the prescription drug plans are “formulary” plans that penalize you for brand-name pharmaceuticals by charging very large co-pays (upwards of $25.00).

Looking at just the costs, it would seem as though choice is real.  But if you look deeper, the rates are lower in high deductible plans because these buyers are generally younger and have less illness.  Instead of pushing the community risk through the entire population, insurers “cherry-pick” single people, younger people, people with no children, and can keep their prices artificially low.  The “high deductible” on these plans, however, is often $8,000 to $10,000 per family that must be paid prior to receiving benefits.  So, in addition to paying $67.00 every two weeks for coverage – you’re not covered until you spend $8,000 out of your own pocket – making your cost $9,742 per year.  And don’t forget, the government is paying about $5,300 for your insurance – making the grand total of premiums, employer contributions, and deductibles over $15,000 per year.  Had you joined a more expensive plan with no deductible at $104.20 biweekly you would spend $2,700 out-of -pocket for premiums.  The government would have paid about $8,400 in premiums, making your insurance cost $13,700 per year.  Add in co-pays for prescription drugs and doctor visits and it wouldn’t be hard to spend the extra $1,300 to make a grand total of $15,000 per year.  Some choice.

But what about buying over state lines?  New York must be a high cost state.  Wouldn’t it be cheaper for me to buy insurance in, say, Mississippi?  Not if you prefer an HMO.  These plans, because they include networks of certain physicians, hospitals, and pharmacies, can not effectively operate in all 50 states.  Administrative costs would skyrocket.  Also, Mississippians only have two “options”, both with high deductibles, and costing between $67.73 and $91.19 bi-weekly.  When the government’s share of premiums and the deductibles are factored in, lo and behold, the yearly cost of these plans is around $15,000.

The only plans that are feasible to purchase over state lines are traditional fee-for-service plans.  In these plans, you visit the doctor, submit a claim, and the insurance company pays your doctor or hospital according to a fee schedule they have set out.  You are responsible for any balance.  The FEHB offers 10 national fee-for service plans open to all and 4 plans open only to specific individuals (members of a union or trade association, etc.).  The fee-for service plans all include deductibles and range from $77.89 bi-weekly to $244.56 bi-weekly.  Magically, when deductibles and the government share of premiums are worked in, the amount per year is around $15,000.   

When one looks at these figures, it is clear that the “open market” of the health insurance exchange is not open at all.  Every single one of these companies is making about the same amount of money on every federal policy they sell.  There is not one iota of competition to make them provide care at a lower cost.  Where is the insurance company that thinks it can sign up enough members at $10,000 per year per family plan and provide coverage?  They could probably sell enough policies to do it, too, but they won’t.  Why?  Because they couldn’t make obscene profits every year and pay their CEOs millions.  There is no incentive to do it. 

A public option could provide coverage at two-thirds the cost per family plan.  If it is paid for in the same way the FEHB is paid for, each family would pay about $50 a week for coverage.  The government could subsidize the remaining premiums through a combination of tax increases, efficiency gains, and other financial instruments that do not necessarily have to fall on individuals (stock transaction taxes, VAT taxes, penalties to employers not providing insurance).

The best way to cure the health insurance mess in the United States is to go to a single-payer system.  Failing that, the only way to achieve the administration’s goals of providing access, controlling costs, and improving quality is to provide a public option – “Medicare For All.”



1. ram charan - January 30, 2011

while looking through your webpage,i got what information i require,thank you

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