GOP Health Reform Bill Shifts More Costs to You

The New York Times reported [1] yesterday that

"House Republicans have come up with an answer to Speaker Nancy Pelosi, drafting an alternative health care bill that would reward states for reducing the number of uninsured, limit damages in medical malpractice lawsuits and allow small businesses to band together and buy insurance exempt from most state regulation."

That, in a nutshell is the House GOP bill [2] (PDF) to reform our health care system. Same old, same old. There is nothing new in their plan. It is a rehash of the Republican party's answer to every problem:

Deregulate the industry involved as much as possible;
Put the burden of cost and risk on consumers and taxpayers ("buyer beware"); and
Protect business from injured consumers.

Here is how this tired Republican formula plays out in their health care reform plan.

Deregulate the industry involved as much as possible

The Republican bill calls for allowing insurers to sell insurance across state lines, making policies subject to laws in the company's home state but exempt from consumer protection laws, rating rules and benefit mandates in other states where the company sells coverage. It would also allow small businesses to pool their insurance buying power through association health plans, sponsored by trade and professional associations and chambers of commerce, which would be exempt from state consumer protection laws as well.

This would likely allow insurers to offer low-premium health insurance policies because they would have lousy benefits and leave people unprotected when they need health coverage most. What's the use of having insurance with a low premium if it won't pay for anything when you get sick? (Listen to me explain why allowing insurers to sell health insurance across state lines is a bad idea on the Rick Smith Show [3].)

To understand why circumventing state regulations is a problem, it is important to understand how insurance is regulated. States are the primary regulators of health insurance. The rules vary from state to state and also based on individual, small or large-group markets. The Employee Retirement Income Security Act of 1974, or ERISA [4], bars states from regulating employer-sponsored health plans. As a result of this federal law, coverage provided by employers that self-fund (i.e., pay for their share of employee health care costs out of their own general assets) is not subject to any additional insurance regulation by the states. Therefore, state laws generally apply to small-group policies sold to small employers with less than 50 employees and policies sold to individuals.

In general, state laws are more comprehensive than federal laws. Almost all states, for instance, provide limits on the amount by which all small group health insurers in the state can vary the premiums among small employer groups for the same coverage. In at least 10 of these states, insurers cannot consider health status at all in setting a small employer group's premiums (called community rating). In addition, many states require insurers to cover certain conditions or providers. States may also enact laws such as those that require insurers to permit physicians to make standing referrals and to have adequate provider networks.

Currently, health insurers are licensed in each state in which they operate and are subject to the insurance laws of those states, including laws regarding access to coverage, premiums, and scope of coverage. The proposed GOP plan would allow insurers to circumvent state health insurance regulations.

That gives insurers virtually unfettered discretion in their practices. This approach would mean that each insurer operating in a state could be subject to dramatically different standards. This will further fragment the health insurance market and eviscerate the viability of markets that guarantee access, restrict premiums, limit coverage exclusions, and/or mandate benefits, especially in states such as Maine, Massachusetts, New Jersey, New York, and Vermont which have the most comprehensive consumer protections. It will likewise undermine the laws of other states that have some protections and effectively bar these and other states from strengthening any protections.

And this is not a new idea. Republicans have proposed this time and time again. For example, they have repeatedly submitted the Health Care Choice Act (H.R. 4460 [5]) and the Small Business Health Fairness Act (H.R. 241 [6]), which would allow insurers to sell health policies across state lines, circumventing state regulations and consumer protections.

The Small Business Health Fairness Act would have created Association Healthcare Plans (AHPs), which allow small businesses to band together and buy insurance exempt from most state insurance regulations and consumer protections. According to the Drum Major Institute for Public Policy [7] (PDF):

"Enhancing the ability of small businesses to offer quality health insurance would go a long way towards reducing the number of uninsured Americans. But the devil is in the details. By exempting AHPs from state regulations, studies indicate that this bill would increase average health care costs for small businesses and reduce the number of workers with health insurance. For example, state laws prevent insurance plans from cherry-picking only the healthiest people for insurance coverage, allowing businesses with relatively healthy employees to join for less money while charging higher rates to those with older and sicker workers. Exemption from these laws would destabilize the health care marketplace: state-regulated health care plans would see their healthy workers siphoned off to the AHPs, leaving them with a disproportionate number of older and sicker employees who are more expensive to cover. Health care premiums for all small businesses, except for those with the healthiest workforce would soar, and companies unable to cope with the increased costs would leave their employees at risk of becoming uninsured. For this reason, the Congressional Budget Office has projected that AHP legislation, if enacted, would result in higher premiums for four out of five small employers."

Even the National Small Business Association (NSBA) is against AHPs. Back in 2005, Todd McCracken, NSBA president said [8]:

"AHP legislation would likely increase premiums for small employers and their workers and make it much harder, if not impossible, for small business owners with older, sicker workers to get access to affordable health coverage. We need a better solution for small businesses. This is not the answer."

In 2004, the National Governors' Association also came out against [9] these types of plans writing that they:

"would seriously undermine states' ability to provide their citizens with access to affordable health insurance coverage by exempting AHPs from important state regulations. The legislation would raise already skyrocketing health care premiums on our most vulnerable populations while watering down states' existing financial oversight and consumer protection measures."

Such "pick-your-regulator" provisions were also central to John McCain's health reform proposals during his 2008 presidential campaign. (See my blog post "Deregulate, Baby, Deregulate: McCain's Health Reform Plan. [10]")

Not surprisingly, allowing insurers to circumvent state regulations was also part of the reform proposal put out by America's Health Insurance Plans (AHIP), the lobbying arm of the health insurance industry. (See my blog post "Too Little, Too Late: The Health Insurance Industry Unveils a New Plan to Reform Health Care. [11]")

(What are some of state-based regulations you could lose if health insurance companies are allowed to circumvent state insurance regulations? Find out here [12].)

Put the burden of cost and risk on consumers and taxpayers ("buyer beware")

The Republican health reform bill would continue to allow health insurance companies to deny people coverage because of pre-existing medical conditions and, if they deign to sell them a policy, to charge people more based on their health status or exempt coverage for anything related to their pre-existing condition.

Instead the bill would provide funding to states to establish high-risk pools in which private companies cover people who cannot otherwise obtain coverage with subsidies from the state. It also offers states funding to establish reinsurance programs under which a state pays a large share of the cost of private health insurance companies if claims exceed a certain threshold. Both of these have the effect of shifting the risk and the cost of covering costly individuals to taxpayers, leaving the inexpensive healthy individuals to be insured by private insurance companies, thus privatizing profits and socializing risk [13].

High-risk pools [14] are not new and experience with them shows that they make health insurance problems worse by further fractioning the risk pool. As this "Health Insurance: A Primer [15]," (PDF) by Bernadette Fernandez of the Congressional Research Service puts it:

"The main objective of insurance is to spread risk across a group of people. This objective is achieved in health insurance when people contribute to a common pool ("risk pool") an amount at least equal to the average expected cost resulting from use of covered services by the group as a whole. In this way, the actual costs of health services used by a few people are spread over the entire group. This is the reason why insuring larger groups is considered less risky-the more persons participating in a risk pool, the less likely that the serious medical experiences of one or a few persons will result in catastrophic financial loss for the entire pool."

High-risk pools offer people a choice of private insurance plans with the state subsidizing a portion of the costly premium. The inevitable consequence has been that high-risk pools suffer from a myriad of problems that keep the medically uninsurable from accessing good, affordable health care. A study [16] published in Health Affairs found that in most state high-risk pools:

"Coverage is expensive, the waiting period for coverage of pre-existing conditions is long, and benefits may be limited... most discourage enrollment in the high-risk pool in myriad ways and fail to ensure access to the individual market for persons with health problems."

Yet none of these deficiencies would be addressed by the GOP bill. Insurers offering high-risk coverage would continue to be allowed to deny people coverage for treatment related to the person's pre-existing condition--the very condition that made them eligible for the high-risk pool in the first place.

Nor does the House Republican bill help people pay for coverage if they cannot afford it. The bill does not offer any tax credits, subsidies, benefit guarantees or out-of-pocket maximum protections.

At least the bill does not force individuals to buy insurance they are unlikely to be able to afford. But that does leave us with just about as many uninsured as we have now since it also does not require employers to contribute to the system in any way. As The Washington Post reported [17] today:

"The long-awaited Republican entry in the health care debate received its assessment late Wednesday from congressional budget analysts, who concluded that the proposal would barely dent the ranks of the uninsured.

"The measure would cover only 3 million additional people at a cost of $60 billion through 2019, according to an analysis by the nonpartisan Congressional Budget Office. It would leave more than 52 million Americans uninsured a decade from now."

Protect business from injured consumers

The Republican bill's main plan for lowering overall health care costs is another of their health reform mainstays: "tort reform." The bill imposes new restrictions on patient lawsuits against doctors, hospitals, and makers of drugs and medical devices. It sets a $250,000 limit on non-economic damages for physical and emotional pain and suffering, establishes new hurdles for consumers to get punitive damages, and limits contingency fees for plaintiffs' lawyers. It does not put any restrictions on how insurance companies can set their premiums.

This focus on medical malpractice liability reform is due to the fact that conservatives believe frivolous lawsuits drive up health care costs and require doctors to practice defensive medicine that is costly and wasteful.

It is a bizarre place to focus on to lower costs, however, given that medical malpractice costs are only a small fraction of total health care costs in the U.S. [18], two to three percent at most. Therefore, even large savings in medical malpractice premiums can have only a small direct impact on total health care spending.

In addition, judgments account for less than 4 percent [19] of all medical malpractice payments, and the significant increase in premiums for medical malpractice liability insurance is not attributable simply to an increase in medical malpractice payments. Other contributing factors [20] (PDF) include reduced competition among insurers and a decline in insurers' investment income.

CQ Today [21] reported yesterday that the CBO believes the changes in the changes to medical malpractice laws "would reduce health care costs directly by reducing premiums for medical liability insurance and associated costs."

But that ignores evidence from the states that have already enacted tort reform [22]:

The Medical Liability Monitor... publishes the latest information on medical liability insurance rate. Its annual rate survey, reported by state and by medical specialty (e.g., internal medicine, general surgery, ob/gyn) reports the medical liability insurance rates of all the major insurers of physicians in the United States. Its data is the most comprehensive anywhere and is cited by government agencies, legislative bodies and major media. It found that:

States with caps on damages have average insurance premiums that are 9.8% higher than insurance premiums in states without caps on damages. (Medical Liability Monitor, October, 2004)
In the five states that recently passed new medical malpractice caps, premiums rose at nearly double the rate as states that did not pass a damage cap. Those states are: MS, NV, OH, OK and TX. (Medical Liability Monitor, October, 2004)

Most importantly, as Tom Baker explains [23] in his book The Medical Malpractice Myth, most people who are injured by medical malpractice do not sue:

“First, we know from the California study, as confirmed by more recent, better publicized studies, that the real problem is too much medical malpractice, not too much litigation. Most people do not sue, which means that victims—not doctors, hospitals, or liability insurance companies—bear the lion’s share of the costs of medical malpractice.”

The bottom line

The GOP health reform bill does very little to expand health coverage to more Americans, very little to lower overall health care costs, and very little to ensure people will be able to afford the health care they need when they need it.

So where's the reform?

(If you would like to see how the House Democratic bill compares, read this summary of the bill [24] (PDF) H.R. 3962.)