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Taming The Insurance Wilderness

Anthony Wright is executive director of Health Access California, the statewide health care consumer advocacy coalition. He blogs daily at the Health Access WeBlog and is a regular contributor to the Treatment.

If there's any consensus among consumers or health policy experts alike, it is that the individual insurance market doesn't work. For most people, the fact that people are denied or charged more for so-called "pre-existing conditions" is intolerable and, which is why such regulatory reforms like "guaranteed issue" and "community rating" are so important.

That said, the larger problem is one of market power. An individual--as opposed to a large employer or a public health insurance program--is never going to have any bargaining power with a big insurer. And so individual insurance ends up being the least efficient, most expensive way to get coverage.

Another problem is that individual consumers aren't actuaries, and so it's very hard to figure out if a health plan will provide comprehensive coverage or not, and under what circumstances. How to evaluate cost-sharing provisions, or coverage exclusions?

That's what Georgetown professor Karen Pollitz found when researching plans in Massachusetts and California. One solution is the "nutrition label" for plans that better describe the product, which would be a big help, in the current system or a reformed system.

Other ideas that need to be considered:

  • Creating coverage tiers, so people had a better sense of whether the coverage they are buying is comprehensive, merely catastrophic, or in between.

  • Requiring that insurers selling in a market include among their choices a few "benchmark" plans that have identical coverage provisions, so that consumers can actually do some apples-to-apples comparisons between insurers--and that insurers actually compete on price rather than on what they don't cover.

  • Establishing some minimum requirements for what "coverage" means, such as an out-of-pocket maximum. The point of coverage is to limit your financial liability. No coverage should allow people to have unlimited costs after paying a premium.

These provisions were part of the health reform considered in bipartisan health reform last year in California, and are the substance of a pending bill (sponsored by Health Access), by California Assemblyman Dave Jones, chair of the Assembly Health Committee. It passed the Assembly on Wednesday; now it's headed for the State Senate.

The provision that would set a basic floor for coverage has been attacked for limiting choice, but the point is to weed out junk insurance. It would still allow--and properly label and categorize--high-deductible and other products so people know what they are getting.

But some products offer such little coverage as to not provide any value for the premium one is paying; these policies usually play on what people don't know about health care costs or their likely risks. Some "mini-medical" plans only cover up to $200/day for a hospital stay, even though hospital charges far exceed that. Some offer hospital-only coverage--even though most surgeries and cancer treatments are now done outpatient, and thus would not be covered. Such junk products are not choices, but traps. The only thing worse than being saddled with huge medical debt is having paid a premium for the privilege.

Another possibility, as detailed by the Senate Finance Committee paper of options, is to set a minimum actuarial value for a health coverage product—the paper suggests 76 percent. That means that across a entire population, a health plan’s mix of covered benefits would cover at least 76 percent of the health expenses. Remarkably, there are plans in the market that do much worse.

As the conversation about expanding health coverage comes to a head, this debate will take center stage: What is the definition of coverage, anyway?

--Anthony Wright