"Substandard Plans" Offered by "Bad Apple Insurers"––Does the Obama Administration Understand How the Health Insurance Market Works?

Yesterday, the President said in Boston that the millions of people who are getting cancellation letters ending their coverage in the individual health insurance market are being saved from "substandard plans" that were sold to them by "bad apple insurers."

I guess these would be the same insurers his staff invited to the White House last week. In their statement following that meeting, the White House said they were "committed to working in partnership with the insurers" toward implementation of the Affordable Care Act.

So, this is how he treats his "partners."

Are health insurance plans in the individual market substandard?

Not the overwhelming bulk of them.

How do I know that?
Because individual health insurance policies have been regulated for decades by the states. Every policy sold in a state has to be approved by that state's insurance commissioner. Have you heard about the longstanding debate over whether or not states over regulate this market with too many state health insurance coverage mandates and policy requirements?

This whole issue over whether the states regulate these policies too much has been at the heart of Republican calls for insurers to be able sell individual health insurance plans across state lines––to be able to buy individual health plans from states with fewer regulations.

In this context, it is kind of hard to argue that this is a "substandard" insurance market.

How many health insurance mandates are there and what kinds of mandates exist?

Here are some charts from a 2011 report issued by the Council For Affordable Health Insurance––an advocacy group formed in great part in opposition to the large number of state health insurance mandates that already exist. This market is so regulated there is actually an advocacy group to fight it!

Why it is cool to have an ultrasound in my pocket and the Second Annual World Congress on Ultrasound in Medical Education

I admit it. I am an ultrasound nerd. Zealot would be another word. I am someone whose enthusiasm for bedside ultrasound is strong enough to overwhelm my desire not to bore other people. Still, it has taken me to very interesting places and put me in contact with good, devoted people whose passion to make medical care and teaching better and more accessible mirrors my own values...even the values I had when I thought that ultrasound was something that technicians did in little dark rooms which produced un-readable blur-o-grams.

After learning the basics of bedside ultrasound in an introductory course 2 years ago and working on becoming proficient through hours of practice and other formal training I got to go with medical students from UC Irvine to Tanzania to teach basic ultrasound and practical anatomy to students in Clinical Officer training school and other physicians. They have kept in touch and presented their work in a meeting in Columbia, South Carolina, the Second Annual World Congress in Ultrasound in Medical Education. This was a gathering of physicians and students from around the world who push the concept of using ultrasound in the hands of caregivers at the bedside to both teach students to understand anatomy and physiology and to diagnose and treat patients more effectively. It was a great meeting. There were almost no dry and boring talks delivered by people who would clearly rather be elsewhere. People were passionate about their desire to have bedside ultrasound become more common, and presented lots of the research about how it improves our safety and effectiveness. Nobody talked about how it can make us more money. That piece was conspicuously absent. The reason it was absent was because that isn't something these people were passionate about, and it doesn't usually make us any more money. There were people from Italy who use it routinely for diagnosing lung conditions and wanted to make sure that everyone knew how to do that and how useful it was. There were people from the Middle East and Africa who use it to deliver healthcare where there are no CT or MRI scanners and where basic imaging of a trauma victim or a pregnant woman can routinely save lives. There were American physicians who have been pioneers of using it, swimming against the current because it doesn't increase the revenue stream and makes folks whose livelihoods rest on the overuse of expensive imaging very uncomfortable.

Columbia is the capitol of South Carolina, the largest city in South Carolina at 129,000+ people, and the home of the University of South Carolina and its School of Medicine. The meeting was held in the convention center, just next to the university and near art galleries and shops, restaurants and bars and not too far from the Congaree River that runs through town. The medical school is one of a small but growing number which teach ultrasound to the medical students as part of their curriculum, and so they were an appropriate and gracious host for a meeting devoted to ultrasound in medical education. The Dean of the medical school, Dr. Richard Hoppman, was a personable guy who gave one of the short, sweet and useful speeches at the plenary session, and he was clearly devoted not only to ultrasound but to all kinds of projects that would benefit people domestically and in other countries who have very little. Since ultrasound is a technology that gives excellent value and costs nothing after the price of the machine, it is an excellent tool for doctors who want to take their skills to some place where people need medical care but where there is little to no infrastructure to deliver it. The meeting was packed with such doctors.

In addition to people talking about what they were doing in their hospitals and on their travels and presentation of research in various aspects of teaching ultrasound and documenting that it was accurate as a diagnostic tool, there were hands on sessions where doctors who had a tremendous amount of practical expertise shared how they did what they did. I learned about basic obstetrical ultrasound and something called transcranial doppler which actually looks at the brain through the very thin area of the skull at the temple to determine blood flow in the cerebral arteries.

Next year the meeting will be held in Portland, Oregon, which is much closer to my stomping grounds, and will use the new teaching facilities at Oregon Health and Sciences University. The ultrasound champion there who will facilitate the meeting is Dr. Jenny Mladenovic, an internist and long time academic administrator who recognized that ultrasound makes internists better and happier doctors and that the best time to introduce all of us to it is as medical students.

Since I was hanging out with medical students and ER physicians at the meetings, the evenings were not boring. Also the companies that produce ultrasound machines, companies like Fujifilm and General Electric, funded a dinner at the Columbia Art Museum and  at the zoo. This is part of the unholy industry physician connection, but was also an opportunity to make meaningful connections with cool people who were doing groundbreaking things. After the dinners there were bars with good ambiance and excellent live music which conspired to get me back to bed later than would have been optimal. I got the idea that Columbia produces really good musicians, which is supported by the wikipedia entry on the city.

On my way home I was sitting in my airplane seat trying to decide whether to watch a movie on the pay per view tiny screen in front of me or study medicine when the flight attendants asked for a doctor. I went to the aid of a very old man who was just regaining consciousness after walking back to his seat with his daughter from the bathroom. Losing consciousness when one is very old is a bad thing, often a sign of something life threatening. The story the daughter gave lead me to a differential diagnosis that included dehydration, heart attack, arrhythmia or blood clot to the lung. We were still 4 hours from our destination with a full flight and, although it would have been nice to have this man be on the ground and at a hospital there was no chance of this happening expeditiously. Airplanes have little first aid kits that are bigger than the one I carry, and have blood pressure cuffs, intravenous fluids and some basic pharmaceuticals. I could tell that the patient's blood pressure was very low but the exam was otherwise limited by loud engine noise and no room to move around. Luckily I had my handheld ultrasound and could determine that he was not suffering from a heart attack or a blood clot to the lung, because these two events, when severe enough to cause a person to lose consciousness would usually show characteristic changes on the images, and that he was definitely dehydrated, which fit best with the history that he gave me. He perked up nicely with an anti-diarrheal pill, some 7-up and the old time doctor's best remedy, tincture of time. He was able to get off the plane looking much better and see his own doctor who knew him rather than be rushed to an emergency room in an unfamiliar city where they would have to piece together his medical history and probably do a bunch of potentially unnecessary tests. Hooray for ultrasound and tough little old people!

Health Insurance

In the fall in ec 10, we heard a lecture from David Cutler on health economics. David talked about the incentive effects of health insurance.

The issue is moving to the front of the policy agenda. In today's NY Times, Al Hubbard, director of the White House's National Economic Council, has an op-ed on the topic. The essence of the article is in this extract:

Health care is expensive because the vast majority of Americans consume it as if it were free. Health insurance policies with low deductibles insulate people from the cost of the medical care they use — so much so that they often do not even ask for prices. And people don't recognize the high premium costs of this low-deductible insurance because premiums are paid by employers. Finally, the tax code subsidizes these expensive, employer-purchased insurance policies.

To control health care costs, we must give consumers an incentive to spend money wisely. We can do this by encouraging the purchase of high-deductible policies and providing the same tax benefits for out-of-pocket health spending that employer-provided insurance enjoys.

The 4th edition of my Principles text, which just published, has a new box on health insurance, which I believe is consistent with what Professor Cutler told you in the fall. So that you don't have to buy a copy of the new edition to replace your old one (although I won't stop you!), I offer the new box here for free:

The Peculiarities of Health Insurance

Many economists believe that health insurance in the United States is often poorly designed and, as a result, Americans spend too much on healthcare. Three features of typical health insurance distinguish it from other kinds of insurance, such as car insurance.

First, health insurance often covers routine expenses, such as annual checkups and vaccinations. If an expense is perfectly predictable, there is no reason to buy insurance to cover it. In this sense, health insurance is more like a prepayment plan than it is protection against risk. It is as if your car insurance covered oil changes and tire replacement.

Second, health insurance often covers small, random expenses, such as a doctor's visit for a child with an earache. For most people, such expenses would not have a major financial impact, so there is no need to buy insurance to protect against them. It is as if your car insurance covered the contingency that your taillight might burn out.

Third, many people obtain their health insurance through their employers rather than directly from an insurance company. As a result, when a person loses a job, he or she often loses health insurance as well. By contrast, a person’s car insurance continues as long as the premiums are paid.

Why does health insurance have these three unusual features? One reason is the tax system. According to U.S. tax law, employer-provided health insurance is a form of compensation that is exempt from income and payroll taxes. This tax treatment does not apply to other types of insurance: Your employer could not reduce your tax burden by reducing your salary and paying your car insurance premiums for you. Because of the preferential tax treatment given to health insurance, you and your employer have an incentive to make health insurance part of your compensation and an incentive to have the insurance cover items that could easily be paid out of pocket.

Many economists believe that because of this tax treatment, Americans have health insurance that covers too much. Excessive insurance can lead to excessive use of medical care, driving up the amount Americans pay to stay healthy. It would be better, these economists argue, if people bought less expensive insurance that covered only catastrophic losses and paid for small, routine, and discretionary medical expenses out of pocket.

There are various ways policymakers might induce people to change the kind of health insurance they have. Some economists have advocated eliminating the preferential tax treatment now given to health insurance. Others have proposed giving similar tax treatment to medical expenses paid out of pocket. Either reform would level the playing field between different ways of paying for healthcare, thereby reducing the current incentive for employer-provided health insurance.
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A couple observations beyond what's in the text:

1. We should be careful not to overstate what health-insurance reform will do. The main reason health care is more expensive today than it was a generation ago is technological progress that yields new but expensive ways to prolong and improve our lives. That probably won't stop. Health spending is likely to continue to rise as a share of GDP.

2. As the new box makes clear, there are two ways of leveling the playing field. Al Hubbard advocates making out-of-pocket expenses deductible. A case could be made that it would be better to eliminate or cap the tax exclusion for employer-provided health insurance. If we exclude all health spending from the tax base, as Hubbard suggests, then as health spending rises over time as a share of total expenditure, the rest of the economy will have to pay ever higher tax rates even to maintain a constant ratio of tax revenue to GDP.