PPACA notwithstanding, health insurance facing crisis
The enactment of comprehensive health care reform nearly one year ago aside, the U.S. health care system needs deep systemic reform that can meaningfully reduce medical costs and align risk and incentives among consumers, providers and payers. That’s the consensus among several panelists who took part in a health care forum Friday in Sacramento, California sponsored by the UC Berkeley Institute of Governmental Studies, School of Public Health and the UC Sacramento Center.
For Diana Dooley, California’s newly installed secretary of Health and Human Services, tamping down demand for medical services is an essential component of bending what all panelists agreed is an unsustainable, unrelenting upward trajectory in medical costs. People have to take more responsibility for their health, Dooley emphasized, suggesting that the current mindset that equates more medical care with better health must be abandoned. “We have an inexhaustible appetite for health care and it’s a significant cost driver,” Dooley said. “We have to have some very frank conversations around kitchen tables and in political dialogue and ask ‘How much medicine is enough?’ A lot of these cost drivers are our choices.”
Dooley’s absolutely right. Poor lifestyle choices are within the control of individuals and are the ultimate cost driver. I would add that those lifestyle choices are strongly influenced by cultural values that place too much emphasis on sedentary work, commuting and leisure time. Those values reinforce spending too much time sitting, too little time exercising and sleeping and the interconnected lifestyle issues of excessive stress and bad eating habits.
In this environment, it’s no wonder people’s health declines and they become overweight and develop costly chronic conditions like obesity, cardiovascular disease and diabetes. From the perspective of health insurers, all of that adds up to poor risk management. But most people don’t view it that way. Health insurance is seen more as a prepaid medical plan rather than a means of paying for unexpected, high cost medical expenses. Health breaking down? Get to the doc shop or the hospital and get fixed up. The problem is as Dooley and others on the panel pointed out, when too many people adopt this way of thinking, insurers and managed care plans end up paying out too much, jeopardizing the financial solvency of these payers. Hence, premiums keep futilely chasing after costs in a vicious, unvirtuous cycle.
Panelist Paul Markovich, COO of Blue Shield of California, underscored the seriousness of those escalating premiums in the individual health insurance segment. Premiums can go up only so much before healthier people decide to drop their coverage, leaving less healthy insureds in the pool. That is placing “tremendous stress” on the pool, Markovich said. “You have all heard of the death spiral (of adverse selection). We are absolutely experiencing some of that stress right now.”
Cindy Ehnes, the director of the California Department of Managed Health Care, noted during her seven-year-long tenure managed care plans attempted to preserve their troubled individual markets through risk selection — what Ehnes termed “cherry picking and lemon dropping.” Next, Ehnes explained, payers imposed high deductibles hoping to shift more risk to consumers and drive down the utilization of medical services. Now with the individual market facing structure failure, that strategy has played out, leaving only steep premium hikes as a last, desperate measure to keep the market solvent. That’s why premiums are high and headed higher despite high deductibles. People paying high deductibles naturally expect their premiums to be substantially lower than those with low or no deductibles. When they don’t see lower premiums in proportion to their high deductibles, they understandably drop coverage figuring they’re getting poor value for their premiums. That in turn takes more premium dollars out of the pool, forcing insurers to raise premiums even more just to stay afloat.
Not surprisingly, payers bearing the bad news of fat premium increases are coming under withering criticism from the consumer groups, the media, regulators and policymakers. Ehnes noted — and I would agree — simply chastising “greedy” payers isn’t going to help. There’s far more to it than that.