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Aug
15
2006

Guest column
Jim Holman

Jim Holman lives in Gresham, worked as an analyst for OHSU for many years, and now works in the field of veterinary medicine.

Changing jobs or employment status often means having to change health insurance, which often means receiving care from a new primary physician.  If you're self-employed you might not be able to purchase health insurance because it's too expensive. If you work for a company that doesn't offer a health benefit then you're out of luck. Many people with existing health problems can't purchase private health insurance even if they can afford it.

Specific health insurance reform is difficult even to discuss. Many proposals for health insurance reform are met with a charge of "socialized medicine," an accusation that can be fatal to the proposal.

But "private" approaches to health insurance reform are often little more than new ways to distribute the current unfairness. The system I propose contains both socialized and private elements. It socializes the opportunity for health insurance while retaining private funding and private choice. It retains the link between employment and heath insurance even as it widens the opportunity for health insurance to those whose employment status does not now afford them the opportunity for health insurance.

The proposal is very simple. All health insurance plans offered in the State would be available to all people who are residents in the geographic areas served by the plans. The State of Oregon would contract with one or more firms to coordinate health benefits for all people in the state. These firms would administer open enrollment periods and other life events through which people could change insurance plans. They would also collect insurance payments and notify insurance companies of who is covered. In other words, these firms would function very much like existing companies that administer COBRA benefits.

The key is that all plans would have to be offered to all residents of the service area, thus the risk pool for each plan would be potentially the entire population of the service area.

How would this work?  If you were employed with a company that offered a health benefit, that benefit could be used to purchase insurance from any provider serving that area.  The company would send insurance payments to the organization that coordinated health benefits, and any difference in cost would be made up by an employee contribution.  In other words, the employee could select any plan offered in the service area.  He or she would not be limited only to the plans offered by the employer.

If one became unemployed or self-employed, one could continue to pay out-of-pocket for the very same insurance.  The cost would not change, because everyone in the service area would all be part of the same risk pool.  The amount, if any, that one had to pay out-of-pocket for the insurance would be tax-deductible, the same as if the employer were paying. 

In other words, throughout the various modes of employment you retain the same insurance, and pay the same rate that everyone else pays. When you are unemployed or self-employed, you continue to enjoy the same health insurance tax benefits that people who work for regular employers enjoy. Employers can continue to fund health insurance benefits, but in the form of money rather than in the form of specific plans.

One objection to this proposal is that it would require firms to administer benefit plans, and there would be a cost for this service. In the case of companies that currently administer COBRA benefits, this is about two percent on top of insurance costs. But look at this in the context of the total system. Under the current system of health insurance, companies in the state employ thousands of people as health benefit coordinators. In addition, insurers have to craft plans for individual companies and have to track clients by company. The new system simplifies health insurance procedures and reduces process cost across the state, and this offsets the new cost of the firms coordinating insurance benefits. Going from decentralized to centralized insurance benefit administration gives us the opportunity to streamline and automate the total process of benefit administration throughout the state.

People would no be longer limited to insurance plans selected by individual employers. Instead, you could choose from any plan serving your geographic area. This means that insurers and contracted health systems and services would have to compete for individuals through balancing benefits and plan cost, and through better service. Since all residents of the service area are potential clients, insurers would have an incentive to develop plans that would appeal to people in various income brackets.

Under this proposal, it is possible that health insurance costs might go up somewhat, since we would be covering people who currently are not insured. But again, we have to look at costs in the total system. People without insurance still end up getting treated, and hospitals pass on the cost of uncompensated care to paying customers and their insurers.

In a sense you either pay on the front end or on the back end.  But in exchange somewhat higher insurance costs, people would have greater choice and portability. And in the event that one were to become a sicker, more expensive client, one would still be able to obtain insurance through being a member of the expanded risk pool.

Currently many employers cannot afford to provide a health benefit to their employees. But under the proposal, employers could still contribute something toward health insurance. For example, if the company cannot afford a monthly $400 benefit, perhaps it can provide a $100 monthly benefit. If so, then the employee could kick in some additional pre-tax dollars in order to purchase at least some catastrophic insurance. This is obviously not an ideal solution, but I think that most people would find that something is better than nothing.

In addition, this proposal would broaden the opportunity for health insurance coverage. Parents could pay for health insurance for adult children, or vice versa. Rather than running its own Medicaid insurance plan, the State could simply fund the cost of insurance for people who are eligible for Medicaid.

This proposal would obviously constitute a major change in how health insurance is provided. Thus it would have to be implemented over a period of several years. Otherwise some insurers might find themselves overwhelmed with new clients; they would need some time to gear up for the additional workload. This would involve contracting with additional physician practices, and could even involve additional capital construction.

This proposal obviously does not solve all problems with health insurance, nor does it address many of the cost drivers in the medical system. But within limits it does bring more people under the health insurance umbrella. It gives people far more choice and portability than they currently have. It simplifies and streamlines the system of health insurance even as it creates more opportunities. It provides a greater incentive for health insurers to improve benefits and control client cost, even as it offers to those companies a greatly expanded potential client base. It spreads the risk, socializes the opportunities, and yet retains private funding and choice.

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Join the dialogue here

Aug 16, 2006 9:24:33 AM
Bill Carpenter says

An excellent idea! Years ago I worked in Portland for a large HMO. HMOs are required to cover geographical service areas. At that time, HMOs used a rate determination method called community rating that based health insurance premiums on the age/sex distribution of the population in its service area. It seems that a very similar methodology could be used on a state-wide basis to determine rates under this proposal. In short, that part of the issue at least, is a solved problem.

Aug 16, 2006 3:50:25 PM
Barbara Glidewell says

Jim Holman, your insight and wisdom is always refreshing. Barbara Glidewell

Aug 16, 2006 8:15:45 PM
J. R. Hofer says

Mr. Holman, your idea is stunningly clearly stated, and it deserves serious consideration.

The economic burden passed on to the larger state community by the cost of care for uninsured persons is probably far greater than you give it credit in your discussion (one can't do everything in an essay, I understand).

Getting some kind of reduction in the rate of uninsureds might begin to highlight to us what some of those subtle costs are and how working a little more expensively at the front end of the healthcare process could save us considerable more at the back end.

Your approach is far better than the mindless social Darwinism we have currently at work in our community.

Aug 17, 2006 3:45:09 PM
John Norris says

Geographically based health insurance is interesting. How would one deal with possible differences in the public health of certain areas, or the differing percentages of folks already with health insurance?

In other words, how would one draw the geographical boundaries?

Also, has anything simiar to this been done anywhere or is there a way to test this idea?

Aug 17, 2006 4:06:14 PM
Sara says

How would public funds fit into this plan? Medicare and Medicaid/OHP? Would that remain the same?

Aug 17, 2006 4:15:54 PM
Jim Holman says

John Norris writes: "In other words, how would one draw the geographical boundaries?"

In effect, this already happens with many health plans, and for a simple reason -- people have to live close enough to the relevant facilities in order to use the services. For example, there's no point in being on the Kaiser health plan if there are no Kaiser facilities in your area.

Also, see Bill Carpenter's comment above. This is basically a "solved problem," since this is how HMOs were designed to operate.

Aug 17, 2006 4:33:11 PM
Jim Holman says

Sara writes: "How would public funds fit into this plan? Medicare and Medicaid/OHP? Would that remain the same?"

I would see Medicare as working the same as it works now. It's an existing program, and it works well. It's not perfect, but I don't think there is anything in the proposal that would require changing it.

In the case of Medicaid, I think it would not be necessary to have "Medicaid" function as a health plan. Medicaid would in a sense act like an employer -- it would pay for health insurance for people who fell within the eligibility guidelines.

I'm not a worshipper of the free market, but I think under this proposal companies really would develop a number of different health plans that would appeal to people at various income levels. Medicald could choose to pay for certain plans in the service areas in which their clients lived. But there would be no "Medicaid" plan; any plan available to any Medicaid client would also be available to any who wanted to pay for it.

So the whole "health plan" bureaucracy of Medicaid would no longer be necessary. Medicaid would determine eligibility and make one monthly payment for each client, and each client's health plan would do the rest. So for Medicaid, no billing, no reimbursement, no DRGs, no approved services, etc. That's what health plans are for.

Aug 23, 2006 4:15:18 PM
Diana Potts says

Excellent idea - and I would even suggest that medical costs per person would be reduced over time, as more people would be contributing to the 'pool' of funds. Preventative care would start reducing crisis management in the ER, further reducing costs. There might still be Oregonians not covered, who can't afford the premiums, but this provides hope that current assistance dollars would be stretched further to reach those in need.

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