Instead, they have introduced a new health care plan with more a more modest goal: making Obamacare work better.
It has three elements. First, it expands health insurance subsidies to everyone. Currently, individuals with annual incomes of $48,560 or more are ineligible. Second, it creates a national reinsurance pool to subsidize insurance companies that incur high costs. Third, it reverses Trump administration regulations that make it easier to obtain limited-benefit insurance.
So, what’s wrong with that? For starters, it uses taxpayer dollars to give money to rich people and insurance companies. It also forces healthy families to buy insurance that doesn’t meet their needs for a price that is artificially high. And the worst feature of the plan is that it doesn’t solve Obamacare’s most important problem: people with chronic health conditions are unable to see the best doctors and enter the best hospitals.
Protection from what?
According to Speaker Nancy Pelosi, Democrats took back the U.S. House of Representatives in the 2018 elections because of health care. By one estimate, Democratic candidates spent $90 million on health care ads. In most cases, the message was simple: people with preexisting conditions need protection.
Protection from what? From Republicans, if you take seriously the Democratic argument that the GOP wants to remove sick people from their hospital beds and throw them out on the sidewalk once their insurance runs out.
Once you get past that absurd bugaboo, however, a much bigger threat becomes visible. People with medical problems need protection from Obamacare itself. Although the Obamacare individual mandate is gone, people who are sick still need health insurance. People who must purchase health insurance on their own and who aren’t heavily subsidized by the government have seen their premiums double, their deductibles double and triple, and their access to care increasingly restricted to an ever-narrower network of providers.
All three of those problems arise for the same reason: insurance plans have perverse incentives to attract the healthy and avoid the sick. The way insurance companies hold down costs is by paying rock-bottom fees and engaging only those providers who will accept those low fees.
Race to the Bottom
The race to the bottom in the individual insurance market is producing plans that are little better, and perhaps even worse, than Medicaid with a high deductible. Nothing in the new Democratic health care plan is going to change that.
Take Centene, a Medicaid contractor that is insuring almost one-fifth of all the people in the country who have Obamacare insurance. Virtually any provider can be in Centene’s network. All you have to do is accept Medicaid rates coupled with a crude form of managed care.
The M.D. Anderson Cancer Center in Houston won’t accept Centene enrollees. The low rates plus the hassle of arguing with an insurer over the bills just aren’t worth it to them. This is so even though the center does accept garden-variety Medicaid, probably when there are beds left over after all the other patients have been seen.
These days, virtually every insurer left in the Obamacare exchanges pays the same way Centene pays—even Blue Cross. That is why patients with Obamacare insurance are not able to go to M.D. Anderson, UT Southwestern Medical Center, the Mayo Clinic, or any of the other topnotch facilities around the country.
Lack of Competition
There is no free-market competition in the individual market today. All the insurers face perverse incentives, and they are all acting on those incentives. If you have a rare cancer and the only doctors who know how to treat you are at UT Southwestern in Dallas, there is not a single health insurance plan in Dallas’s individual market that will get you through that hospital’s door.
Economists have only recently begun to analyze this problem rigorously. A good place to start is a study by Harvard University’s Mark Shepard that is posted at the National Bureau of Economic Research Working Paper site. Shepard finds insurers in the Massachusetts Obamacare exchange have an economic incentive to avoid including Massachusetts General Hospital and Brigham & Women’s Hospital (adjacent to Harvard Medical School) in their networks. These two hospitals are rated among the very best in the whole country, but they are expensive.
When insurers leave these two facilities out of their networks, they lose customers, but that’s profitable because the customers they lose are patients that incur large medical bills.
Medicare Advantage Approach
Republicans rarely mention the Medicare Advantage program, which enrolls about one-third of all seniors in private insurance plans that are similar to the employer plans most workers have.
Like Obamacare, Medicare Advantage has an exchange where private insurers compete for enrollees who pay subsidized premiums, but unlike Obamacare, the Medicare Advantage system works reasonably well.
Takethe plans managed by IntegraNet of Houston. Doctors in these plans get paid more than Medicare rates. But to be in IntegraNet’s network, a doctor has to keep records electronically, follow best practices, and engage with other doctors in coordinated, integrated care. If a doctor fails to comply, he or she gets booted out of the network.
As with other doctor-run Medicare Advantage plans, IntegraNet’s plans raise quality and reduce overall costs even though doctors are paid more.
Clearly, Obamacare needs reform. Both parties would be well advised to look closely at the Medicare Advantage alternative.
John Goodman ([email protected]) is president and CEO of the Goodman Institute for Public Policy Research. An earlier version of this article was published in Forbes, March 27, 2019. Reprinted with permission.
Hospital Network Competiton and Adverse Selection: Evidence from the Massachusetts health Insurance Exchange, Mark Shepard, September 2016