A Bits and Pieces Approach to Healthcare Legislation

#1: Pre-Existing Conditions
Wednesday, August 19, 2009

President Obama and Congress are trying to accomplish comprehensive healthcare reform in a single piece of sweeping, historic legislation. Good for them, but it’s making my head hurt and doing nothing to instill confidence in the outcome.

Why not address the myriad of component issues in separate pieces of legislation? For example, the issue of pre-existing conditions.

Medical insurance underwriters give extra value to large businesses who subscribe to their programs. It’s a form of volume discounting which is supposed to reflect the administrative savings the underwriters enjoy by virtue of the centralized management of so many individual accounts.

In and of itself, there’s nothing inherently wrong with at the least the concept of volume discounting. The problem here is the extent to which the price of coverage is being discounted, and in the non-pecuniary, high value benefits that the underwriters are allowing.

What’s really happening is that the underwriters are competing for large clients in a way they don’t feel the need to compete for small company and individual family business. It is discriminatory pricing which has too little to do with the actual costs of medical care. As a rule, small business employees and unaffiliated Americans who would buy individual and family coverage are no more likely to become ill, and no more costly to treat than the employees of large companies. The underwriters are discriminating, not because it makes good economic sense, but because they can get away it. Existing law and new healthcare legislation can stop that.

There are two issues here. One is whether or not the underwriters are over-discounting to large clients at the expense of smaller companies and individual families? More to the point, is there anything truly non-competitive about their behavior – not just undesirable, but non-competitive – that existing law, aggressively applied, may be able to regulate? If there’s a problem, and if we need new legislation, okay, let’s do it.

The other issue is that underwriters waive pre-existing condition rules to attract large account business. That practice has no real economic basis and can be discontinued in a single piece of highly specific legislation not much longer than this posting – and upon which almost everyone in Congress, on both sides of the isles, can agree. Americans will love the initiative for its clarity and the sense of progress this single piece of legislation represents. The President’s polls on the issue of his management of healthcare reform will improve – as will Congress’ which have nowhere to go but up. And we can all focus our attention on the next very specific healthcare issue on our agenda, whatever that might be — one problem at a time.

There. That was easy. (Thunderous applause, followed by feigned modesty and, “Thank you. Thank you very much.”)

-wf


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2 responses to “A Bits and Pieces Approach to Healthcare Legislation

  1. Both of these suggestions seem quite reasonable. I’m not sure how much cheaper a $3,000 colonoscopy or a $25,000 week-long stay in the hospital would be, but it’s a start.

    • The question I’m raising as it relates to volume discounts is not whether or not a given price for a procedure or hospital stay is too high. It’s whether or not the lower cost of insurance charged by underwriters to their largest accounts is justified, or are the underwriters over-charging small companies, families and individuals just because they can get away with it and to subsidize their large account business?

      You’re right about one thing… The problem of figuring out the cost of any specific procedure or service is extremely complicated which is precisely why I thnk it should be left to a free market mechanism, and that the government should stay out of that process — except to the extent that it regulates the industry to remove non-competitive influences.

      Thanks again for stopping by.

      -wf

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