Analysis: GOP's health reform alternative

Here's what Rep. Boustany (R-LA) proposed last night as the GOP's alternative plan for health care reform:

One, all individuals should have access to coverage, regardless of preexisting conditions.

Two, individuals, small businesses and other groups should be able to join together to get health insurance at lower prices, the same way large businesses and labor unions do.

Three, we can provide assistance to those who still cannot access a doctor.

And, four, insurers should be able to offer incentives for wellness care and prevention--something particularly important to me. I operated on too many people who could have avoided surgery if they'd simply made healthier choices earlier in life.

We do have ideas the President hasn't agreed with. We're grateful the President mentioned medical liability reform, and we hope he's serious. We need to establish tough liability reform standards, encourage speedy resolution of claims, and deter junk lawsuits that drive up the cost of care. Real reform must do this.

Let's also talk about letting families and businesses buy insurance across state lines. I and many other Republicans believe that that will provide real choice and competition to lower the cost of health insurance. Unfortunately, the President disagrees.

On points 1 and 3, the two parties don't seem that far apart, but the devil is in the details. We shall see.

Tort reform I've talked about several times. It is not a panacea. It is not what's causing health care costs to rise so fast. And limiting malpractice payouts won't solve our health care crisis. But let's do something anyway, just to get this bad idea off the table.

He said that "insurers should be able to offer incentives for wellness care and prevention." He makes it sound like they're not allowed to now! Certainly it is in their interest, and they do. What he's probably hinting at is a 1996 federal law which prohibits employers from discriminating against employees because of their health status or medical history. Now, it's conceivable that if, for example, an insurance company offered a lower premium to somebody if he managed to lose weight, and that person received his health insurance through his employer, who paid most of the cost of that premium, then that the person could be pressured by his employer (i.e. "discriminated against") to lose weight and save the company money. But this is all very "what-if." Most U.S. companies already offer some kind of incentives for employees' participation in wellness and prevention programs.

So, really the GOP has two "big" ideas to cut costs and increase access: (1) let inviduals and small businesses collectively form health cooperatives; and (2) let people purchase insurance plans from any state.

First, co-ops. The kind of co-ops the GOP now envisions have never been tried. They would cut out insurance middlemen altogether, and let co-ops negotiate prices directly with health providers -- doctors, hospitals, and drug companies. The key challenge for co-ops is membership: unless they attract lots of members (500,000, at least) they won't have the same bargaining leverage as national health insurance giants like WellPoint/BlueCross, CIGNA, and Aetna. It could take years for the co-ops to attract enough members -- if they ever do at all. They would need startup assistance from the federal gov't -- at least $6 billion for 12 million members, according to the only estimate. And, according to proposed legislation, these new co-ops would be run by boards appointed by the Dept. of Health and Human Services.

A weaker form of co-ops, which already exists and doesn't require any additional enabling legislation, consists of individuals or businesses pooling resources and risk to negotiate rates with private insurance companies.

One of the oldest and most unique and successful health co-ops, with 556,000 members, is Group Health in Washington state. It owns 26 medical centers and employs its doctors directly. It's contained annual increases in premiums to 12.7% since 2000. It has also invested $40 million in an electronic medical records system. (Will your co-op have enough money to hire its own doctors, build a medical center, and invest $40 million in e-records?) It's just too bad we can't go back in time to 1947 and start up similar co-ops in every state, so that they could spend a few decades increasing their membership, building or buying hospitals, and hiring doctors. (Note to self: Buy time machine; then fix health care.)

If more co-op members means more negotiating leverage, then the bigger the co-op the better, so... shouldn't a nationwide co-op be the best for members? No, say Republicans, contrary to the logic of co-ops and, well, insurance, because they're afraid of anything national. So that settles that.

(We could think of the so-called "public option" as a nationwide co-op, which wouldn't be required to show a profit, pay dividends to investors, or bonuses to employees.)

Second, there is selling insurance across state lines, which was part of McCain's presidential platform, if you recall. The across-state-lines proposal would probably increase costs and deny more people affordable health insurance over time. To have any chance of working, across-state-lines would have to offer so-called "guaranteed issue health insurance" for those with pre-existing conditions. Now, the GOP promises "access" to insurance for those with pre-existing conditions, but the devil is in the details. Access at what cost? After what waiting period? Guaranteed issue plans usually require a waiting period of 12 months before pre-existing conditions are covered. Second, to succeed, across-state-lines would have to offer subsidies to low-income people to pay their premiums, or else provide supplemental funding to pools of the high-risk insured. Third, across-state-lines would have to ensure federal licensure and regulation of insurers.

But what is across-state-lines really about? It's not like Blue Cross is available in only one state, and if only we lived there, we could buy it, too. It's about how the 50 states regulate health care differently, by requiring certain minimal coverage in plans, or certain consumer protections. If national insurers want to sell insurance to residents of a state, their plans have to abide by that state's rules. Today, 35 states impose no limit on the variation of health insurance premiums based on health status. At the other extreme, a few East Coast states like Massachussetts use a so-called "community rating," which means that everybody pays the same premium, regardless of age or health status. Across-state-lines would render the community rating impossible.

Essentially, across-state-lines would cause a race to the bottom, where insurance companies would compete in the lowest-common-denominator state(s) without mandates (for "extras" like maternity or diabetes management) for the healthiest consumers who want the cheapest plans with minimal coverage. "[This] would have the ultimate effect of standardizing state regulation to the least restrictive level, thus de facto de-regulating individual insurance markets." Meanwhile, not-so-healthy consumers would end up with fewer choices and even more expensive plans.

But in fact, since one or two insurance giants dominates in each state, chances are even healthy consumers wouldn't see much benefit from buying insurance from another state, because premiums are determined largely by insurers' negotiating leverage. Smaller entrants into another state's insurance market wouldn't be able to compete.

So, to some up: any savings from selling health insurance across state lines -- as unlikely as those savings would be -- must come from effectively separating the healthy from the sick.

BTW, according to the nonpartisan Center for Responsive Politics, Rep. Boustany has received more than 20 percent ($1.25 million) of his campaign funding since 2004 from health and insurance interests. I'll let you decide if that constitutes a conflict of interest.