Is there a $200/month insurance solution?

October 24, 2005

I commend Massachusetts Governor Mitt Romney for trying to extend affordable health insurance coverage to everyone in the state. An article in Saturday’s Boston Globe (Romney gets look at $200 coverage) described the outline of a prototype health plan that Romney asked Blue Cross Blue Shield of Massachusetts (BCBSMA) to develop. The objective was to demonstrate what could be achieved for a target premium of $200 per month for an individual. (Note: for some reason the article has disappeared from the Globe website.)

BSBSMA started with a low end $400/month plan and modified it by increasing deductibles and co-pays (the article didn’t say by how much, but probably a lot), with a particular emphasis on reducing use of expensive imaging and ER visits. The plan also eliminated certain state mandates such as coverage for in vitro fertilization and chiropractic services and would have a tight formulary to control drug costs.

Romney intends to offer subsidies to low income people who don’t qualify for Medicaid in order to lower the premiums and eliminate the deductibles.

The Romney plan has been criticized for attempting to solve the problem without injecting new public funds. (BCBSMA and the big hospital systems have aligned with local activists to push for more public funds, which would increase their own profitability.) However, I think Romney is doing the right thing by first testing whether it’s possible to re-arrange spending rather than increasing it. After all, more evidence based preventive care, a shift away from the emergency room, and an increase in the number of people paying into the system (especially people who can afford insurance now but aren’t buying it) should make a difference.

There are some problems with the plan:

  • The trouble with health care costs isn’t just the absolute level but the growth rate. If costs continue to increase at 10% per year, the $200 premium will be $400 in 7 years or so
  • It’s hard to simultaneously insist on large co-pays and deductibles while expecting emergency room usage to drop
  • Sometimes expensive diagnostic procedures and drugs are worth the cost; this plan is likely to take a cruder approach and reduce their availability even when needed
  • Providing subsidies to those who can’t afford the deductibles and co-pays also reduces the effectiveness of those tools in discouraging over-utilization. A solution for low income people could be to eliminate the deductibles and co-pays completely and replace them with a “negative tax.” In other words, send a check to people who make modest use of the system, and send a bigger check to those who use it even less. To encourage preventive visits, the biggest check should go to the people who use the system a little, rather than those who don’t use it at all

11 thoughts on “Is there a $200/month insurance solution?”

  1. .
    VERY interesting post. Interestingly, the list of objections missed the only one that really counts: state mandated benefits. Absent a waiver for these, such a plan cannot be approved by the state DOI.

    I, for one, would LOVE to have such a plan in my portfolio, but I really don’t think it’s going to happen any time soon.

  2. “It’s hard to simultaneously insist on large co-pays and deductibles while expecting emergency room usage to drop”

    If I’m not mistaken, all plans except for MassHealth (Medicaid) already charge large deductibles for ED visits (except when the patient is admitted to the hospital, in which cases the co-pay is waived).

    A mutual friend of ours who runs a pediatric ED says his hospital is actually pretty good at collecting co-pays, which is to say ~75%.

    Raising co-pays is precisely the right way to reduce mis-use of emergency services.

    I like the negative tax idea. But in Massachusetts? As I said in a previous post “We can dream, can’t we?”

  3. “…However, I think Romney is doing the right thing by first testing whether it’s possible to re-arrange spending rather than increasing it.”

    Although adding any “new taxes” in MA is worrysome, I think the House has a good idea. Currently companies *with* insurance are paying $160M into the uninsured care pool (a tax). Companies with no insurance: $0 directly to the pool. The new payroll tax shifts that $160M from the companies that have health insurance to those companies that don’t provide insurance. While I have some problems with some other details, that provision actually seems more than a little reasonable.

    In fact, I think this whole concept might eventually be a problem *without* the new payroll tax (or some other tax reform). Forcing companies with insurance to pay a tax for non-employees without insurance increases the cost of providing insurance (obviously); that is what we do today. There is currently no direct cost for not providing insurance (again, obviously). If you already have a low-end plan, your employees would still get (mandatory) health insurance if you drop your plan, and you can give them substantial raises to help with the costs while still pocketing a profit. When some companies do that, it raises the costs for every other employer who still provides insurance, maybe helping push yet more employers to drop insurance. And so on.

  4. Americans could also take advantage of the HSA (health savings accounts) accounts that Bush implemented. Basically it works like a savings account that you can put “before tax dollars” in to use on qualified medical expenses.

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