AHIP's Grand Concession Ain't All That Grand

by Tim Foley

category: Forprofit Insurance

Published March 25, 2009 @ 03:43PM PT

Yesterday, America's Health Insurance Plans, the trade organization for private insurance, sent a letter to Senate leaders with a new grand bargain:  they would willingly give up not only the practice of refusing coverage based on pre-existing conditions, but also to give up the practice of "individual rating" - charging different people different prices based on their medical history or family history - for "community rating" where everyone pays the same price.  Although this is a policy point health care reform advocates have long pushed for, I'm feeling blasé about the supposed "concession."

The reaction has been positive, no doubt.  Len Nichols of the New America Foundation is pumped and jacked about the offer, saying "[Insurance companies] have never in their history offered to give up risk rating."  Senator Jeff Bingaman sees happy days ahead, saying, "It represents a major shift from where the industry was in the 1990s during the last major health care debate."  Maybe, but I can't help notice that, as phrased, the insurance company hasn't given up anything essential.

Up until the middle of the last century, community rating was the norm for insurance, and it's still the norm for insurance elsewhere in the world (remember Swiss health care, which runs entirely on private non-profit insurance, only has three pricing tiers, based solely on age).  The idea that you'd vary the cost of premiums based on factors like age and health history originally grew up out of financial concerns.  Young, healthy people are the desired customers for insurers because they contribute to the plan but don't use a lot of health care - their premiums subsidize older and sicker patients.  As a way of attracting more of these desired customers, insurers began offering them lower rates to "reward" their healthiness.  What began as a sales tactic has turned into a nightmare.  Presuming that you have a pre-existing condition or a chronic disease and manage to be accepted by an insurer, you'll be charged significantly higher rates than an average customer.  It's hard to see that this business practice helps anything but the company's bottom line - nakedly so.  That makes individual rating and discrimination based on pre-existing conditions the easiest business practices to demonize.

So why aren't I glad to see the end of it?  Because it's a rather empty gesture.  For one thing, AHIP has made clear that this applies to the individual insurance market only.  As bad as it is for individuals, the more dramatic pain comes from small businesses, where if one of your employees comes down with cancer, the entire company's rates will shoot up.  It's a practice that's convincing more and more small businesses to drop insurance altogether, and it's not at all addressed in AHIP's offer.  Slightly more disturbing, as reported by the Wall Street Journal, insurers "would still have to be able to set different rates according to age, geography, family size and plan design 'to maintain affordability' for many people."  Um... I think this means they're still planning to charge different rates for age, but it sounds a lot like still trying to find a way to get younger customers rather than older ones, even if they're no longer fixing prices based on medical history.

Finally, if what passes Congress is some version of the Obama or Baucus plan, community rating and pre-existing conditions will be off the market for most uninsured anyway, since individuals would be purchasing their coverage through a National Health Exchange which would require community rating as a pre-requisite for participation.  To quote General Zod, "We have all of this without you.  You cannot bargain with what you do not possess."

The goal throughout all of this is to show that AHIP are good players and build support for their main objectives - an individual mandate forcing everyone to buy their products and push back on the public competitor.  WSJ quotes the Cigna CEO, who makes the connection explicit:  "I think that if we as an industry are willing to make substantial changes, then the need to have a public plan is extremely questionable."  I suppose I would agree with that.  But if the concessions offered by AHIP remain as they currently are - largely superficial gestures that allow them to have their cake and eat it too - then the questioning of the necessity of a public competitor is just as superficial.