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May 03, 2006

The New Modernization

By Kate

Republicans have acquired an attachment to the word “modernization”.  Especially when it comes to health care legislation.  And like most of their deceptively but cleverly named bills (Healthy Forests Initiative, anyone?), modernization has been assigned a new meaning.

In the reality-based health wonk community, modernization evokes images of electronic health records and eprescribing systems.  But for the Republican party, “modernization” is now synonymous with “corporate handout”. 

The Medicare Modernization Act, which created Medicare Part D, resulted in daily birthday gifts for drug companies and insurers alike.  Now Mike Enzi’s Association Health Plan bill, officially titled the Health Insurance Marketplace Modernization Act, will continue the festivities for years to come among those ineligible to participate in Medicare’s debacle.

The theory behind the bill is this: small business owners can’t afford health insurance for their workers because they are just too tiny, and their bargaining power is nil.  If these small businesses are allowed to pool their resources, across the fifty states, they will gain more market power and insurers will bow to their demands.

Unfortunately, association health plans are a perfect lesson in unintended consequences.  Because insurers will be freed from individual state regulations, they will race to the bottom; wooing business owners with the barest and bony of insurance plans. 

What kind of coverage will be dropped?  Everything ranging from contraceptives to dental anesthesia (imagine bargaining with your dentist for that one).  In fact, head over to this table to see the dizzying array of benefits that you would lose in each state should congress pass this legislation.

What’s more, it’s not always the lack of bargaining power that’s keeping small businesses from getting affordable rates.  It’s the fact that in most states monopolistic insurance markets are discouraging competition.  As the New York Times examined last week the largest insurer had 43 percent of the market for small group coverage in most states, up a whopping 10% in three years. In nine states, the largest carrier has more than 50 percent.  So while the number of uninsured rose by 6 million since 2000, and 9% of employers decided to drop health benefits, it’s no coincidence that insurer consolidation markedly increased as well. 

But the basic idea behind association health plans (besides obliterating necessary regulation) is good ol’ Consumer Directed Health Care (CDHC).  Even if we take this specific instance – lack of bargaining power among small businesses – it’s clear that CDHC can’t work.  If groups can’t bargain, how can individuals be anymore effective?  As other nations have shown, the best and most effective way of lowering health costs is to introduce the ultimate bargainer – the federal government.

May 3, 2006 in Health Care | Permalink


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I think the conventional wisdom that you present on AHPs is totally wrong. What AHPs will do is allow these groups to purchase insurance that is regulated on the federal--not state--level. One of the reasons that states have so many benefit mandates (like the site you linked to indicated) is that lobbyists from provider groups have had to go to each state capitol to lobby for a specific benefit, mandate, or rule. Because insurance has until now largely been state-regulated, those provider groups haven't needed to go to Washington to insist upon coverage for everything from contraceptives to alcoholism treatment to telemedicine to "special footwear." If and when the AHP legislation passes, rest assured that those lobbyists will be more than willing to trek to Washington to insist on mandates that will be applied to any group that is involved in these federally-regulated AHPs. Insurers will thus start out offering coverage that isn't burdened by the mandates (you call it "bare bones"--I call it "allowing employers/employees to avoid purchasing services that they neither want nor need", but soon enough, the regulations will ratchet up and federally-regulated plans will become just as unaffordable as state-regulated ones.

Republicans (and small businesses that are jumping on the bandwagon) are shooting themselves in the foot by supporting AHPs, but hey, it's their mistake to make. I should also note that the AHP legislation maintains the truly "necessary regulation" of requiring insurers to maintain solvency standards and protecting against fraud and the like; it's not as if it's getting rid of all regulation and allowing insurers to go on a free-for-all.

On a larger note, I'd like to know how you can reconcile the twin goals of reducing the number of uninsured and ensuring comprehensive benefits/coverage. It doesn't take a genius to figure out that new mandates increase premiums and thus make coverage less affordable for those who need it the most: the uninsured. Are contraceptives and infertility treatment really important enough that their inclusion in all plans should pre-empt those who want to purchase coverage that only includes, say, catastrophic hospital and doctor costs? You're essentially advocating an "all-or-nothing" dichotomy which pretty much screws anyone whose employer can't afford the Rolls-Royce plan.

Posted by: Adrienne | May 3, 2006 12:09:13 PM

But, since AHPs cut coverage for so many procedures, won't there be institutional opposition from doctors & hospitals that kills the bill?

Posted by: Nicholas Beaudrot | May 3, 2006 12:09:52 PM

The interesting irony of this to me is that you have the most local businesses, in essence, avoiding state laws for coverage, while national companies will have to follow regulations in multiple states. That seems completely backward; if you want to achieve a more nationalized coverage goal (debatable, to say the least), it's interstate businesses that should be following a federal mandate, not small businesses probably exclusively in one state - not to mention, one market (which probably means people in lower cost areas will subsidize higher costs in larger markets).

Adrienne's so wrong I'd hardly know where to begin - states like California, Massachusetts and New York regulate insurance more heavily precisely because federal standards are lax; the notion that this is all "unnecessary business regulation" is just the sort of mindset Republicans bring to the table, and it's also not true. Would congress eventually put in a lot of these mandates? maybe, as some state organizations would be up in arms (California definitely comes to mind); but given the national GOP approach of giveaways to big industries like insurance, I'd suspect that any "mandates" would work in their favor, not in favor of the people being insured.

What's become clear in these many years of patchwork insurance - and why, at base, I agree with the larger Democratic notion of changing the system to something simpler, with more coverage for more people - is that absent a mandate or an incentive, insurers will gladly chip away at coverage until the patient finds that some insurance is almost worse than none at all. States are in the mandate business for a reason, and it's not just arbitrary or anti-business. Federalizing our current messy system (i.e. just making insurance regulation a national focus), is decidedly not the solution. And this proposal, which is completely ass-backwards, is a perfect way to make a bad thing that much worse.

Posted by: weboy | May 3, 2006 1:15:04 PM

AHPs don't "cut coverage" for those procedures- they merely move the regulatory apparatus from the state to the federal level. The feds will then decide what coverage/benefits are mandatory. Doctors and other provider groups are generally supporting the bill because they know that once it passes, they can go lobby in Washington to get their pet procedures covered (much easier to lobby in the nation's capitol rather than 50 separate state capitols). It may take a year or two, but it'll happen.

Posted by: Adrienne | May 3, 2006 1:15:07 PM

Unfortunately, association health plans are a perfect lesson in unintended consequences. Because insurers will be freed from individual state regulations, they will race to the bottom; wooing business owners with the barest and bony of insurance plans.

And cheapest, too. Can't have that, can we?

What kind of coverage will be dropped? Everything ranging from contraceptives to dental anesthesia (imagine bargaining with your dentist for that one). In fact, head over to this table to see the dizzying array of benefits that you would lose in each state should congress pass this legislation.

Imagine if your car insurance were required -- by law, mind you -- to cover: 1) oil changes, 2) filling the gas tank, 3) rotating the tires, 4) car washes (the most expensive brushless kind), 5) replacing each and every part that wears out over the course of the car's lifetime, 6) car air-fresheners, 7) any and all repairs for any reason, 8) jump-starting your car when you leave the lights on overnight, 9) towing your car when you get stuck somewhere, and so on, ad nauseam.

No one can honestly dispute that in that circumstance, car insurance would become much more expensive. Indeed, there would be many people who would be unable to buy car insurance for the limited purpose of protecting themselves against the costs of a wreck. Not good.

Now imagine that someone comes forward with a bill to say, "Auto insurance companies should be able to offer cheaper insurance policies that give people catastrophic protection without all these bells and whistles."

And the response from the likes of this website would be: "Oh my goodness, how are people going to be able to wash their car now that insurance won't pay for it!"


Posted by: Thurmond | May 3, 2006 2:09:11 PM

Man, a libertarian, Adrienne, unconcerned by the total destruction of states rights. Never thought I'd see the day.

But I love folks like Thurmond who enjoy pretending that the states mandate unnecessary care. Here's Arkansas:

Alcoholism Treatment
Colorectal Screening
Dental Anesthesia
Diabetic Supplies/Education
Drug Abuse Treatment
Emergency Services
Hospice Care
Infertility Treatment
Mammography Screening
Mental Health (General)
Mental Health (Parity)
Metabolic Disorders (PKU)
Minimum Mastectomy Stay
Off-Label Drug Use
TMJ Disorders
Well-Child Care

Of course, we could wipe that slate clean and head over to the brave new world advocated by Cato, and Adrienne, in which those lucky enough not to be bipolar or have any family history of mental illness can afford insurance, while those without such luck will be priced right out of the market. Adrienne seems to think the issue is what people need rather than what they can afford. She may feel comfortable with the massive inequality and balkanized care we'll see in that scenario. I don't. And if the question is cost, I'm happy to take her federalizing fantasy a bit farther and nationalize the whole damn structure to force some efficiencies, lower prices, and rationalize care.

Posted by: Ezra | May 3, 2006 2:26:55 PM

Who said anything about "unnecessary"? If you want contraceptives, then that is "necessary" for you. Just like an upgrade to 4-wheel drive may be "necessary" as well. But nothing in life is free: If car insurance has to cover every possible repair, maintenance, and upgrade, it's going to be more expensive. Same for health insurance. Are you pretending that these mandates are cost-free? Or are you pretending that people are generally unable to buy contraceptives on their own behalf (which would be the intellectual equivalent of arguing that people can't buy car washes or fill their gas tank unless car insurance pays for it).

Posted by: Thurmond | May 3, 2006 2:53:50 PM

"Unconcerned about the total destruction of state's rights?" Cheap shot, and a false one, at that. Just in case you misread me, let me clarify: I think federalizing insurance regulation à la AHPs is a terrible idea. I also think that layering mandates upon mandates is a terrible idea, because it prices those people out of the market that we most want: the healthy ones. States are now trying to come up with solutions for their uninsured populations, including subsidies to help people purchase these comprehensive, mandate-laden plans, apparently unaware of a much simpler alternative: deregulate, let insurers offer a variety of plans to a variety of groups/customers at a variety of prices. Some will choose catastrophic-only plans; others will want the security of a largely-prepaid plan that covers more benefits up front. Either way, it shouldn't be up to you or the states to decide the "appropriate" level of insurance that I should buy. If sicker people are charged higher premiums, then let's subsidize them directly in the form of tax credits or something similar, rather than screw up the insurance market for everyone.

Of course, from your perspective, this is all a moot point, because you believe that single-payer will solve all these messy insurance problems. In that case, you might save some time in future posts that deal with health care legislation by eschewing analysis and just typing "SINGLE-PAYER" over and over and over. Maybe that'll get the message across.

Posted by: Adrienne | May 3, 2006 3:12:01 PM

Isn't that what I do already? It's weird how some folks still don't understand...

And come now Adrienne, you work at Cato. Accusing me of being a one-note ideologue is a bit rich, don't you think?

And you know I love you. Just not the part of you that loves deregulation.

Posted by: Ezra | May 3, 2006 3:34:27 PM

As a friend of mine who's been banned from this comment section just put it, "The sad thing about punditry and blogging is that we basically kill ourselves to cancel each other out. You'll drop your soul in the comments section at EK just so that, for the record, there's a noted objection."

Objection noted; now let's all move forward and agree to hate each other's guts.

Posted by: Adrienne | May 3, 2006 3:59:59 PM

Doctors and other provider groups are generally supporting the bill

Ummmm, no. Let's tromp on over here and see all of the organizations opposed to the bill.

Aside from a bunch of Attorneys General and Insurance Commissioners, we've got the American Cancer Society, the American Diabetes Association, the frickin' AMA, the American Nurses Association, and on and on.

they can go lobby in Washington to get their pet procedures covered (much easier to lobby in the nation's capitol rather than 50 separate state capitols). It may take a year or two, but it'll happen.

I was unaware that there were associations of Mammogram Screeners, or Dental Anasthesiologists that were hiring lobbyists to travel the country to have states force insurance companies to cover their "pet procedures."

Or perhaps that statement was just absurd, with a touch of ignorant condescension thrown in about the way in which healthcare providers do their jobs (pet procedures, indeed).

I also think that layering mandates upon mandates is a terrible idea, because it prices those people out of the market that we most want: the healthy ones.

Could someone please show me some proof, any proof, some little itty bitty bit of proof that shows that healthy people are the ones being priced out of the health insurance market?

That's about all of Adrienne's arguments I can stand. Absurd, without factual foundation. Thurmond's comments are so blindingly cliched and weak that they don't even require response.

Of course, when one is forced by ideology to support something as loathesome as the Enzi Bill, absurdity and mind-blowing stupidity are all one gets to work with. I guess I should feel bad for them.

Posted by: Stephen | May 3, 2006 4:01:44 PM

I know in MA the fisherman (i.e. small businesses) banded together top buy insurance. This was obviously on a state level but it didn't seem wrong to me. We may not like the context of CDHC, but its most likely here to stay. From a practical standpoint, I don't see any reason to reject these on a state level.

Posted by: Adrock | May 3, 2006 4:36:58 PM

Are any of these libertarian commenters old enough and worldly wise enough to have ever, say, acquired U.S. medical treatment without health insurance? It cost me triple what an insurance company pays, the last time I had to.

Have they ever read the fine print on the notices next to the doctor's receptionist's desk? Not the one urging you to call your representatives and demand "tort reform," but the one listing all the health insurance policies the office doesn't accept. (Those insurers are the inexpensive ones you recommend; the docs don't want to have to fight to get paid. Buy these policies, and you'll get in to see only desperate doctors.)

Have they ever discovered that their insurer has dropped their medicine from the formulary or that their uncomplicated, fully insured ($8,000 annual premiums) surgery cost them $3,000 in deductibles and copays?

And do they know that in order to buy a policy, a person must have work to pay for it and therefore doesn't have time to read all the policies, compare them, consider the gaps, and call their providers with questions? (Keep in mind that the chosen insurer may leave the market or alter the policy at will, which means starting over.)

All these arguments for "individualized" health insurance sound so callow and naive and devoid of real-world experience.

In other words,

Posted by: Joyful Alternative | May 3, 2006 5:48:41 PM


I know that I said Thurmond's comments didn't deserve a response.

But that last little word really irks me. It irks me because he put it in after one of the stupidest things I've ever read, and I've been to Michelle Malkin's site.

Healthcare is entirely different than auto insurance, or buying a tank of gas, or whatever analogy some conservatarian wants to torture in order to support their dumb ideas.

Even if the healthcare "market" did work the way other markets work, it wouldn't matter. Some people actually can't afford a car at all, so the whole idea of filling it with gas or changing the oil doesn't matter. The cost of owning a car, from purchase price to tune-ups is beyond their means.

What conservatarians want is a return to the "ook ook" caveman days, when the strongest guy got to be the chief and anyone who couldn't go hunt the wooly mammoth just starved to death. Some of us living in the USA, however, think that society has come a long way since the days in which the only thing "government" provided was a foot on your neck.

Clueless? How about you grow up, engage the real world for a while and try to learn something about the way things actually work instead of playing with your deranged fantasy world that exists only to make you feel better about your lack of meaningful contribution to society. Then we can have a discussion about who is clueless.

Posted by: Stephen | May 3, 2006 7:27:15 PM

So, Stephen, drop the histrionics for a moment, if you can, and enlighten us: Where in history has a product ever failed to become more expensive when the law mandates that the product include 20-to-50 extra features? Ezra and Kate have no theory here. So here's your chance. In fact, if your theory is any good, you could change the entire field of economics. I'm waiting . . . .

Posted by: Thurmond | May 4, 2006 10:14:13 AM

Well, you see, Thurmond, you've pretty much proved my point. Healthcare is something that cannot be governed solely by market forces. Adding government regulations to something that is an already flawed system will only make it worse.

That's why Ezra, Kate, and to a much lesser extent I are trying to work for a single payor system that takes advantage of what makes insurance practical: the law of large numbers. It's not really an economic theory as it is an actuarial thing. The more people that share in a risk, the smaller each person's share of that risk becomes. That's the idea behind insurance in the first place. Therefore, if 300 million people are part of the same group, each person's share of the risk (surgery, medicine, etc.) becomes quite a bit smaller and easier to handle.

The solution is not to try and contort healthcare delivery into something that will work within the confines of the marketplace. The solution is to remove it from the marketplace altogether.

Posted by: Stephen | May 4, 2006 2:36:45 PM

Stephen, do you have any idea how most health insurance is sold and pooled now, in contrast with most other insurance? It's a good thing to know before being so sure that the only solution is one giant government pool.

Would you argue that we'd have cheaper and better auto or life insurance if there was one big government pool? Law of large numbers, right?

"Contort" into something that will work in the marketplace? Because people being able to freely choose is unnatural?

Posted by: David Andersen | May 6, 2006 2:09:29 AM

Surely health insurance couldn't be so expensive because socialist pieces of shit dictate what insurance providers must pay for, could it?

These sub-human Democrats all need to be killed.

Posted by: The Partisan | May 19, 2006 6:37:45 PM

I’ve taken a quick look at your postings, which are very interesting. Lots of material and ideas! Congrats on being so focused!

Posted by: Yang | Nov 17, 2006 6:02:16 AM

Not much on my mind recently. Basically nothing seems important. So it goes. Today was a complete loss.

Posted by: Sandra | Oct 4, 2007 1:39:15 PM

Life begins at conception, begins at birth - Or come up with another stage and develop a different persuasive speech topic

Posted by: english | Oct 16, 2007 1:46:22 PM

These sub-human Democrats all need to be killed.

Pro Insurance

Posted by: Sithan | Oct 17, 2007 6:16:36 AM

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