The Beauty of Health Insurance Set-Asides

12 February 2010 |

As I mentioned in my last post, Massachusetts voters sent Congress an unmistakable message about the health insurance legislation now before it by electing Scott Brown, who promised to vote No on the legislation, and rejecting Martha Coakley, promised to vote Yes. President Obama seems to have gotten the message. He has asked Republican  leaders to meet with him at a televised conference on February 25, promising to listen to their suggestions about health care insurance reform.

The Admiral Ackbars of the world are warning, “It’s a trap!”  But the Republicans have no choice but to show the American people that they are willing to offer constructive ideas of their own. Of course, they have been doing so for months, but no one was listening. Now they have a forum, so they should take advantage of it. Many of their ideas will be non-starters with Democrats, but they need not assume defeat. I believe they could compromise with the president without compromising their principles. The olive branch? Health reform set-asides.

A set-aside is something (such as a portion of receipts) that is set aside for a specified purpose. I believe two set-asides in particular could go a long way toward breaking the health insurance reform logjam without breaking the federal budget: malpractice insurance set-asides and pre-existing conditions set-asides.

Malpractice insurance set-asides. One of the main drivers of skyrocketing healthcare costs is the number of malpractice lawsuits and the astronomical dollar amounts of some of the malpractice awards. Awards in the tens of millions of dollars force medical malpractice insurers to raise the insurance premiums the doctors pay. The doctors in turn must pass these costs along to healthcare consumers or risk going out of business. The insurers and Republicans in Congress have called for capping malpractice lawsuit awards, but this is a non-starter with Democrats, who believe victims should be able to sue for any amount and who receive sizable campaign donations from trial lawyers.

My recommendation is to set aside a portion of the federal budget to pay medical malpractice awards in excess of $2.5 million. This would placate trial lawyers, because they could still sue for and win any amount. It would mean victims of malpractice would be fairly compensated for their injuries. But it would greatly reduce medical malpractice premiums, because the insurance companies would know that they will never be responsible for more than $2.5 million. These savings in premiums would be passed along to healthcare consumers.

More importantly, health insurance companies—and health insurance plan members—would be spared the cost of “defensive” medicine. Pressured by their malpractice insurers, doctors order batteries of unnecessary tests just to make sure no one can come back later and sue them for overlooking something. By reducing the malpractice pressure, doctors can rely on their training and common sense to order only the tests that in the vast majority of cases will identify a problem. Doctors will still be accountable to their oaths, their peers, licensing boards, and the medical malpractice insurers to order adequate tests. But they no longer will feel compelled to order costly tests and lab work just to protect themselves from massive lawsuits.

It is possible, too that juries will think twice before awarding tens of millions of dollars in malpractice awards if they know that taxpayers, not the “evil” insurance companies, will be the ones to pay.

Pre-existing conditions set-asides. One of the chief goals of the health insurance overhaul is make sure that every person receives health insurance, regardless of how ill they are. Forcing health insurance providers to pay for treatment for those with advanced diseases will destroy private health insurance, as I have written here before, because it undermines the actuarial foundation of the health insurance industry.

Forcing young, healthy people to get health insurance just to pay for the very sick does not make sense, because new, young health insurance consumers will make sure they are “getting their money’s worth” out of the premiums they are forced to pay. The result will be a huge influx of medical consumers, enormous outlays by insurers, and no way to recoup the costs of insuring the currently uninsurable. Here again federal government set-asides could solve the problem.

Republicans should suggest creating a taxpayer funded set-aside to cover the medical expenses of anyone who has been denied coverage by private health insurers because of pre-existing conditions. This sounds like a costly endeavor, but it is not, because the number of truly uninsurable people is miniscule.

Keep in mind, the vast majority of people with pre-existing conditions are already covered by private insurance. That’s because most people get their health insurance through their employers, and the law forbids group health plans from delaying or denying benefits for pre-existing conditions.

The greatest number of people with pre-existing conditions who are not covered by group plans are the elderly, but they are covered by Medicare, the federal health insurance program for those aged 65 and over. Medicare recipients cannot be denied coverage for pre-existing conditions, either.

Another large group not covered by group health insurance are the poor, often unemployed members of society. But if their income is low enough, they qualify for Medicaid, the health insurance program for low income individuals. And again, Medicaid benefits are not denied because of pre-existing conditions.

Who is left? Children of the working poor, who might not qualify for Medicaid, very likely do qualify for S-CHIP and programs like Healthy Families.

Anyone else? Military veterans who might not be working can receive health coverage through the Veterans Administration.

The only people who really are being hurt by health insurance companies’ limits on pre-existing conditions are people over 18, under 65, earning enough to not qualify for Medicaid or Healthy Families, and not military veterans, who have severe illnesses. Those people could be covered through a pre-existing condition set-aside for far less than the cost of overhauling the entire health care system.

The beauty of governmental set-asides is transparency. Everyone will know who is getting the money and why. The only recipients would be those injured through medical malpractice and those who are gravely ill and do not qualify for any of the many existing health insurance programs.

People do not mind helping the truly needy. What they do mind is being told they are helping the needy while actually being forced to fund a government take-over of private health insurance. Health care set-asides will solve the major problems with the current health care system while preserving the integrity and viability of private health insurance for generations to come.

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