As I do many Sunday mornings, this past week I turned on the TV to watch “This Week with George Stephanopoulos.” I saw our former Kansas governor Kathleen Sebelius and immediately realized this week’s topic was Health Care. After listening to her interview and then The Roundtable discussion, which is comprised of various journalists and “opinionaters,” I agreed with George Will, which I don’t always do, that having the government create a competitive insurance program is blatantly wrong-headed.
So, let me tell you a story.
Once upon a time, a small state association (yes it was our predecessor — PIA Texas) ran a very successful self-insured health care plan. Over ½ the membership had insurance through the program, which covered over 8,000 employees. Premiums were very affordable, service was excellent, and the Association grew and the members were living happily ever after — until the government got involved.
In the early ’90’s, Texas adopted HMO reform in the state. Thus, HMO’s were able to come in and offer “competitive” insurance rates foregoing the normal rate approval regulations. In a word, they were able to set their rates below the market. Second, the state determined it needed to regulate programs like ours (Multiple Employer Welfare Arrangements, which follow federal guidelines) which in turn generated additional operational costs. At about the same time HIPAA (Health Insurance Portability and Accountability Act) was passed which increased the federal mandates.
Costs went up because of mandates and the “competitors” did not have to charge rates which reflected their costs since they were in the process of developing market share. What decision did the members make? They went where the costs were lower – which makes economic sense. Meanwhile, the program continued to support companies who could not find better rates (due to employees with medical conditions). Consequently rates had to increase, which in turn further drove out other companies. The program found itself in the classic adverse selection mode, which all insurance providers fear, and the program was in a death spiral. Fortunately, the Trustees realized this and closed the program down before it went bankrupt – which happened to other similar programs.
Here’s the moral of my story. The stated purpose of this government insurance company will be to “drive costs down,” which means lower rates. And when you are the federal government, you don’t have to keep shareholders happy or make a profit. Subsequently, individuals looking for “affordable” insurance will vote with their pocketbook and voila! All of a sudden adverse selection sets in for the rest of the insurance industry. Not a pretty picture.
What is not being addressed in all of these issues is the fact that small business is being frozen out. Yes, let’s take care of the un-insured – but a lot of these folks work for small businesses who are not willing, or can not afford to pay insurance. How is the government going to help small businesses afford insurance for their employees? Another issue is cost control. How is the Administration going to do that, other than jawboning the AMA and the medical industry? An even bigger issue – how do we pay for all of this?
Yes, there is no easy answer – but telling the public that all that is needed is a federal government insurance program is a fairy tale. It’s not being honest with the American people, or what could be worse, the folks in the Administration and the Democratic leadership don’t really understand how individuals and businesses behave – and that truly concerns me.