The American Plan – a new health insurance alternative

Abstract

This article describes a seven-point plan for a private health care insurance option that meets the goals that the proposed public health insurance option was designed to address, but which are not met by today’s existing private employer paid system. This article further challenges private insurers (and their supporters) to step away from mere criticism of a public option by stepping up to the plate and with a specific and credible alternative that meets the goals that the public option was designed to address: continuity, universality, comprehensiveness, affordability, and equity.

Proposed rules for such private universal care policies rules are described later in this article.

What American’s don’t like about today’s health insurance alternatives

Americans don’t want a health care insurance program like in Canada or Britain. We like to do things our own way.

Americans like private sector competition and believe that capitalism can be a force yielding lower costs, greater choice and higher value – at least when as the private sector investor’s goals are aligned with those of the consumers. Yet, we have seen also seen all to clearly how millions of ordinary Americans have suffered great economic setbacks when our nation’s laws or watchdogs have not ensured that they are so aligned.

Americans who have employer paid group health insurance plans value them and the choices the have to select among them, and competitive forces in this arena have resulted an ever growing choice of plans to help provide better health care coverage while simultaneously striving to slow the ever increasing cost of that care. Today we have HMOs, PPOs, HSAs, POS and many other plans.

Unfortunately, for those of us who do not have such plans and whose only alternatives today are individual and family coverage, the profit motives of private insurers and our individual needs are not as well aligned. In particular, insurers offering group plans compete to attract a company’s business by covering all members of the group equally. However, in the case of family plans, the insurer can pick and choose who to cover, when to cover them, and what not to cover.

The result is that millions of us, including many self-employed Americans, are without coverage, or have inadequate coverage. And those luck Americans who do have employer paid health care are constant at risk of losing it should their employment situation change.

That’s why congress is debating health care insurance reform right now.

Requirements of a credible plan

We all want to know that we will have coverage when we need it (universality), that we will able to maintain that coverage regardless of whether we change employers, become self employed or unemployed (continuity). We also want to know that our policy will be cover all our family member’s needs regardless of which chronic conditions any of them may have or may develop at some time (comprehensive) and that we will be able to afford it regardless of whether we are young and healthy, or older and infirm (affordability). Lastly, we want to know that equal coverage is be available to all (equity).

Of these 5 goals, continuity is the goal that is hardest to reconcile with private employer paid plans, because it is increasingly becoming a very rare situation for anyone to have lifelong employment with one employer that is continuously doing so well that they are not tinkering with which insurance plans they are offering (which employers often change when costs are growing rapidly, or the economy or their industry is not doing well).

Problems for people who can’t get employer paid health insurance

Families and Individuals applying for insurance on a personal basis, including the self-employed, often find that their options for insurance coverage are significantly worse than options available through employer paid plans:

• Insurers require Medical testing and patient medical records before coverage is underwritten – something that isn’t done with most employer based plans.

• Coverage can be denied outright to such individuals and family members.

• Premiums may be exorbitant compared to the cost of similar coverage through an employer-based plan.

• Coverage offered may be extremely limited in scope, and specific conditions (including most or all pre-existing conditions) may be excluded, even if they would not typically be so limited in an employer paid program.

• Coverage may be arbitrarily denied after expenses have already been incurred, and policy limitations are often so complicated that consumers have no idea whether their health care needs will be covered when they purchase a policy.
Problems for Americans who have employer paid health insurance

Even for Americans who are employed there are several problems with employer paid plans:

• Employers may find insurance policies so expensive that they do not offer insurance – this is especially true of new companies (who represent our economic growth opportunities of the future) and service industries such as restaurants and retail establishments who often provide employment to the unskilled, young people getting their first jobs, and others with incomes who might not be able to afford most personal policies.

• Employers may reduce coverage their plans offer as a money saving strategy – especially when the economy is in reverse. This can lead individuals to discover that a family member’s needs are no longer covered. And getting alternative coverage may be difficult or impossible to get for some pre-existing conditions afflicting family members.

• Employees may lose their jobs, and ultimately their employer paid insurance especially when the economy is troubled. Even if they are able to hold onto their insurance through COBRA, may find that without a job they can no longer afford it, or that if they are unemployed for a long time they may find out that even COBRA coverage has been exhausted. If an employee is no longer able to perform their previous job due to an accident or health problem, and yet they also do not qualify for Medicare, individual coverage may be impossible to acquire.

Assessing our fears and becoming proactive

Americans want a plan that gives us all the advantages of employer paid plans with multiple insurance companies competing for business, but which provides equal coverage for all Americans, and is not affected by the vagaries of their individual employment situation, or of the economy in general or prior conditions.

Some Americans are afraid that a public health care insurance option would result in a reduction in quality and flexibility of their current employer paid insurance programs.

Some seniors, disabled individuals and other Americans covered by Medicare are afraid that a new health care insurance option would result in a reduction in their benefits.

The congress is now debating how ways to provide health insurance that covers all Americans: regardless of whether they are currently unemployed, self-employed, or employed without employer paid coverage, which does not have the limitations of today’s individual and family plans.

The inadequacy of the current Individual and Family care coverage has led many in congress to support “a public option” and this is causing considerable concern among those who fear such a system will destroy the private option, or undermine the existing Medicare system.

The Proposed Private Alternative

Without commenting on whether these fears are well-founded or ill-founded, nor whether this public debate is being conducted in a way that will generate light or merely heat, I would like to address the concern in a constructive manner by offering a proposal which private insurance companies could endorse which would address the goals of the public option, but through a competitive private market system.

I call this proposed system, The American Plan.

The plan is simple, and it does not require congress to legislate it – it merely requires several large insurers to come together and petition existing state government insurance commissioners to grant them the ability to offer the following coverage to all residents of those states.

The policy is a group policy, voluntarily offered by private insurance companies, where the covered group is the currently uninsured or underinsured residents of each state, or those who find this plan more attractive than the plan their employer offers.

To ensure equity, universality, and continuity, the American Plan group policy should have the following characteristics:

1. For the first 5 years, the policy shall be underwritten based upon the demographics of all residents of the state in which the policy is offered and their immediate family members. Thereafter policies may be underwritten based upon the demographics of plan participants over the previous 5 years. (Equity)

2. The policy shall be offered to every state resident (and their immediate family members) on an equal basis. This means the price of the policy, and the conditions, care and treatments covered shall be the same for all covered persons, regardless of age, gender, or prior health conditions. (Universality)

3. The company shall offer at least one policy that provides coverage equal to the coverage provided by Medicare at that time. This is called the “reference policy”. The company may also offer one or more policies with less coverage for a lower premium, as well as policies with greater coverage at higher price points. (Comprehensiveness)

4. The insurer agrees to offer the reference policy on a most favored customer basis, that is, the expected underwriting profit margin on this policy may not be greater than any other policy written for any other group of the same or smaller size. (Affordability)

5. The policy shall include equivalent coverage for the resident and covered family members when traveling or while attending a school, college, or university anywhere within the US. (Comprehensiveness)

6. The company may not cancel the policy for any reason other than failure to pay the premium or fraud. If a policy is cancelled for failure to pay the premium on time, the policy shall be reinstated, effective immediately upon receipt of the full policy payment. (Continuity)

7. The company agrees to accept premium payments on behalf of an individual or family by either a state organization (if the state desires to subsidize health insurance premiums for some residence) or by any small business that wishes to provide paid insurance to their employees. (Affordability and Equity).

Time for action

Recently, opponents to the public option have been very vocal in their opposition, but their focus has largely been on opposing the proposed public option, but without offering a universal coverage alternative by the private sector. It is time to stop talking and start doing something constructive.

The above proposal is being offered with the hopes that those who favor private sector provided insurance will take a constructive approach by encouraging major insurers to commit to offering “the American Plan” now, demonstrating their ability to provide a credible alternative that provides universal coverage at affordable rates.

If competition in the private sector really can deliver on the promises of lower costs, greater choice and higher value, then because of the way the reference plan is defined, seniors and others on Medicare should have nothing to fear.

Nor should those who fear government’s ability to manage anything as efficiently as the private sector have anything to fear – for the private sector is left free to deliver as efficiently and affordably as it is able – the government in this model merely sets the minimum set of 7 requirements, and provides oversight to see that goals such as equity and continuity are met, and assists the needy with subsidized premiums.

A hidden benefit of Continuity: better preventative care and lower overall cost

One of the hidden benefits of a plan that has continuity is that it can improve both quality of life AND reduce health care costs. Because health insurance is not portable from employer to employer, an insurance company can’t be sure that those it insures today will continue to be policyholders in the future.

This can cause insurance companies to make decisions that save money in the short run but increases costs in the long run – because the insurance company knows it will have lower costs immediately, while the longer term cost might well fall on a competitor. For example, an expensive vaccine might be very effective at preventing a form of viral infection that often triggers cancer. By not paying for the vaccine expenses in the current year might be saved, but higher costs for later treatment if the vaccine is not given might not be experienced by the insurer, because the policy holder may have changed to a new employer and a competitor’s plan before that cancer is likely to be discovered.

The result, less preventative care, greater long term cost and poorer long-term health.

Or viewed the other way, if the insurance company spends the money today to pay for inoculations, it might be competitors who see the savings when the frequency of occurrence of those preventable cancers goes down.

The value of individual customer loyalty

With employer paid plans, insurance companies can’t build customer loyalty with their individual policy holders, because the policies are sold to employers and the policy holders switch employers. But when the insured can, and do maintain the same coverage every time they switch jobs or leave the workforce, the preventative care costs the insurer incurs today may be offset by even greater savings in the long term. And when individuals can make their own long term decisions, companies have an incentive to treat them well and build long term policy holder loyalty. Even procedures that are not merely preventative but restorative might become more cost effective. For instance, laser eye surgery might be costly in the short run, but save considerable money in the long run by eliminating the need for annual or biannual lenses and frames.

Thus creating the opportunity for individual policy holder loyalty better aligns the interests of the individuals and the insurance companies, encouraging insurers to offer better care coverage at lower costs as well.

Tax Savings

Lastly, if private sector competition does reduce costs and increase value, the reference plans these private companies offer provides the states and Federal governments with proof of concept approaches for providing Medicare equivalent coverage at lower cost – and that could contribute to better coverage for Medicare recipients at overall lower costs to taxpayers.

It is the best outcome possible, a Win-Win-Win: a win for the consumer, a win for the insurance companies and their shareholders, and a win for taxpayers. And that’s what we Americans like!