Shell Game 2.0

Thursday, September 15, 2011
It is important to remember that everything works in theory. Communism, in its purest form, is just as effective as Capitalism, in theory. Reality is a much different story. The Russians and Chinese are now embracing many of the benefits of Capitalism just as the U.S. faced-down the Robber Barons and put an end to such practices as child labor a hundred years ago.

Reality has a habit of rudely poking holes in theories. My favorite piece of Swiss cheese is the Patient Protection and Affordable Care Act (PPACA). Today we are going to revisit the Preexisting Condition Insurance Plan, the stop-gap measure to provide access to coverage to the long-time uninsured.

Eighteen months and millions of dollars later, it might be difficult to recall that the main justification for completely remaking our health care system was to provide coverage for the uninsured. Remember the uninsured? They were of real concern two years ago. The PPACA was supposed to cure this problem.

Last June, in a post entitled The Shell Game, I discussed the five billion dollars the federal government had allocated to the Preexisting Condition Insurance Plan. Of more local relevance, $152,000,000 was given to Ohio for the four year interim program. Even though Ohio had about 17,000 chronically uninsured, state officials were thrilled that $152,000,000 would help 5,000 people get insurance. I felt that they were a touch optimistic.

Theory, meet Reality.

How’s the program working? Initial projections from the Office of the Actuary of the Centers for Medicare and Medicaid had as many as 375,000 uninsured Americans rushing the states and jumping at the opportunity to acquire heavily discounted coverage. As of April that crush was only 21,454. Ohio, with almost 1800 enrollees, is one of the most successful programs. Don’t worry. We may not insure that many people, certainly no where near the governments rosy projections, but all of the money will be spent.

Sunday’s Cleveland Plain Dealer detailed the difficulties Ohio and Medical Mutual of Ohio, the state’s contractor, are having difficulty raising prices and limiting access. The biggest problem was that no one was prepared for the shocking reality that really sick people rack up big claims.

Now we’re paying actual claims and those claims have come in much higher – the loss ratio is much higher – then had been projected, said Carrie Haughawout, assistant director for health policy for the Ohio Department of Insurance.

The claims for 1800 people were more than what they thought 5,000 unhealthy people would incur? That is hard to imagine. The simple math in last year’s blog post showed that premiums for a 60 year old male would need to be around $800, with the subsidy, to have a chance of covering the cost of care. The Ohio High Risk Pool is charging between $416 and $458 for a 60 year old non-smoker! That isn’t even close.

The PPACA does not include any meaningful cost containment. There is also no underwriting and no exclusions for preexisting conditions in the PPACA’s planned future which begins in 2014. So, as theory invades reality, one day all of these incredibly unhealthy individuals will be moved into the common risk pool. How will this impact the premiums you or your employer pays for health insurance?

The theory is that the unhealthy will disappear in the sea of doctor avoiding, health obsessed, average Americans who will hardly notice the difference of adding a couple hundred thousand chronically ill individuals into the mix. And besides, now they will be paying premium instead of just invading the E/R and counting on the kindness of strangers to pay their bills. Yeah, right.

The High Risk Pools, the Preexisting Condition Insurance Plan, was a dry run for the future of the PPACA. No real planning. Not nearly enough honest, transparent public discussion. An idea that meant well, but was underfunded and was neither properly explained nor promoted. The Preexisting Condition Insurance Plans were projected to do so much at what may have almost seemed like a reasonable amount of money. Instead, we have another program that has fallen tragically short.

Reality, meet Theory.


Just a reminder, this post also now appears in the WordPress format on my website. It appears that more people are reading it there and that is where most of the comments are posted.