Will health care reform increase choice for Michiganders?

The federal Department of Health and Human Services’ website, HealthReform.gov is trying hard to convince Michigan that health care reforms will help the state. They begin with what turns out to be an unrealistic claim that the government’s proposed reforms would reduce the cost of health care in Michigan (despite the fact that we still don’t know what, exactly, they would entail), and also say that reform would increase choice for Michiganders seeking health insurance.

The site presents four claims they believe show that reform would increase choice in health insurance in Michigan. Upon examination, none of the proposals would meet the stated goal, and instead their unintended consequences would have just the opposite effect.

Claim 1:

Insurance Stability and Security: Health insurance reform will strengthen our system of employer-based health insurance, with an additional 111,300 people in Michigan potentially getting insurance through their work. Health insurance reform will also ensure that you will always have guaranteed choices of quality, affordable health insurance if you lose your job, switch jobs, move or get sick.

Employer-based health insurance provides insurance for many Michiganders, but it also increases the costs of employing workers. As low-cost plans such as high-deductible health plans and health savings accounts are effectively banned by health reforms that aim to eliminate out-of-pocket expenses, the costs of creating new employment will increase even further.

Using various assumptions economists estimate that employer mandates will lead to job losses ranging from 630,000 to 1.6 million. Higher unemployment is not only undesirable on its own, it will also have a serious effect on the level of employer-provided coverage.

Finally, the level of employer-based coverage is unrelated to the range of choices available to Michiganders, and without more specifics on the final health care reform bill that will end up on the President’s desk, it’s impossible to say whether choices of “quality, affordable health insurance” will be available to everybody at all times. None of the reforms put forward so far would accomplish this (probably unachievable) goal.

Claim 2:

Eliminating Discrimination for Pre-Existing Conditions, Health Status or Gender: 9% of people in Michigan have diabetes, and 29% have high blood pressure — two conditions that insurance companies could use as a reason to deny you health insurance. Health insurance reform will prevent insurance companies from denying coverage based on your health, and it will end discrimination that charges you more if you’re sick or a woman.

Some people are simply not well-suited for insurance, which is meant to provide coverage for an event that might happen. Someone with a pre-existing condition knows that their illness will occur, and so a fair insurance premium for them would be one that completely covers the cost of their care (plus insures against the risk of future health problems).

While it might be true that the government ought to help those with pre-existing conditions, forcing insurance companies to take them on (a guaranteed issue mandate) is not the answer.

Guaranteed issue would increase the premiums of all customers to cover the costs of insuring those who are already sick when they apply. Increased premiums put more plans out of reach for those with lower incomes, effectively decreasing their choices, not increasing them.

A community rating system, which does not allow insurance companies to charge different premiums based on risk, sets a range for premiums that guarantees all policy holders pay about the same amount for insurance premiums, regardless of their health. Insurance companies will not respond by lowering premiums for everyone, but will instead raise premiums for all policyholders and restricting the number of policies available.

A report by America’s Health Insurance Plans on guaranteed issue and community rating systems found that:

“…states that implemented guarantee issue and community rating saw a rise in insurance premiums, a reduction of individual insurance enrollment, and an exodus of health insurers from the individual insurance market.”

Consequently, several states that initially implemented guarantee issue and community rating have since repealed or modified their laws with the intent of stabilizing the insurance marketplace and providing consumers more choice and access to coverage.”

(Emphasis mine.)

Claim 3:

One-Stop Shopping – Putting Families in Charge: With the new health insurance exchange, you can easily and simply compare insurance prices and health plans and decide which quality affordable option is right for you and your family. These proposals will help the 1,096,800 residents of Michigan who currently do not have health insurance to obtain needed coverage, and it will also help the 379,300 Michigan residents who currently purchase insurance in the individual insurance market.

Again, this is not a reform that will increase the range of choice in health insurance policies. Instead, an exchange will simply create a new government bureaucracy through which health insurance will have to be purchased.

Claim 4:

Guaranteeing Choices: The largest health insurer in Michigan holds 63% of the market, which limits the choices that you have for finding coverage. With a competitive public insurance option, you will have more choices and increased competition that holds insurance companies accountable.

The largest health insurer in Michigan is Blue Cross Blue Shield of Michigan — the company given the most preferential treatment by the government. It is unclear how one additional company, especially a “public option” with the same — or more — advantages from government policies that allowed BCBS to gobble up so much of the market, will significantly increase competition.

BCBS and other Michigan insurers are actually protected from competition by the government through laws requiring that insurance be bought from within the state. Lifting this ban on interstate competition at the state level would force Michigan insurers to compete with all 1,300 insurance companies in the country and would create as many more options for Michiganders.

Federal legislation eliminating the practice of banning competition between states would force every insurer to compete for the business of every American, such as the Health Care Choice Acts proposed in 2005 and 2007, could increase competition across the country.

If Michigan wants more choice in health insurance options, reform is indeed needed, but the types of reform the Department of Health and Human Services is lobbying for would almost certainly decrease choices for Michigan policyholders while increasing costs.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.