You’ve heard it before. Let’s deep six ObamaCare and replace it with a trio of sure-fire free-market solutions to the problems that plague our health care system. All that’s really needed, we’re told, is to pass tort reform, allow insurance companies to sell policies across state lines and encourage people to set up health savings accounts.
Here’s the problem: there is mounting evidence that all three of these strategies not only are ineffective but may actually be making matters worse.
Let’s start with those health saving accounts (HSAs), which folks can establish if they enroll in a high-deductible health plan. With backing from the Bush administration and the insurance industry, Congress passed legislation in 2003 to encourage people to enroll in high-deductible plans by giving tax-exempt status to the money policyholders contribute to their HSAs to cover out-of-pocket expenses.
Proponents argued that Americans would be more prudent “consumers” and take better care of themselves if they had to spend more of their own hard-earned money for health care and their insurers had to spend less. HSAs, they said, would bring down the cost of care because people with more “skin in the game” would shop around for doctors and hospitals that charged less.
It sounded good. But one of the reasons I left the insurance industry was because of irrefutable evidence that high-deductible plans were great for insurance firms but not so great for many of the people enrolled in them.
Here’s what I mean. The median household income in this country is less than $52,000 a year (lower than it was 10 years ago after accounting for inflation), meaning that most families simply don’t have the cash after paying the mortgage and buying groceries to fund an HSA. Yes, HSAs can be just what the doctor ordered for the young, healthy and highly compensated among us, but many others who enroll in these plans find out when they get sick that coverage is far from adequate. So inadequate, in fact, that growing numbers of Americans in these plans who do get sick are losing their homes and filing for bankruptcy.
As more young, healthy and well-to-do people enroll in these plans, the cost of more comprehensive or even adequate coverage is skyrocketing. This means that even though many Americans should steer clear of high-deductible plans, they can’t afford anything else. Insurance companies, meanwhile, are reporting higher profits because they don’t have to pay out nearly as much as before in claims.
As for tort reform, just look at Texas, where it was ineffective in holding down medical costs and improving access to care. Lobbyists for physicians and insurers sold the idea that a big reason for medical inflation is an epidemic of multi-million dollar jury awards that have led doctors to practice defensive medicine so they won’t get sued. Texas legislators in 2003 enacted a law that caps non-economic (pain and suffering) damages at $250,000 against physicians and at $750,000 against hospitals. Sponsors of the legislation promised it would attract doctors to Texas and lead to lower premiums and, consequently, to more affordable coverage.
None of that happened. Texas has actually lost ground to other states on the number of doctors per capita since tort reform was enacted. And while the cost of malpractice insurance did drop initially, there has been no evidence doctors have passed along any savings to patients. In fact, the average premium for family coverage in Texas in 2010 was $14,526—$655 higher than the U.S. average. And tort reform has not made a dent in bringing more Texans into coverage. Texas had the highest percentage of residents without coverage (one of every four) in 2003, and it still does.
To the east, policymakers in Georgia are finding out that the third silver bullet — allowing insurers to sell policies across state lines — is also a dud.
Last year Georgia enacted legislation allowing insurers licensed elsewhere to sell policies in the state. The expectation was that Georgians would suddenly have a plethora of new policies to choose from as insurers in places like Alabama and Tennessee set up shop in the Peach State.
Political leaders last week had to fess up that not a single out-of-state carrier had expressed any interest in selling policies in Georgia. “We’re dumfounded,” Georgia Insurance Commissioner Ralph Hudgens told the Atlanta Journal-Constitution. “We are absolutely dumfounded.”
Advocates tried to blame the fact that lawmakers had decided out-of-state policies should be regulated by the Georgia insurance department. They also speculated that insurers were unwilling to “change their business models” and market their policies in other states before the Supreme Court decided whether ObamaCare is constitutional.
What if Georgia legislators had given up regulatory oversight of policies originating outside of the state’s borders? Georgians who had problems with their out-of-state carrier would have to seek help from regulators miles away. Having served as a consumer representative to the National Association of Insurance Commissioners, I know how inadequately resourced most state insurance departments already are. If they have to take on additional responsibilities of monitoring the behavior of insurers based in their states but operating in other jurisdictions, they will be spread even thinner. Good luck getting anyone to answer the phone or return an email if your insurer is refusing to pay for needed care.
Good luck on all those silver bullets too. The next time someone tries to convince you that this trio of solutions will benefit most consumers, be skeptical. There is no evidence they will.
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