Yesterday, I posted an AP news report in which people said that President Obama was supportive of the national exchange and the repeal of the antitrust industry. And I said I'd go into more detail about why I prefer the national exchange over state-based exchanges today, so here's my post.
First, I'd like to refer to you to this excellent article by Peter Harbage in TNR in which he discusses how conditions should be placed on the money given to states to monitor possible insurer price gouging:
The provision, Section 104 of the House bill, would make $1 billion available to states in order to monitor possible insurer price gouging during the transition to health reform. The idea, in a nutshell, is to provide states with resources to review premium increases in the next few years--and to make recommendations on whether or not price gouging has occurred.
Then he follows up with how conditions should be placed on that $1 billion sent to the states:
States vary greatly in quality of insurance regulation and, in many cases, they just aren’t very effective. (It's even more true in times of tight budgets, like these.) A 2008 Congressional hearing and a recent Robert Wood Johnson Foundation paper that I co-authored show that insurers can still conduct illegal rescissions, even ten years after federal law set clear limitations on such practices. At a 2009 hearing, major insurers said that they do not follow federal standards and instead follow state laws that offer weaker consumer protections. All too often, state regulators lack basic market information to even identify if there is a problem for consumers.
With the $1 billion in funding the House bill makes available, states can--and must--do more than just make recommendations on price gouging. As a condition for accepting funding, the federal government should require states to:
1. Audit insurers to prove that they follow federal consumer protection standards,
2. Support consumer education on insurance rights and how those rules are changing,
3. Review the math on insurer medical loss ratios and premium calculations, and
4. Build needed systems to coordinate regulations with the new exchanges.
If adding those requirements is too big a lift at this stage in the legislative process, lawmakers should at least strengthen the existing House language in a couple of ways. For example, the law should provide a definition of "price gouging" and establish penalties for it, exlcuding insurers from the exchanges altogether if they are guilty of it. (Few state regulators will have the tenacity to do this on their own.) And to make sure that states act, the feds should consider a stick to go with their $1 billion carrot--for example, limiting state Medicaid payments to states that fail to take steps on insurance regulation.
I think Harbage's recommendations are good ones, and hopefully, they'll be incorporated into the final conference report.
Now, the argument for the national exchange over state-based exchanges as shown by several health policy analysts:
Jonathan Cohn
Although expert opinion on this issue is not quite unanimous, the overwhelming majority of people I've consulted favor the House version. And I think they make a persuasive case.
Among the more compelling reasons to support a national exchange is a fear that individual states won't manage their exchanges aggressively enough--either because the people put in charge lack the expertise or the political officials overseeing them are in the pockets of the health care industry. (Believe it or not, industry lobbyists frequently have even more sway at the state level.) In addition, exchanges will likely be responsible for administering subsidies to people who need help buying insurance. But the subsidies will be coming from the federal government, which means states won't have as much incentive to manage the use of those subsidies wisely.
Igor Volksy's chart summarizing benefits of the national exchange and state-based exchanges:
Ezra Klein
The single biggest weakness in the Senate bill is its reliance on states to implement the exchanges. No one likes being told what to do, and the states are no exception when it comes to federal mandates.
The federal government should implement the law in a uniform way and relieve the states of the burden of setting up whole new insurance markets and regulatory structures--unless they choose to and demonstrate their ability to--as the House bill provides. And, we need the will, skill, resources and power of the federal government to ensure that the insurers behave. History and experience suggest the states will almost always be outgunned by the insurers. The states should hold complementary regulatory authority over the insurers and also have the right to innovate and improve the insurance market.
Rep. John Garamendi, who was the former state insurance commissioner for the State of California, appeared on a conference call with Health Care for America Now! to illustrate the reasons why the national exchange would be better than state-based exchanges:
As California Congressional Representative John Garamendi told reporters today, "Under health reform, 30 million people will buy their insurance through the Exchanges. I spent years as insurance commissioner in California, chasing after the insurance company scoundrels. You're going to toss 30 million Americans to these sharks unless there is a real strong regulatory environment [like the House's Exchanges] and public option."
Strong language from Garamendi? Perhaps, but he has every valid reason to oppose state-based exchanges given his own personal experiences, and this bit of news that shows why even a major state like California has had problems in going after private insurers:
Even state regulators have trouble appealing decisions by private insurers and going after them as David Dayden reports here:
The California Department of Managed Care has been going after rescissions in California for several years. They have put together lawsuits, distributed fines, et al. In one case, they fined Blue Cross of California $1 million dollars for rescinding patients. Blue Cross just didn’t pay it. And the Department of Managed Care decided not to sue them over it, BECAUSE THEY KNEW THEY WOULD BE OUTGUNNED IN COURT.
California regulators admitted Thursday that for more than a year they didn’t even try to enforce a million-dollar fine against health insurer Anthem Blue Cross because it feared they would be outgunned in court.
In early 2007, the Department of Managed Health Care pledged to fine the state’s largest insurer for "routinely rescinding health insurance policies in violation of state law." But they never did.
The department’s director, Cindy Ehnes, told The Associated Press on Thursday that, when it comes to rescissions, the agency has had success in forcing smaller insurers to reinstate illegally canceled policies and pay fines, but Blue Cross is too powerful to take on.
"In each and every one of those rescissions, (Blue Cross has) the right to contest each, and that could tie us up in court forever," Ehnes said of the approximately 1,770 Blue Cross rescissions between Jan. 1, 2004, and now.
"They have the largest number of rescissions, so as a practical matter for the department it does present some practical challenges that are different from a Health Net (of California) or a PacifiCare," referring to providers who, along with Kaiser Permanente, have made settlements with the state to reinstate health care coverage.
The bigger the company, with the more rescissions, the less likely it is for regulations to be effective.
Incidentally, when the Department of Managed Care finally did take one of these rescission cases to court, in May of this year, they lost it. And they lost it because the plaintiffs made an agreed settlement with the insurance company, rather than prolong a trial they may have lost. In that settlement they basically stipulated that Blue Shield, the insurer in this case, was correct to rescind their policy.
In all, the couple made 11 stipulations that represent an abrupt reversal in the position that they had maintained since Blue Shield rescinded their coverage after a 2001 car accident that led to many medical bills.
Now, keep in mind with all of this that California’s Dept. of Managed Care is the biggest entity enforcing insurance regulation in the entire country, both before and after this bill. They oversee 21 million enrollees in the state. They haven’t lost every attempt to regulate the industry – but they haven’t won all of them, either. And meanwhile illegal rescissions still occur routinely in the state of California.
And in many of these states, state insurance commissioners, who would be in charge of overseeing the state-based exchanges, often come from the private insurance industry market so it illustrates the problem of regulatory capture. It's also what Wendell Potter, the whistleblower on private insurers, says:
Insurance companies have long decried what they call the "patchwork" of the state regulatory system, but they've benefited mightily from that patchwork. They've developed cozy relationships with insurance commissioners and their staffs in some states. And they've been able to market insurance plans that shift costs to consumers. For example, one state gave permission for a insurance company to sell a plan that had a $20,000 annual deductible - essentially junk insurance.
This is why I prefer the national exchange over that of state-based exchanges, and if the national exchange does make it into the final conference report along with the anti-trust exemption, which it seems it might judging from the AP report about President Obama indicating support for the national exchange and the anti-trust exemption, then that would be a good thing in terms of consumer protections and governmental oversight of the private insurance marketplace.