Lester Feder: Generally speaking, what do you think of what it is looking like we’re going to get out of Congress?
John V. Jacobi: I think that there are two big clusters of issues: one is covering the uninsured, which has gotten most of the attention, for good reason. The other issues, which I’ve been most concerned about is access for the most vulnerable: people with chronic illness and disabilities. On the first part it’s anybody’s guess on how well we’re going to do at covering the uninsured. On the second part, there are lots of interesting structural pieces in the bills that will help people with chronic illness, but I think that the overall structure of the reform may end up undercutting that quite a bit.
The pieces in the bills that are helpful are the ones that create medical homes, or chronic care management, or assure coordination of care for people with chronic illness. It is the sort of change that our delivery system and our finance system really need to be looking at. The problem with getting those innovations to actually work is that much of the coverage under the plans for the chronically ill will be provided through the private marketplace.
And here’s the problem with that: Private insurance companies are more or less profitable depending on the risks that they accept. They are much more likely to be profitable if they are good at risk selection than if they are efficient and provide good service in other ways. There is such a dramatic concentration of cost in any actuarial pool that if an insurance company can avoid the 10 percent of the sickest people it is going to be doing quite well, whether it’s good or bad at delivering its services. And the ones that attract those 10 percent of the sickest are going to be in trouble unless there’s quite a good risk-adjustment program for premiums, which doesn’t seem to be available yet.
Lester Feder: But isn’t the idea that through the market reforms, prohibiting underwriting and underwriting restricting the rating structure, you force the insurance companies to compete on efficiency and what they’re paying out to providers, instead of competing on what pool they’re getting?
John V. Jacobi: That’s the idea. But although the insurance companies then will have to accept all comers and will have to abide by the general rate structures and benefit structures that are laid out in the bills, they don’t have to do it well.
Let me give you an example: When New Jersey created a Medicaidmanaged care insurance program in the ‘90s, there was a county in which I think about four or five private insurance plans were competing for the Medicaid business. At that time, New Jersey had quite a large population of pediatric AIDS patients who were lucky enough to have an excellent pediatric AIDS specialist in Newark. None of the insurance companies signed him up. While he would have provided the best medical care for pediatric AIDS patients, he would have attracted them all, so anybody who signed him up would be a sick-kid magnet. They each did have an “infectious disease specialist,” however, so they could still check off the box in their contract. But the kids lost access to the really great doctor.
Lester Feder: Are there other backdoor ways for risk selection that the bill leaves open?
John V. Jacobi: In the old days, the plans recruited at health clubs and developed all sorts of pretty overt things that HHS cracked down on. But I actually think the biggest problem is the follow-through. If they don’t want to provide chronic care and care management for people with chronic illnesses, they won’t do it well.
Then people with chronic illness will have the entitlement on a piece of paper to excellent chronic care management services, but if no private plan is interested in doing it well, it won’t be done well. I think that’s where we’ve missed out without a public plan.
Lester Feder: Is there a legal remedy that could address this concern, or is it inherently hard to fix?
John V. Jacobi: I think that it is possible to do that, but I am afraid that insurance regulators have a relatively poor track record. The House bill leaves a lot of the regulatory authority with the federal government. The Senate bill splits it. States departments of insurance have some authority. State departments are closer to the actual activities we’re concerned about, and would presumably be able to determine whether this sort of dodging of the most vulnerable is really going on, and presumably address it. If they’re going to be aggressive, I think, that’s great. In some states, however, the departments of insurance haven’t been as aggressive as they ought to be in protecting consumers and have allowed insurance companies to continue with their biz as long as they are acting in a roughly customary fashion for insurance companies, which is to risk-select. So having tough fed oversight is absolutely essential.
Lester Feder: Do the bills as they are now give the necessary authority to the regulatory agencies?
John V. Jacobi: It’s hard to say. Let’s be candid here: Most of the people that I’m talking about have public insurance. So to the extent that those people are covered by Medicare or Medicaid or both, the problem I’m raising is one of direct public management of a program. That means that HHS and state Medicaid agencies to the extent that they have private plan partners, that those private partners do their job. The bigger problem is in the exchange in the private marketplace. Both bills provide the authority to oversee the private insurance industry. I think the House bill does a better job of it. I’m a little concerned with the way the Senate bill does it.